NS4540 Winter Term 2019 Guyana Economy Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

Guyana Overview Country rich in natural resources yet one of the poorest nation in western hemisphere 121 out of 187 countries in the Human Development Index Per capita income US$3,748 also lowest in region and 21% below next lowest Belize Population of 747,884 mainly along the coast with the interior almost uninhabited 2002 to 2012 outmigration of 124,800 mainly to North America Severe economic crisis in late 1970s and 1980s accompanied by a rapid deterioration in public services, infrastructure and quality of life Basic consumer goods unavailable except on the black market and Real wages in steep decline

Guyana: Governance Trends

Guyana Economy I A period of rapid growth in the 1990s, followed by almost 20 years of relative stagnation After years of state-dominated economy international pressure forced country to launch in 1987 an Economic Recovery Program incorporating market-oriented reforms and liberalization Move towards an open economy continued after free elections in 1992 -- 1991-97 average annual growth reached 7% Reforms Removed most price controls reduced state’s role in economy Encouraged foreign investment Enabled country to service foreign debt and Large scale privatizations of state-owned businesses

Guyana Economy II In addition In addition to the 7% annual growth rate Laws regarding mining and petroleum exploration were improved and An investment policy receptive to foreign investment was announced. In addition to the 7% annual growth rate Inflation declined to single digits from 1995 and The currency stabilized while Fiscal and external imbalances were reduced However by 1998 the recovery was exhausted and the effects of long-run structural vulnerabilities became apparent Also Investor confidence was damaged by political disturbances following the 1997 election

Guyana Economy III Growth was also hindered by A lack of private sector activity The ongoing migration of professionals to North America Problems with the implementation of structural reforms While financial stability was broadly maintained Annual growth averaged 0.3% from 1998-2005 Economy contracted in four of these eight years In early 2005 extensive flooding in the coastal areas were most of the population live caused considerable damage Sugar and rice production was badly affected GDP contracted by 2%

Guyana Economy IV Emerging from this unpromising environment, economy made a recovery in 2006 (5.1%) and 2007 (5.4%) Guyana qualified for an additional US $189m under the Multilateral Debt Relief Initiative in 2006 Following debt relief of $585m under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative in 2003 GDP slowed to 3.1% in 2008 and averaged 4.5% 2009-12, reaching 5.2%in 2013 largely due to higher gold prices Growth slackened to 3.9% partly because of lower gold prices

Guyana Economy V Indications of structural problems became apparent Central Government’s overall financial deficit was equivalent to 5.5% of GDP in 2014 – increase from 3.5% in 2005 IMF: country needed fiscal consolidation and structural reforms to strengthen debt sustainability

Outlook I Coalition Government that took office in May 2015 faced multiple economic challenges uncertainty over international gold prices and weak outlook for bauxite, sugar and some other basic industries Country had slow growth but maintained macroeconomic stability as the result of Recent debt forgiveness as well as Continuing development assistance due to good relations with major aid donors Continuing forward commitments for grants and loan assistance from IDB, the EU and other agencies as well as from Petrocaribe

Outlook II However economic base remains narrow Four commodities make up bulk of export revenue and Gold alone providing more than 40% Situation leaves Guyana vulnerable to price fluctuations and weather-related risks Large scale mining investments appear to be on hold due to uncertain commodity prices U.S. Department of State has also noted a clear influence of drugs-transshipment on the economy – extent unclear Sugar industry has only a fair prospect for survival Ending of the EU sugar protocol and Scheduled removal in 2017 of sugar quotas from traditional importers

Outlook III For the future continuing need to address Issues of management efficiency, Transparency and Good governance. Coalition government elected in 2015 will need to address Political polarization and Lack of trust Both have severely harmed country’s ability to make progress with large-scale investment projects

Forecast I The government which has a slim one-seat majority will make little progress in unifying a divided political scene The oil discoveries in 2016 have significantly altered the country’s finances The public sector deficit will widen substantially to an average of 6.9% of GDP in 2018-19 as the government ramps up infrastructure spending Public debt levels will remain high as a result reaching 58.2% of GDP by 2019 GDP growth should accelerate modestly in 2018-19 owing to investment in gold mining new major offshore oil finds and Public spending increases

Forecast II