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A press release from the IMF said the Executive Board determined that Guyana's Poverty Reduction Strategy Paper (PRSP) "provides a sound basis for Fund concessional financial assistance."
"As a result, Guyana will be able to draw immediately up to SDR 5.55 million (about US$7.3M) from the credit", the IMF said.
The IMF Executive Board also approved additional interim assistance for Guyana under the enhanced Heavily Indebted Poor Country Initiative (HIPC) of SDR 4.13 million (about US$5.4M) to help Guyana meet its debt service payments on its existing debt to the Fund, the release said.
The PRGF is the IMF's concessional facility for low income countries. It is intended that PRGF-supported programmes will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a PRSP.
According to the release, this is to ensure that each PRGF-supported programme is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.
PRGF loans carry an annual interest rate of 0.5 per cent and are repayable over 10 years with a 5 1/2-year grace period on principal payments.
Following the Executive Board's discussion on Guyana, Mr. Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:
"The authorities are to be commended for completing a comprehensive Poverty Reduction Strategy Paper (PRSP) that was prepared through a participation process involving civil society and the donor community. The PRSP lays out Guyana's poverty-reduction strategy, and provides a good basis for guiding current and future macroeconomic programs.
"The authorities are encouraged to use the PRSP as a vehicle for enhanced dialogue between officials and civil society in order to build and strengthen the broad consensus on reforms that will be needed going forward. The completion of the PRSP fulfils one of the prerequisites of the completion point under the enhanced HIPC Initiative, which with satisfactory progress should be expected to be reached next year."
He explained that the three-year programme being supported under the PRGF is based on the PRSP.
The programme's objectives are to speed up output and employment growth in an environment of macroeconomic stability, and to reduce poverty on a sustainable basis.
To achieve these goals, the scheme includes a mix of sound fiscal, monetary, and incomes policies, combined with structural reforms, governance strengthening measures, and social programmes, Aninat said.
He said the policy agenda under the authorities' programme is ambitious, "and will need to be implemented with determination in order to achieve Guyana's growth and poverty-reduction objectives."
"In this regard, the authorities' commitment to the objectives embedded in the PRSP and the progress made recently in policy implementation are encouraging", Aninat said.
He explained that the authorities' fiscal programme aims to improve public sector savings and place the public debt burden on a downward path, while at the same time making room for increased expenditure on poverty-reducing programmes and critical investments in the sugar industry.
To achieve these goals, the programme includes a reform of the tax system that will promote revenue stability and economic efficiency, he said.
"It is essential that these reforms broaden the tax base, reduce high marginal tax rates, improve the equity and predictability of the tax system, and strengthen tax and customs administration. In addition, meeting the fiscal objectives will require restrained public sector wage growth, and prudent debt management", he said.
He explained further that monetary, incomes and financial policies under the programme aim to preserve low inflation, while continuing to strengthen the financial sector and its supervision.
In this regard, success in maintaining low inflation will help to relieve the adjustment burden felt particularly by the poor and promote private sector growth, according to the IMF official.
"The structural agenda in the program envisages reforms that are critical for raising the economy's long-run growth potential, reducing poverty, improving governance and public sector efficiency, and promoting a stable and equitable environment for private sector activity", he said.
The programme includes a comprehensive modernisation plan for the sugar sector, steps to make public procurement and public investment more efficient, strengthening budgetary and expenditure management systems, and a public sector modernization scheme.
Aninat said another key element of the reform agenda is the restructuring and privatisation of the state-owned commercial bank.
"Determined action in all these areas, as well as in institutional strengthening, will be essential for securing Guyana's long-term growth potential", he said.
"The Executive Board endorsed Guyana's PRSP as a sound basis for Fund concessional financial assistance and approved a new three-year PRGF arrangement.
"It also agreed to Guyana's request for additional interim relief under the enhanced HIPC Initiative," Aninat said.
The IMF said real GDP is estimated to have increased by 1.4 per cent in 2001 after contracting in the previous year.
It noted that the PRSP envisages a gradual increase of output growth over the medium term as the implementation of structural reforms begins to impact positively on productivity and competitiveness. The prime sectors of growth are expected to be agriculture, mining and construction, and related services.
Real GDP is projected to increase gradually over 2002-06, rising from 1.8 per cent of GDP in 2002 to 4.2 per cent in 2006. Inflation is expected to remain in the low single digits over the medium term. The external current account deficit is expected to increase in 2003-4 to about 24 per cent of GDP, reflecting temporally higher concessionally financed public investment spending associated with the restructuring of the state-owned Guyana Sugar Company Ltd. (GUYSUCO).
The nonfinancial public sector (NFPS) deficit, after grants, is expected to widen from 7.5 per cent of GDP in 2002 to 12.2 per cent of GDP in 2004 also owing to the impact of the GUYSUCO project, while gross international reserves should stay at comfortable levels of close to four months of imports.
The IMF noted that the Guyana authorities are committed to efforts to raise public savings and improve the efficiency and governance of public services and of capital spending in order to raise the economy's long run growth potential and reduce poverty. In this context, a prudent public sector wage policy will be followed, and government procurement and investment practices, and budgetary and expenditure management will be reformed.
Public capital investment will focus on modernising the key sugar sector and implementing growth-oriented poverty-reducing projects financed with external support, including relief under the HIPC Initiative for external debt service.
Structural reforms in the financial and tax systems will seek to improve efficiency and encourage private investment. Measures envisaged should broaden the tax base, reduce high marginal tax rates and improve administration.
Efforts will also be made to restructure publicly owned bauxite companies, freeing up resources for poverty reduction, the Fund said.