IMF report: Growth projected at 3.5% in 2017

Jun 29, 2017 News

Non-performing loans rise to 12.9%

The IMF team meeting with executives of the Private Sector Commission during their assessment visit, earlier this year.

On May 24, 2017, the Executive Board of the International Monetary Fund (IMF) concluded Article IV consultation with Guyana, with the institution highlighting non-performing loans and delays in capital expenditure as areas of concerns.

In a statement yesterday, the body noted that based on the visit back in March, it found that real economic activity expanded by 3.3 percent in 2016.

“Subdued agricultural commodity prices, adverse weather and delays in public investment weighed down on activity, while large increases in gold output helped support growth. Consumer prices increased by 1.5 percent in the twelve months ending in December 2016, as weather-related shocks to food prices reversed the deflationary trend.”

The overall non-financial public sector deficit widened to 2.9 percent of GDP in 2016 from 0.2 percent in 2015.

“Despite slower-than-expected economic growth, fiscal revenue increased owing to improvements in tax administration and higher mining royalties. Total expenditure increased by 2.8 percentage points of GDP, but the increase was lower than budgeted due to delays in capital expenditure. The current account moved from a 5.7 percent of GDP deficit in 2015 to a 0.4 percent surplus in 2016, driven by the large increase in gold exports and improved terms of trade. Gross international reserves stood at 3.6 months of import at end-2016.”

The IMF said that bank capital adequacy ratios appear comfortable (averaging 25.4 percent as of end-2016).

“But non-performing loans remain high, at 12.9 percent of total loans at end-2016 from 11.5 percent at end-2015 and provisioning remains very low (45.8 percent at end-2016). Progress in strengthening the financial stability framework was assessed in detail during this Article IV consultation as part of the IMF’s Financial Sector Assessment Program (FSAP), which analyzes financial sector soundness and associated policies.”

The worry over the non-performing loans would come at a time when the housing market has contracted, with the number of delinquent mortgages rising.

According to the IMF, the macroeconomic outlook is positive for 2017 and the medium-term. “Growth is projected at 3.5 percent in 2017, supported by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production. Twelve-month inflation is expected to remain low at around 2.6 percent by year-end. The fiscal deficit is projected to widen to 7.2 percent of GDP in 2017, due in part to delayed capital spending from 2016.”

Tax revenue is projected to remain stable at about 21.5 percent of GDP.
The IMF statement, in its Executive Board Assessment of the Guyana situation, said that its Executive Directors broadly agreed with the thrust of the staff appraisal.

“They welcomed Guyana’s continued economic growth, the improvement in its external position, and its positive medium‑term outlook, which is supported by the expected start of oil production in 2020. Noting that the economy is vulnerable to external shocks and domestic challenges remain, Directors underscored the importance of preserving macroeconomic and financial stability while making growth more broad‑based and inclusive.”

The IMF statement said the Directors concurred that issuance of longer‑term domestic debt instruments could provide a stable source of financing, be used to settle the government’s negative balance at the central bank, and help develop domestic capital markets.

“They cautioned, however, that a significant increase in domestic debt could drive up borrowing costs. In this regard, Directors commended the authorities for continuing to refrain from non‑concessional external borrowing.

Regarding Guyana’s ongoing negotiations with bilateral non‑Paris Club creditors, a few Directors reiterated the importance of preserving comparability of treatment across official bilateral creditors.”

It is expected that the next Article IV consultation with Guyana will take place on the standard 12‑month cycle, the IMF disclosed. The body has been sending teams over the years to conduct independent assessments of the situation in Guyana.