Long-term real growth targeted at 4.5% per annum 2000 figure likely to be 0.5% By Miranda La Rose Stabroek News January 29, 2001 The macroeconomic assumptions underlying Guyana's debt sustainability analysis for improved debt relief target real annual growth at 4.5% on average and three per cent inflation between 2003-18. Growth in 2000 was targeted at 2.5%, but informed sources told Stabroek News that it was now expected to be around 0.5% or less when all the production figures were taken account of. Real growth this year was projected at 4.2% and at 3.3% for next year before reaching 5.3% in 2003. This is according to Guyana's decision point document for further debt relief prepared by the IMF and the World Bank. It is anticipated that economic growth would be supported through increases in private sector investment from 12.5% of GDP in 2000 to 16.5% in 2005 and to an annual average of 19.5% at the end of the projection period. Public sector investment is projected to fluctuate between this year and 2005 and is expected to average 11.5% of GDP in the long run. It is anticipated that due to the GUYSUCO modernisation project, the overall public sector deficit after grants would increase from 6.5% in 2000 to 9.5% of GDP this year before producing a small surplus in 2005. It is also expected that domestic investment would be financed in part through projected increases in national savings, including improvements in public sector savings. The external current account deficit is projected to rise temporarily, mainly as a result of capital imports associated with GUYSUCO's expansion, peaking at 22.5% of GDP in 2001. The current account deficit is then expected to decline to around 12.5% of GDP by 2005. The projection is that the unit cost of production of sugar will decline as a result of GUYSUCO's modernisation to allow the firm to compete in the free market by 2008. The IMF staff in their projection assumed that there would be a gradual erosion of the European Union's preferential market, resulting in a decline of export prices for sugar by three per cent, starting in 2002. It is also expected that a revision of the modernisation plan as a result of an ongoing review by the World Bank would realise a smaller capital outlay than was assumed in the projections. The debt sustainability analysis also assumed that GUYSUCO would borrow on a concessional basis. On the other hand, non-traditional exports are expected to be increased and there is also expected to be an improvement on the fiscal side. The current account deficit as a result, is expected to narrow to an average of less than nine per cent per annum between 2016-18 and will be covered by grants, debt relief and concessional loans which will allow the gross international reserves to be equivalent to around four months of imports. As a result, it is expected that the public sector debt (excluding enhanced relief on Cologne terms) would decline from 259.5% of GDP in 2000 to 210% by 2005 and then average 58% of GDP during 2016-18. The assumptions include interest and exchange rates reflecting market forces and broad money growing generally in line with GDP and allowing for adequate availability of bank credit to the private sector. Supervision by the Bank of Guyana is expected to be strengthened and the Guyana National Cooperative Bank privatised. The debt sustainability analysis also assumes that the government has no recourse to domestic financing and there will be a steady strengthening in public sector savings. As such, the government has committed to taking fiscal action to offset any shortfall in expected external financing to prevent domestic borrowing by the public sector. Throughout 2000-18, it is expected that the public sector's domestic indebtedness would be reduced. It was assumed that public sector savings, which were expected to decline last year, would recover rapidly in the short run but will rise at a slower pace in the long run. This is projected because of an anticipated improvement in tax administration which will see central government revenue at or above 29% of GDP through 2007. This is expected to decline to 27.5% of GDP by 2018. Current surpluses from the National Insurance Scheme and public enterprises such as GUYSUCO are expected to increase as expenditure pressures recede with the government limiting increases in real terms for most non-interest current spending. It was assumed that the wage bill increases will be held in line with projected inflation. And poverty alleviation spending is expected to accelerate this year and next year. Follow the goings-on in Guyana in Guyana Today