World Cup activity helping pump up GDP growth to 5%
December 6, 2006
The International Monetary Fund (IMF) projects a five percent growth in GDP for Guyana for 2006 comparing favourably with about a four and three quarter per cent growth in GDP for countries in the Latin American and Caribbean (LAC) region for this year.
According to Senior Advisor in the Western Hemisphere Department of the IMF, Christopher Towe, the growth in the GDP of the LAC region, particularly in Guyana and the Eastern Caribbean is due to recovery from natural disasters and to the rise in activities in the construction industry as some countries prepare to host Cricket World Cup 2007. It is also due to the remittances from abroad.
The natural disasters were, in Guyana's case the 2005 floods and hurricanes in other Caribbean countries. Tourism-based economies were also recovering from the terrorists attacks of September 11, 2001.
Growth in the GDP of regional economies, he said has been the most vigorous over the past three years, which has not been seen since the 1970's.
While he said that Guyana's GDP is expected to pick up in 2006 to about five percent, he was being "very careful" when referring to the numbers for Guyana and the Caribbean as the projections predate some of the analysis now ongoing at the IMF.
Speaking to an audience that included Minister of Finance Ashni Singh, Minister in the Ministry of Finance, Jennifer Webster, financial specialists, members of the private sector and members of the diplomatic community at the Grand Coastal Inn, at La Ressouvenir, East Coast Demerara, Towe said that the IMF, however, projects a slowdown in the growth of the region's GDP in 2007 to about four and a quarter per cent, down by half a per cent from 2006.
He said that the growth in the entire LAC region was generally due to the easing of commodity prices which provided realistic growth and due to a recovery of larger economies, particularly, Argentina.
The largest growth is coming from Trinidad and Tobago (T&T) due to booming oil prices. Towe said that Guyana and the rest of the Caribbean, that is, with the exception of T&T, suffered a deterioration of their current account position, probably because of the diminishing of non-fuel exports but also reflecting the very significant imports of capital goods required for the Skeldon sugar modernization project.
On the other hand the current account deficits have to be financed and the good news was that for LAC countries there has been an enormous surge in remittances. In some cases this is the counter point particularly for countries, such as Guyana, that do not export heavily. There have been significant benefits accruing to countries like Guyana, having increased by over 13% of the GDP for the 2004 to 2006 period.
"This is the counterpoint of the very strong growth we are seeing in the rest of the world. Not only have the exports been improved but the remittances that are coming to the LAC region have improved considerably as well," he said adding that in some cases it is posing a challenge for monetary policy makers who have to deal with large inflows of funds coming in from abroad, putting pressure on prices. This is evident in some regions in Mexico.
However, he noted that Guyana's trade balances have actually improved over the past five years. Even though the country's exports were adversely affected by the floods and the closure of mines "all things being equal," he said, there has been an improvement in Guyana's trade balance.
Another factor influencing growth was the remarkable containment of inflation in spite of high energy prices which were not passed on to consumers. Towe said this was quite unusual as in past episodes inflation was linked to high fuel prices in developing countries. This, he said, was due to a shift from production-based economies to service-based economies. Credit, too, he said should go to monetary policy makers in the regions especially those of the larger economies.
While inflation has been largely contained in the Caribbean, he noted that there are some signs of "overheating" in the Caribbean ahead of Cricket World Cup which is something that policy makers need to watch carefully. In the Eastern Caribbean, inflation is under 4% but in the rest of the Caribbean and in Guyana we are seeing inflation between a 4% to 6% range. The exception is T&T, which is benefiting from the surge in oil prices but which is also suffering a little overheating as a result.
Generally speaking, Towe noted that the IMF would have to review its position for the long term concentrating more on the medium term as the outlook for developing countries improve. He noted that while the outlook remains positive, there are a number of important risks that would pose challenges to the developing and developed world.
This includes a slowing down of industrial production in the USA which would have an impact on the LAC economies. (Miranda La Rose)