Analysis and News

IDB Caribbean Quarterly Bulletin: Fragile Recovery for the Caribbean, Guyana the Exception

BY GEOCAP's Contributor: Kayshav Tewari

In the introduction of the IDB’s August 2021 report on the ‘Fragile Path to Recovery’ of the Caribbean region, using forecasts from the World Economic Outlook from the IMF, it was suggested that ‘it may take a number of years for countries in the Caribbean to return to pre-pandemic levels of GDP per capita… until at least 2022-4, with the notable exception of Guyana, which is experiencing an oil boom.’

Guyana’s distinction is a theme that was carried throughout the report, and one that Guyanese know all too well. However, the notion that this growth is being shouldered solely by the oil and gas sector is misguided. Guyana’s handling of the pandemic is among the most successful in the region and the Government’s expansionary monetary and fiscal policies have contributed to good growth in agriculture, non-oil mining and investment.

Debt and GDP

For most countries, the shock to growth has implied lower revenues (e.g., from taxes) and higher expenditures (e.g., stimulus measures, health and security expenditures, vaccine procurement, etc.), driving higher government financing requirements. This has translated into an increase in the numerator of the public debt ratio.

This has resulted in many Caribbean countries experiencing double-digit percentage increases in their debt-to-GDP ratios in 2020 compared to 2019 – Suriname 73 percent, Barbados, Antigua & Barbuda and St. Lucia approx. 20 percent, Trinidad and Tobago, Jamaica and Grenada approx.. 10 percent.

Once again Guyana was exceptional in that the year-on-year increase of debt-to-GDP in 2020 (relative to 2019) was just 4 percent. This, however, must be understood against a backdrop of a 43 percent increase in GDP. According to figures provided by the Ministry of Finance in the Public Debt Annual Report 2020, total public debt moved from a nominal value of 352 billion GYD in 2019 to 540 billion GYD in 2020, an increase of over 50 percent.

Yet, the higher GDP Guyana is set to experience will imply greater debt-servicing ability, and given the current COVID-19-induced economic climate, borrowing seems to be the most widely accepted way of securing the financial stability of economies. In the end, prudential debt management and expansion of capacity and output are the best ways to secure Guyana’s future.

External Indicators

Over 2010–2019, exports represented approximately 36.1 percent of GDP. However, this trend is projected to significantly change with the start of oil exports. Exports are expected to continuously increase to 71 percent of GDP in 2023 before declining to 59 percent of GDP in 2026. Oil exports are driving this growth, which is estimated to increase from 1 billion USD in 2020 to 5.5 billion USD in 2024, pushing total exports up to 8 billion USD. These increased exports are supporting a higher current account balance, which increased from -34 percent of GDP in 2019 to -13.5 percent in 2020.

High levels of foreign direct investment inflows of 33 percent and 32 percent of GDP in 2019 and 2020, respectively, were driven by commercial activities of foreign oil operators and contributed to financing the current account deficits. In fact, net FDI inflows increased from an average of 122 million USD per year in 2015-2017 to 1,580 million USD in 2018- 2020.

Positive export inflows are offset by negative labour/investment income outflows, reflecting the export earning of the largely foreign-owned oil consortium reaching 43 percent of GDP in 2023 and almost perfectly mirroring oil export earnings (See figure below).

On net, capital inflows exceeded current account outflows by 60 million USD and contributed to strengthening international reserves from 576 million USD in 2019 to 680 million USD in 2020, approximately 12 percent of GDP.

Sources: International Monetary Fund (IMF), October 2019 World Economic Outlook; Budget Speech 2021, Ministry of Finance; and IMF, Article IV Consultation, 2019.

Domestic Credit

Domestic credit has increased by 13.6 percent in 2020, lower than the 17 percent in 2019 and slowed slightly further in March 2021 to 10.5 percent. This growth is driven by the expansion of credit positions of the central government which increased by 47 percent in 2020.

Private sector credit on the other hand has slowed from a growth rate of 8.5 percent in 2019 to merely 2.5 percent in 2020. Growth peaked in April 2020 with a year-over-year growth rate of 11.2 percent before declining again in February 2021 to 1.8 percent, then slightly recovering in March to 2.4 percent.

This is so despite efforts by the Central Bank in extending debt payment schedules and reducing interest rates for certain loans. The Bank of Guyana also reduced reserve requirements, liquid asset requirements for demand deposits, and savings and time deposits, freeing up resources for loans.

Commercial banks agreed to provide short-term loans at concessional rates between 5-6 percent, lower than the prime lending rate of 10.3 percent. Commercial banks also agreed to offer general concessional reductions of interest rates of 1 percent and up to 2 percent on consumer loans below 10 million GYD (48,000 USD).

Overall, good management of the COVID-19 pandemic, healthy levels of borrowing by the government to brace the economy and fund investment, and expansion of public and private credit facilities, (however small) all combine to predict a promising future for Guyana’s immediate and medium-term.

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