IDB crafting framework for Guyana green economy

-says economic growth over last decade hasn’t lifted living standards

Stating  that economic growth here over 10 years has not resulted in better living standards, the IDB says it will be working on a modern national strategy and planning framework for Guyana’s green economy  as part of its  2017 to 2021 plan which also paints a bleak picture of the country’s capacity to implement projects and cites gross infrastructural deficiencies

The Inter-American Development Bank (IDB) strategy was recently approved by its board and yesterday released to the public. As part of the proposed national strategy, the bank will also focus activities on promoting Guyana’s economic diversification efforts and furthering modern industrial policies

Activities will also focus on bolstering fiscal policies and the framework for managing Guyana’s natural resource revenues.

Facilitating private sector development to support delivery of better services will also be worked on during the life of the strategy along with delivering vital infrastructure to enable the country’s human and private sector development.

Following a decade of robust economic performance, the IDB country strategy said that Guyana is now poised to emerge as a significant oil producer by the mid-2020s.

It contended that despite favourable macroeconomic outcomes, Guyana’s growth has not translated into better living standards. Though recent data on income distribution and the incidence of poverty are unavailable, the IDB said that all other indicators suggest that growth has not been pro-poor, or inclusive.

“Despite its continuous increase since 1990, per capita income remains among the lowest in the English-speaking Caribbean, at US$7,520 PPP as of 2015. The country’s Human Development Index (HDI) score has not improved significantly when compared with Latin America and the Caribbean (LAC) and has been consistently lower than the regional average since the 1990s. Today, the HDI score stands at 0.64 compared with 0.75 for LAC.  In addition, the Government spends less on key public services compared with its regional peers: in health, the country spends US$222 per capita compared to a LAC average of US$694, and in education, expenditure totalled 3.6 percent of GDP, compared to a LAC average of 5.2 percent”, the IDB said.

Guyana’s institutional framework has also been inadequate for translating economic returns into improved outcomes in human development and enabling private sector development, the country strategy said.

Indices

“In general, Guyana underperforms on many indices related to the quality of its institutions. On the World Bank’s Govern-ment Effectiveness ranking, Guyana places in the 42nd percentile, compared to 58th for LAC. On Transparency Inter-national’s Public-Sector Corruption Perceptions Index, Guyana scored 34 out of 100 in 2016 (100 being “clean”) compared to a LAC average of 44. Guyana’s business climate was ranked 124th out of 190 countries on the World Bank’s 2017 Doing Business Index, with a distance from the frontier score of 56.2 compared to a LAC average of 58.8.  Although Guyana has made some progress on the institutional indicators of the World Economic Forum’s (WEF) Global Competitiveness Index (GCI), where its score improved from 2.8 to 3.4 out of 7 between 2006 and 2016, the country performs below par with respect to the LAC average of 4.0; and ranks 102nd out of 140 countries”, the IDB country strategy asserted.

Critical point

Positing that Guyana is at a critical point in its development trajectory, the IDB noted that the ExxonMobil oil discovery offshore in 2015 is conservatively estimated to hold 2 billion barrels. The IDB pointed out that oil exploration and drilling are not included in the national accounts or balance of payments and therefore official statistics underestimate GDP as well as imports of goods and services. Oil will have the largest impact on GDP through fiscal revenue.  It said that economic growth is projected to gravitate around 3.5 percent from 2017 to 2019 but once oil production starts, the IDB said that the IMF estimates GDP growth at 38.5 percent in 2021. The current account is also projected to run a persistent surplus, with a significant increase in official reserves and a gradual drop of the public debt-to-GDP ratio.

“The increased dependence on natural resources exacerbates the economy’s vulnerability to external shocks and could reduce the competitiveness of the non-oil economy due to the potential appreciation of the exchange rate. Ultimately, the conversion of medium-term oil wealth into long-term growth and well-being hinges on the Government’s capacity (through its institutions) to enact productivity-enhancing reforms. International evidence shows that natural resource wealth has the potential to become a real development asset when coupled with strong institutions (both public and private), smart investments in skills and technological capacities, and solid macroeconomic fundamentals.

The IDB country strategy credited the APNU+AFC government with notable progress over the last two years.

“Primarily among their achievements: conducting local government elections for the first time in two decades; establishment of the procurement commission and other constitutional bodies; focusing efforts towards providing low income housing;  aligning fiscal policy closer to national priorities by increasing revenues while reducing VAT, increasing public sector compensation, raising the minimum wage, targeting increase in expenditures in health, education, security and infrastructure; undertaking reforms to state owned enterprises; and maintaining financial stability”, it said.

