IMF issues favourable Economic Report Card for Guyana

Oct 02, 2022 News

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==The Social Edge==

 – urges authorities to do public expenditure review to assess efficiency of spending
– says weaknesses in procurement must be unaddressed

By Kiana Wilburg

Kaieteur News – Following the conclusion of its 2022 ‘Article IV’ Mission with Guyana, the International Monetary Fund (IMF) released a detailed report last week which captures its findings on the economic health of the nation as well as the Government’s response to key matters.

In this weekend’s installment of The Social Edge, we highlight the main points raised by the financial institution and its advice to the administration.

Setting the stage with the outlook for the hydrocarbon industry, the Fund highlighted that oil production has increased significantly and has the potential to transform profoundly, Guyana’s economy. It noted that oil production increased by 57 percent in 2021 to 110,000 barrels of oil per day (bpd). With the coming on stream of three additional fields—Liza-2 (February 2022), Payara (end-2023) and Yellowtail (2025)—it said oil production is projected to reach at the very least, 720,000 bpd by 2026.

Furthermore, as ExxonMobil and partners continue their aggressive exploration campaigns offshore, the IMF said Guyana’s commercially recoverable petroleum reserves might reach over 11 billion barrels, thereby making it the third largest in Latin America and the Caribbean and one of the highest levels per capita in the world.

As for Guyana’s medium-term outlook, the Fund said this is very favorable, with increasing oil production having the potential to transform profoundly Guyana’s economy.

With respect to the non-oil Gross Domestic Product (GDP), the Fund said growth is expected to rebound strongly in 2022 due to the recovery of sugar and rice production from the floods and positive spillovers from the oil sector.

Over the medium term, it said non-oil GDP growth is expected to average 5 percent per year and inflation is expected to reach around 3.5 percent owing to more stable projected international food and fuel prices.

Turning its attention to oil GDP, it said this is expected to grow over 100 percent in 2022, with the coming on stream of Liza-2, and to grow by about 30 percent on average per year during 2023–26.

In light of the foregoing, the Fund said it is clear that further oil discoveries and production could significantly improve Guyana’s long-term economic prospects. In fact, it went further to state that “medium-term growth prospects are better than ever before.”

As regards the Natural Resource Fund (NRF) law, the IMF said it was pleased to see that this was strengthened by the administration. It said the recent amendments set clear and simple ceilings on withdrawals from the account for budgetary spending.

Even with those positives in place, the IMF said its central criticism was that amendments to the NRF Act do not provide an effective fiscal anchor. In other words, it does not outline how exactly the oil revenues would be used to strengthen the resilience of the economy against external shocks. The IMF said too that Guyana still lacks a medium-term fiscal framework.

The financial institution said the experience of other oil-producing countries shows that the absence of such a framework, in which annual budgets are developed within a medium-term framework, anchored in clear targets, has resulted in major macroeconomic imbalances.

Importantly, the lending agency said the transfer rules governing the oil account need to ensure that transfers to the budget are optimally set to ensure intergenerational equity and long-term sustainability. The organisation with 190 member states said this would also allow a sufficient build-up of savings in the NRF for Guyana to be able to reap the full benefits of its natural resource wealth.

Additionally, the IMF said it is critical that Guyana ensures prudent spending of its oil revenues. Towards this end, it stated that capacity weaknesses in the management of public investment must be tackled simultaneously with the strategy to close infrastructure gaps and development needs.  Further, the IMF said the 2017 Public Investment Management Assessment (PIMA) report on Guyana had highlighted weaknesses in the planning, budgeting, appraisal, selection, procurement, and implementation of capital projects. The financial institution said, these ought to be rectified soonest as spending and production ramp up.

Staff at the organisation also urged the authorities to undertake a public expenditure review to assess the efficiency and effectiveness of public spending.

ANTI-CORRUPTION FRAMEWORK

IMF Staff was keen to commend the authorities’ progress in strengthening Guyana’s anti-corruption framework and fiscal transparency. They said several pillars of the anticorruption framework have been recently strengthened, including the Integrity and Public Procurement Commissions and the National Procurement and Tender Administration Board.

It said too that audit reports of public expenditures, including for COVID-19, are published, and their recommendations are followed up on. Further, the IMF highlighted that asset declarations of a large number of public officials are submitted annually, and public procurement tenders are streamed live.

It also thought it prudent to note that the authorities made progress in implementing the recommendations of the 2019 and 2021 Extractive Industries Transparency Initiative (EITI) reports, notably on the reconciliation with the fiscal regime.

Also, it was noted that some progress has also been made on information sharing and publication of extractive industries’ financial statements, and the authorities are strengthening capacity to address remaining gaps, including in moving towards electronic disclosure and adequate follow-up.

GOVT.’S RESPONSE

Guyanese authorities in response to the IMF have said they are strongly committed to fiscal prudence, while meeting critical developmental needs. The Government agreed that there is a need to monitor how sums of money are transferred and spent from the NRF. The authorities contended however, that the new framework strengthens the fiscal prudence that ought to be executed. Moreover, it said the new legislation will ensure that scaling up public investment to address Guyana’s infrastructure and human development needs is rapid and feasible, without generating macroeconomic imbalances.

Consistent with the amended NRF Act, the administration said it is committed to conducting periodic reviews of the oil transfer rule, which would be helpful in ensuring the long-term sustainability of the NRF and intergenerational equity.

Furthermore, Government was keen to note that Guyana is in the midst of an energy boom after the discovery and production of oil and natural gas. It said the rapid growth in the energy sector is impacting the rest of the economy and propelling a major economic transformation.

They said too that foreign oil and gas companies operating in Guyana have raised their long-term production forecasts, which will help to attract new capital investment and lift the growth outlook to a double-digit expansion for at least the next five years.

The Guyanese Government promised that it will continue to leverage on the experiences of other resource-rich countries. The authorities said they are well aware of the unique challenges associated to oil, mining and gas extraction, and are fully committed to make policy decisions that help avoid some of the mishaps while maximising the benefits. In that vein, the authorities said they plan to boost investment in education, health, and infrastructure to help ensure the general population profit from the country’s expected economic growth. In addition, they said they have put in place local-content policies to facilitate that local businesses are able to benefit from the energy sector development.

ABOUT THE ARTICLE IV MISSION

When a country joins the IMF, it agrees to subject its economic and financial policies to the scrutiny of the international community. It also makes a commitment to pursue policies that are conducive to orderly economic growth and reasonable price stability, to avoid manipulating exchange rates for unfair competitive advantage, and to provide the IMF with data about its economy. The IMF’s regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. This process is known as surveillance.

Country surveillance is an ongoing process that culminates in regular (usually annual) comprehensive consultations with individual member countries, with discussions in between as needed. The consultations are known as ‘Article IV consultations’ because they are required by Article IV of the IMF’s Articles of Agreement.

During an ‘Article IV consultation’ an IMF team of economists visits a country to assess economic and financial developments and discuss the country’s economic and financial policies with Government and Central Bank officials. IMF staff missions also often meet with Parliamentarians and representatives of business, labour unions, and civil society.

The team reports its findings to IMF management and then presents them for discussion to the Executive Board, which represents all of the IMF’s member countries. A summary of the Board’s views is subsequently transmitted to the country’s Government. In this way, the views of the global community and the lessons of international experience are brought to bear on national policies. Summaries of most discussions are released in Press Releases and are posted on the IMF’s website, as are most of the country reports prepared by the staff.

 

 

 

 

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