IMF approves US$73M poverty reduction credit for Guyana
September 17, 2002
The International Monetary Fund (IMF) has approved a US$73 million three-year credit for Guyana under its Poverty Reduction and Growth Facility (PRGF), an IMF release said.
Guyana will be able to draw down, immediately, up to US$7.3 million from the PRGF (the IMF’s concessional facility for low-income countries) based on a determination of Guyana’s Poverty Reduction Strategy Paper (PRSP), which the IMF executive board said, provided a sound basis for concessional financial assistance.
The IMF also approved additional interim assistance for Guyana under the enhanced Heavily Indebted Poor Country (HIPC) initiative of US$4.5 million to help Guyana meet its debt service payments on its existing debt to the IMF.
Following the executive board’s discussion on Guyana, Deputy Managing Director and acting Chairman of the Executive Board, Eduardo Aninat, commended the authorities in Guyana for completing the PRSP, which was prepared through a participatory process involving civil society and the donor community.
Aninat noted that the PRSP laid out Guyana’s poverty reduction strategy, and provided a good basis for guiding current and future macro-economic programmes.
The completion of the PRSP fulfilled one of the prerequisites of the completion point under the enhanced HIPC initiative, which, he said “with satisfactory progress should be expected to be reached next year.”
The objectives of the PRSP are to speed up output and employment growth in an environment of macro-economic stability, and to reduce poverty on a sustainable basis.
The policy agenda under the PRSP is ambitious, he said, pointing out that it will need to be implemented with determination in order to achieve the country’s growth and poverty-reduction objectives. In this regard, Guyana’s commitment to the objectives embedded in the PRSP and the progress made recently in policy implementation were encouraging, he said.
He noted that government’s fiscal programme aimed 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 PRSP includes a reform of the tax system and will promote revenue stability and economic efficiency.
However, he said, it was 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, he noted that meeting the fiscal objectives would require restrained public sector wage growth and prudent debt management.
Monetary incomes and financial policies under the PRSP aim to preserve low inflation, while continuing to strengthen the financial sector and its supervision. In this regard, he said, success in maintaining low inflation will help to relieve the adjustment burden felt particularly by the poor and promote private sector growth.
The structural agenda in the PRSP, he noted, envisaged reform that was 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 noted that it included a comprehensive modernisation plan for the sugar sector, steps to make public procurement and public investment more efficient, strengthening of budgetary and expenditure management systems, and a public sector modernisation programme. Another key element, he noted, was the restructuring and privatisation of the state-owned commercial bank, the Guyana National Cooperative Bank.
Determined action in all the areas mentioned and in institutional strengthening, he said, would be essential for securing Guyana’s long-term growth potential.
In its release, the IMF noted that in the context of economic stabilisation and structural reform programmes, actions taken since the late 1980s in the fiscal, monetary, exchange rate and structural areas lowered inflation, led to a sharp increase in output in 1993 to 1997 and a substantial reduction in poverty.
However, the initial gains from stabilisation and the first set of structural reforms have largely been exhausted.
Since 1998, the release stated, per capita output has declined as a result of adverse movements in terms of trade, real appreciation of the currency and a slowdown in the implementation of critical structural reforms.
In 2001, real GDP was estimated to have increased by 1.4%, after contracting the previous year.
The new PRGF arrangement has been requested by the Guyana government in support of the PRSP, which builds on the adjustment and reform momentum exhibited since mid-2001.