With a steady flow of billions of dollars in oil revenues expected, the International Monetary Fund (IMF) is urging Guyana to implement a strict fiscal rule to rein in excess spending.
According to the IMF, Guyana is at high risk of greater macroeconomic volatility in its gross domestic product (GDP) growth, fiscal revenues, expenditure, inflation, and exchange rates, all due to an excessive dependence on oil revenues.
For that reason, it suggested a monetary policy that will carefully monitor the impact of large inflows of government revenue on the exchange rate market and inflation. This is with the view to maintaining the competitiveness of the non-oil exporting sector, it said.
This is not the first time the IMF has given Guyana such advice. Vice President Dr. Bharrat Jagdeo has said that it is a fair concern that oil revenue spending could overheat the economy. While it remains a concern, he had said that Guyana can control it with prudent management.
Questions were raised on the matter when Guyana presented a GY$552.9 billion dollar budget, backed by revenues from the Natural Resource Fund (NRF).
“It is a major concern about our capacity to implement a budget of this nature on the capital side and it could potentially drive prices up from overheating the economy,” Jagdeo said earlier this year. “But key to all of this is management throughout it. And that is why first of all, we structured the budget the way we did. The capital programmes are where the bulk of the money has gone to.”
Co-Director of Energy Practice at Americas Market Intelligence (AMI), Arthur Deakin had also weighed in on the topic. He said a front-loaded spending structure for a sovereign wealth fund is not unusual, especially for a historically underdeveloped country.
He said the percentage of annual withdrawals from the fund will gradually decline as the economy matures. He said too that better accountability mechanisms are fundamental to guarantee transparent spending, although observers should not overlook the total amount spent.