- Directors commend Guyanese authorities for second consecutive year of strong real GDP growth
THE Executive Board of the International Monetary Fund (IMF) has given the Guyana government thumbs-up in its continued efforts to sustain and improve the country’s economy.

In its February 20, 2008, report on the conclusion of the Article IV consultation with Guyana, the Directors commended the Guyana authorities for a second consecutive year of strong real Gross Domestic Product (GDP) growth.

They welcomed the government’s commitment to sound macroeconomic and structural policies, as evidenced by the perseverance with adjustment and reform and the cautious use of external financing.

They also considered this commitment crucial to diversify the economy, reduce its vulnerability to commodity price and other external shocks, and achieve the Millennium Development Goals (MDGs).

Directors stressed the importance of further fiscal consolidation, prudent monetary policy, and additional structural reforms to strengthen the financial system, the business environment, and Guyana’s external competitiveness.

The IMF directors agreed that the real effective exchange rate is broadly in equilibrium and that the authorities’ macroeconomic policies are consistent with external stability.

While acknowledging that the current exchange rate regime has served Guyana well, a few Directors felt that a gradual move to a more flexible exchange rate, and in the context of a fully operational inter-bank foreign exchange market, could help buffer the economy from external shocks.

They also observed that fiscal consolidation should remain the anchor of macroeconomic stability, and welcomed the progress achieved in strengthening the public finances.

The successful implementation of the Value Added Tax (VAT) and the authorities’ resolve to preserve spending discipline were also commended by the IMF.

The directors concurred with the authorities’ decision to smooth aid-related spending, and also encouraged the authorities to continue their efforts to reach agreement with creditors that have yet to provide debt relief under the Heavily Indebted Poor Countries Initiative.

The IMF also welcomed efforts by the Government to further improve tax policy efficiency and tax administration, enhance the quality and efficiency of public expenditure, strengthen governance, and upgrade the government’s debt management capability.

The directors considered that the projected decline in inflation in 2008 is consistent with the unwinding of some of the 2007 temporary shocks.

They also welcomed the authorities’ readiness to tighten monetary policy as needed.

To improve the efficiency and transparency of monetary policy, the directors advised upgrading the Bank of Guyana’s monetary policy framework by improving liquidity management, making treasury bills negotiable, and promoting the development of the inter-bank market in line with the recent FSAP recommendations.

The IMF directors also welcomed indications that the banking sector is financially sound, but called for continuous financial sector oversight and strengthened prudential regulations to maintain financial stability, particularly in light of the growing concentration of new loans in real estate and consumption.

They emphasised that progress in key structural reforms and infrastructure upgrading is crucial to enhance external competitiveness, improve the business climate, and attract private investment.

They also stressed the importance of rehabilitating the electricity infrastructure, and welcomed the increase in electricity tariffs as well as measures to mitigate the impact on the poor.

The IMF directors also encouraged the authorities to supplement the ongoing sugar industry modernisation programme with administrative reforms, and welcomed the authorities’ efforts to diversify the sugar product and its export markets.

They also supported the authorities’ efforts to deepen customs reform, strengthen the rule of law and the judiciary, and further reduce the perception of corruption.

Government’s forthcoming Poverty Reduction Strategy Paper which will guide its medium-term expenditure plans also received a plus.

In 2007, economic performance was strong for a second consecutive year. Real GDP growth was estimated at about 5.5 percent and is projected to remain robust at 4.8 percent this year.

The current revenue is expected to grow by 1.7 percent to $81.6B and the economy is expected to grow by 4.8 percent which is expected to be broad-based and to reflect expansion in both traditional and new and emerging sectors.

The government has also projected that sugar production will increase by 8.8 percent over the 2007 output, rice production is expected to increase by 7.6 percent and the inflation rate is expected to be 6.8 percent.