Anaemic growth forecast for next three years
Stabroek News
May 14, 2004
Economic growth projections for the 2003-7 period have been halved to 1.5% per annum even as the World Bank launches an investment climate assessment to determine the bottlenecks to private investment and growth.
The just released completion point document on Guyana on the IMF website which was prepared for enhanced HIPC debt relief in December, says the downward revision reflects the deteriorating crime and security situation since mid-2002, which has had a negative effect on private investment, growth and consumer imports. The anticipated exhaustion of ore by Omai and structural difficulties are also associated with the reduced output expected.
Long-term growth has also been revised downward by 1.5% to 2.75% per year given the absence of any new gold discoveries and a cautious assumption about developments in new expanding industries such as agro- processing.
Overall price levels are projected to stay in the low single digits in the medium term and long term because of the pursuit of sound monetary policies. Revenue intake by central government is expected to increase from the current 31% of Gross Domestic Product (GDP) to 33% in 2007 because of improvements in tax administration. However, revenues are expected to remain flat after that.
The government is forecasting domestic investment to be about 24% of GDP from 2007, and sees the need for "substantial" external official assistance and foreign direct investment over the long-term. The government is hoping that FDI flows will average seven per cent of GDP in the long run - considered high by international standards but acceptable in Guyana because of high replacement rates and capital intensity of investments. A 1.75% improvement in labour productivity is also expected as a result of structural changes and strong investment.
The current account deficit is expected to fall in the year 2022 from the high of 19% of GDP this year (because of the investment in sugar) to under 9% of GDP.
Public sector borrowing is expected to decline from 5.5% of GDP to 2.5% in the long run and borrowings are expected to be made from the multilaterals with an average interest rate of one percent and a grant element of 40%. Foreign grants amount to about 4% of GDP because of EU disbursements, but are expected to decline to 1.5%.
Guyana's overall fiscal deficit after grants will peak this year at about 10% of GDP but will decline to about 2% in 2008.
The external current account deficit will rise over the medium term, associated with Guysuco's expansion, but will decline to single digits in the long term.