By Sandi Bowen

As Guyana prepares for first oil in early 2020, the International Monetary Fund (IMF) has described Guyana’s medium-term prospects as “very favourable”.

The IMF, in a press statement emanating from its recently concluded 2019 Article IV Consultation with Guyana, has projected that Guyana’s oil sector will account for around 40 percent of GDP by 2024.  The Fund has also noted that growth in the oil sector will support additional fiscal spending annually of 6.5 percent on non-oil GDP which will help to meet the country’s social and infrastructural needs. “Public debt and the external current account deficit are projected to decline steadily following the onset of oil production,” the release stated.

The Fund noted that Guyana’s economy will continue to see broad-based expansion across all major sectors as economic growth is projected at 4.4 percent in 2019. According to the release, “the current account deficit is estimated to rise to 22.7 percent of GDP on the back of higher imports related to oil production, which will be largely financed by FDI in the petroleum sector”.

The findings derived from the 2019 Article IV Consultation highlighted opportunities and challenges associated with the commencement of oil production, and the IMF recommended that policies focus on the reduction of macroeconomic vulnerabilities, addressing structural weaknesses, boosting inclusive growth, and promoting intergenerational equity. Such policies, the IMF said, will ensure the effective use of windfall revenues.

Natural Resource Fund (NRF)/ Monetary Policies

With regards to the Natural Resource Fund (NRF) legislation, the IMF commended its framework, but recommended that authorities constrain the annual non‑oil deficit to not exceed the expected transfer from the NRF. The IMF noted that this regulation “could be phased in over the next three years to allow a smooth widening of the non‑oil deficit.”

The IMF also recommended a reversion to neutral monetary policy as a means of containing potential inflationary pressure such as public spending increases, economic growth strengthens, and credit expands. Further, the Fund highlighted the need for the development of infrastructure for greater exchange rate flexibility within the monetary policy framework. Such infrastructure would help to sustain healthy economic growth, maintain price sustainability and facilitate adjustment to external shocks, the IMF said.

Transparency and Governance

The IMF noted the importance of strengthening anti-corruption frameworks to bolster investor confidence and promote growth. IMF’s Directors encouraged the authorities’ efforts to implement the recommendations of the 2019 Extractive Industries Transparency Initiative Report, citing strengthened institutional capacity as a factor in the implementation of policy actions to further strengthen governance.

Final Recommendations

The IMF, in its release, urged authorities to use the opportunities presented by oil revenues to undertake structural reforms to address skilled labour shortages, support economic diversification and achieve inclusive and equitable growth.

In order to improve the business environment, the IMF listed infrastructure bottlenecks, strengthening of the education system, and the promotion of flexible working arrangements to increase female labour participation as areas of priority.

Under Article IV of its Articles of Agreement, the IMF is mandated to exercise surveillance over the economic, financial and exchange rate policies of its members in order to ensure the effective operation of the international monetary system. To conduct an appraisal of such policies, IMF economists visit the member country to collect and analyze data and hold discussions with the relevant officials. Upon its return, the staff submits a report to the IMF’s Executive Board for discussion. The Board’s views are subsequently summarized and transmitted to the country authorities.