The International Monetary Fund on Friday completed its first review of Guyana’s economic performance under the current programme, a key hurdle for further debt relief which would be achievable in October if the government keeps on track with its targets.

The recent tax reform initiative was crucial for Guyana to secure completion of its first review, basically an endorsement by the IMF of the policies being pursued by the government. Should the government continue in this vein, it could secure US$498M in additional debt relief from international creditors under the enhanced Heavily Indebted Poor Countries Initiative (E-HIPC) in October.

An IMF statement said the completion of the first review for Guyana releases a further US$8.2M from the US$75M facility available under Guyana’s current three-year Poverty Reduction and Growth Facility (PRGF). The IMF has also approved further interim assistance of US$7M under E-HIPC to help Guyana meet its debt service payments on its existing debt to the IMF.

The IMF also granted Guyana’s request for a six-month extension on the life of the current three-year programme, which began in September 2002. The PRGFG will now expire on March 19 2006. The Fund approved Guyana’s request for waivers on its non-observance of the end-December 2002 quantitative performance criteria on the net foreign assets and net domestic assets of the Bank of Guyana, as well as the government’s structural performance criteria. Even though some of the benchmarks may have since been met, the non-observance by the pre-set timeframe requires a waiver from the IMF.

“Guyana has faced significant challenges since the start of its reform programme in September 2002, including a more difficult political and security situation. As a result private investment and growth have fallen significantly short of expectations. Implementation of key structural reforms was also delayed, with adverse effects on fiscal performance,” Austin Carsten, Deputy Managing Director and acting chairman of the IMF said in the statement.

Carsten sees the government’s current programme as being aimed at regaining the momentum in reforms.

“Most 2002 structural performance criteria were implemented as prior actions for the completion of this review, including in key areas such as public enterprise restructuring and tax reform. Corrective revenue and expenditure measures are now in place to contain the 2003 fiscal deficit to a level (10.8% of GDP) consistent with macroeconomic stability,” Carsten said.

He argues that sustained structural reforms remain a key issue for Guyana to achieve its poverty and growth objectives. He alludes to the 2003-4 tax reform agenda which focuses on strengthening tax administration in the Guyana Revenue Authority; improving public expenditure management; privatizing or restructuring loss-making state-owned bauxite entities; and implementing a profitability-oriented wage and employment policy in the sugar company, as well as strengthening financial regulation and supervision.

Having secured the first review, Guyana will need to maintain the momentum to reach the floating completion point under E-HIPC for additional debt relief.

George Bindley-Taylor, IMF resident representative in Guyana yesterday indicated that should the government keep on track with the targets, it would most likely achieve its floating-completion point in October. This will mean a further US$25M in annual debt service relief. It was earlier expected that Guyana would not be able to reach floating-completion point until December. The target dates to reach the floating- completion point have shifted over the years because of slippage in the government’s pursuit of the programme it agreed to implement with the IMF/World Bank.

Bindley-Taylor indicated that the staff of the two agencies was still working on the documentation necessary to take to the boards of the Fund and the Bank to achieve the floating-completion point. This document will set out the prior actions necessary to reach the floating-completion point, the progress made and what is expected with Guyana’s debt having reached the floating-completion point.

Bindley-Taylor indicated that it required prior circulation within these two agencies before it could be taken to their boards for consideration/approval. The circulation process is expected to take between five and seven weeks.

Guyana had to achieve a set of prior actions before its first review could have been completed. Several IMF missions visited Guyana between September 2002 and this year to determine the status with the programme.

Among the set of prior actions which had to be completed was the enactment of the Procurement Law, tabling in parliament the investment law, having the government and Guysuco agree on profitability targets with its private managers, Booker Tate, having Guysuco’s wage tribunal award increases within an acceptable range, trim Guysuco’s labour costs and agree to and move ahead with tax reforms.

For Guyana to stay on track with its programmes it has to be fiscally prudent; and on the structural side it will have to take forward a budget law to strengthen the budget framework.

This law will allow for certain types of structural changes which will see the merger of the capital and current estimates and the adoption of programme budgeting and will define clearly authorities within the government.

Another structural benchmark would be to ensure the Linden Mining Enterprise remain a cash-neutral operation apart from the social services for which the government has to pay.