The recent International Monetary Fund (IMF) mission which visited Guyana for the Article IV Consultation
Finance Minister Winston Jordan
has cautioned the government over the growing number of non-performing loans, the increase in public expenditure and the need for moderating the growth of public sector wages.
This warning came after an IMF mission, led by Marcos Chamon, was in Guyana between February 24 and March 7, 2016, for discussions with authorities here on the 2016 Article IV Consultation.
The team met with Finance Minister Winston Jordan, Public Infrastructure Minister David Patterson, Natural Resources Minister Raphael Trotman, Central Bank Governor Gobind Ganga, Opposition Leader Bharrat Jagdeo, representatives from the private sector, labour unions, and other stakeholders.
“Banks remain well capitalised, but heightened vigilance is warranted due to increases in nonperforming loans,” the IMF said in a statement on its website.
The IMF said it also welcomes the recent changes to credit reporting legislation and the authorities are encouraged to continue to strengthen financial sector supervision.
It said the mission suggested tightening, provisioning requirements; large exposure limits restrictions on related lending; and loan classification rules.
“In addition, the stress testing toolkit could be expanded to include shocks to loan collateral values and also take into account inter-linkages among economic sectors, borrowers, and financial entities,” it stated.
A Financial Sector Assessment Programme mission from the IMF will visit Guyana in May to provide “a more granular analysis of financial sector challenges” and assist with strengthening the prudential toolkit.
Shadow Opposition Finance Minister Irfaan Ali in November 2015 warned that hundreds of Guyanese, many of them businessmen were on the verge of losing their properties as a result of inability to pay their mortgages, as the local economy continued to flounder.
Ali said based on data in his possession of his own investigations from many financial institutions, non-performing loans or loans where the borrower failed to pay instalment for three months, have increased by 69.7 per cent in 2015 and continues to skyrocket.
“The non-performing loans moving from $8.8 billion to $20 billion, and as I said that was the half-year figure of the Bank of Guyana and over the last quarter it has not improved; it has deteriorated further. Some institutions would have been setting aside resources in excess of 100 per cent of that of 2014 for bad debt. These are the numbers we are having and that is a serious indication as to what is coming out of the financial sector and the banks themselves. So from the macro side, those are some of the numbers that present a worrying trend for us,” Ali told a news conference then.
Ali had said that rising unemployment, crises in the rice and sugar industries, as well as a dry-up of investments were some of the factors responsible for the high number of non-performing loans.
Meanwhile, the IMF warned that the increasing current expenditure of the government will crowd out space for public investment, despite significant donor support.
“The mission suggested moderating the growth of wages, as well as reforming public enterprises with a view to reduce their reliance on government support…Containing current expenditure would provide additional space for public investment while preserving debt sustainability,” the mission warned.
It said while the improved financial performance of Guyana Power and Light and the reforms proposed by the Commission of Inquiry for the Guyana Sugar Corporation are welcomed, the scope and pace of reform should take into account social implications.
The IMF said the Guyanese economy remains resilient and continues to grow despite significant global headwinds. The government of Guyana projects 4.4 per cent growth in 2016, but the IMF said it is likely to grow by 4.0 per cent.
“Boosting private sector confidence is key for growth momentum,” it said, while commending the government for maintaining macroeconomic stability.
The mission said that lower oil prices that reduced the cost of fuel imports has helped to offset the impact of lower commodity export prices. It also noted that the exchange rate has remained broadly stable due to offsetting positive and negative external shocks.
“Nevertheless, Guyana remains vulnerable to movements in commodity prices due to dependence on imported oil and the concentration of exports on a few commodities. The mission noted that exchange rate flexibility would continue to facilitate adjustment to external developments, mitigate their effect on growth, and safeguard reserves,” it stated
The IMF says the government has an “ambitious” investment strategy which could see improvements in transportation and telecommunication infrastructure and renewable energy projects to boost productivity, integrate remote regions, facilitate economic diversification, and ease key impediments to growth which should stimulate the economy..
It added that domestic financing may crowd out credit to the private sector and raise interest rates. It added that the country’s monetary policy stance should remain accommodative.
The mission added that while the government has taken steps towards strengthening the Anti-Money Laundering and Combating the Financing of Terrorism framework, the authorities should address remaining deficiencies promptly.
“The authorities are urged to accelerate the implementation of the action plan agreed with the Financial Action Task Force,” it stated.
The IMF executive board is expected to discuss Guyana’s Article IV Consultation in May 2016.