IMF commends Guyana on maintaining macroeconomic stability- despite external shocks and social pressure

Guyana Chronicle top story, Thursday 21 May 2009

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IMF commends Guyana on maintaining macroeconomic stability- despite external shocks and social pressure

GOVERNMENT’S prudent management of the local economy has again been recognised by the International Monetary Fund (IMF).

According to a report from the concluded Article IV consultation with Guyana, the Institution has commended Government for implementing several policy initiatives that saw the economy maintaining macroeconomic stability, achieving real growth rates and containing inflation, in spite of the global turmoil.

The consultation is part of the institution’s yearly bilateral discussions with countries to provide an assessment of policy initiatives and reports on a country’s economic progress.

Earlier this month, the World Economic Outlook, which presents the IMF’s analysis and projections of economic development, projected Guyana’s economy would grow by 2.604 percent in 2009 and by 3.448 percent in 2010.

The Article IV report stated that despite external shocks and social pressures, macroeconomic stability was preserved in 2008, which the Fund attributed to the administration for actively implementing prudent fiscal and monetary policies.

It is in this regard, the Directors commended the authorities’ commitment to further entrench macroeconomic stability, strengthen the financial system and implement structural reforms.

According to the report, the direct spillovers from the global financial crisis on the banking system have been limited so far. It noted that the banks remain well capitalised and profitable, and the financial system is sound.

Government has been making ample progress in tightening financial legislations with the passage of several significant pieces of legislation. This heightened financial supervision and oversight to limit potential contagion was supported by the institution.

The report stated that the progress being made on the financial sector reforms and on legislation to prevent money laundering and financing of terrorism was welcomed, as Government seeks to strengthen the financial sector.

Policy moves by Government in 2008, were lauded, including that of temporarily reducing the excise taxes on petroleum products as that limited the pass-through of higher international fuel prices to consumers and effectively diffused social pressures while helping to contain inflation.

They applauded the authorities for reinstating the excise taxes in recent months in light of the abatement in international oil prices, to protect the fiscal position.

The administration’s commitment to sustain the fiscal consolidation was commended by the Directors, the report stated. They agreed that a more gradual deficit reduction than previously envisaged is justified in the context of the global slowdown.

Directors hailed the progress made in the area of fiscal reforms, including the successful implementation of the Value Added Tax (VAT). However, they cautioned against a further expansion of the list of zero-rated VAT items. Despite that, they noted that the VAT is now well established.

Government also came in for high praises for ensuring a reduction in inflation rate, as the institution supported the administration’s continued vigilance and the readiness to adjust monetary policy to keep inflation low.

In addition, it was noted that exchange rates have been broadly aligned with fundamentals which have served Guyana well, as a stable exchange rate is critical to maintaining macroeconomic stability.

The report contended that Government’s plan to reduce the external current account deficit gradually over the medium-term through the growth of non-traditional exports and the development of petroleum and hydropower resources were commended.

Further structural reforms to sustain growth and make progress on poverty alleviation over the medium-term was encouraged, in addition to addressing the high cost of energy, enhancing private sector participation in the economy and to prepare an appropriate legal framework for future oil revenues, drawing on international experience.

The report highlighted that the recently concluded Berbice River Bridge, a major public-private sector partnership bodes well for increased private sector participation in the economy.

The upcoming finalisation of the Poverty Reduction Strategy Paper (PRSP) to underpin Government’s medium-term plans for poverty alleviation, and achieving the Millennium Development Goals were highly praised by the Directors.

Meanwhile, the IMF is projecting higher growth for Guyana in 2009, with a recovery in sugar output that is expected to offset a slowdown in the other sectors of the economy, while lower oil import prices would compensate for declines in commodity export prices.

Minister of Finance Dr Ashni Singh commenting on the WEO report said that the projections contained in the outlook suggest that within the halls of those who do the projections, there is the view that Guyana will continue to grow this year albeit somewhat more modestly than what it has been growing in recent years.

Guyana’s economy achieved real growth rate of 3.1 percent in 2008, following rates of 5.1 and 5.4 percent in 2006 and 2007 respectively. (GINA