In tackling the infrastructure deficit and confronting the rapidly deteriorating state of the country’s connectivity networks, the IDB country strategy said the government has made infrastructure a priority area, undertaking much needed works on the roads and bridges network.

It added that as the country does not have the fiscal and legal framework to manage its natural resource wealth in a sustainable manner, since taking office the government has worked  to prepare for the new oil-producing framework while at the same time addressing the current developmental challenges hindering social advancement.

Prioritise

Specifically, it said that the Govern-ment of Guyana’s objectives are to: (i) stabilise the economy and public finances; (ii) prioritise quality education and health services; (iii) design the necessary legislative, regulatory, and policy frameworks to manage oil and gas revenues and oversee the sector; (iv) encourage and support entrepreneurship; (v) create more job opportunities; (vi) boost innovation; (vii) reform business facilitation; (viii) build climate-resilient infrastructure (including renewable energy investments); (ix) improve the overall quality of life; (x) address poverty; (xi) reform the public and financial sectors; and (xii) linking coastland and diversification of the economy.

The IDB highlighted the challenges encountered with the previous country strategy. The previous one focused on natural resource management, sustainable energy, private sector development, and public-sector management, across nine sectors, with modest results.

“By the end of 2016, 54 percent of the portfolio was classified as “alert” or “problem,” while the disbursement rate for loans fell from an annual average of 8.6 percent in 2012 to 4.4 percent in 2016. As a result, there was a significant decline in net cash flows to Guyana, which reached an all-time low in 2016. Around 50 percent of the IDB’s approvals were in infrastructure—the water, transport, and energy sectors—all of which faced delays during the decision-making and procurement stages. The change in administration in 2015, the first after 23 years under regular general elections, slowed execution across the Government’s public-sector investment programme due to a comprehensive portfolio review. This transition has not been without its challenges. The government has had to tackle the issue of stalled project implementation after encountering a capacity (institutional and human) deficit in ministries. Although an additional time constraint on execution, this review marked the beginning of an iterative process by which the Government, development partners, and the private sector identified bottlenecks in the current project management system and developed joint solutions”, the IDB said.

The bank contended that low disbursements were symptomatic of Guyana’s challenging institutional environment and the lack of strategic planning and vision at the highest level.

“This resulted in inefficient planning across the project cycle, from design and financing to implementation and monitoring. Recommendations made by the Office of Evaluation and Oversight (OVE) are in line with this assessment and have informed the institutional strengthening focus of this new strategy. Specifically, the Bank’s Board of Directors endorsed four of OVE’s recommendations for future engagement in Guyana: (i) work with the government to develop and institutionalise a project management system that combines core procurement functions across programmes; (ii) ensure an adequate level of IDB Group staff support in each area of the programme to enhance project implementation and achievement of results; (iii) design projects that fit the institutional environment, build on one another, and incorporate the Office for Institutional Integrity’s (OII) input as part of project risk assessment; and (iv) increase support for the generation and publication of data by continuing to work with the Government to strengthen the national statistical system”, the bank said.

The multilateral financial institution contended that Guyana does not perform well in terms of results-oriented planning.

Lowest

“The country ranks as one of the lowest countries in Latin America at 1.7, compared with a regional average of 2.8 (PRODEV).  The country-specific PRODEV analysis for Guyana notes that its institutions lack the ability to conduct long-term operational planning: that is, the ability to define programmes and targets and establish roles and responsibilities. Among the collection of long-term plans, none are annualised or contain indicators for monitoring implementation. Plans also fail to address the social aspects of development. The evaluation also noted that in terms of planning, Guyana’s Poverty Reduction Strategy Paper (PRSP) expired in 2005 without a replacement. Until the Green State Development Strategy is in place, fully national policy is presently articulated through budget documents. The central government’s management of public institutions is complex and dysfunctional: the three main institutions responsible for public service management—the Public Service Commission, the Department of Public Service (within the Ministry of the Presidency), and the Establishment Division of the Ministry of Finance—have overlapping responsibilities and lack coordination. These combined factors result in “issues of sluggishness in implementation, poor inter-agency coordination and cooperation, and a deficit of strategic planning and management,” which in turn undermines service delivery, affecting productivity and growth”, the IDB said.

The IDB is projecting a sovereign guaranteed pipeline of US$86.1 million (US$17.2 million per year) over the period for Guyana.

“This represents a lower level of approval compared with the previous CS (2012– 2016) of US$209.8 million (or US$42.0 million per year). This scenario assumes a reduction in allocations because of the increase in Guyana’s per capita income and relatively weaker portfolio performance over the CS 2012–2016 period.  It is assumed that the current blend of 50/50 of concessional resources with ordinary capital will be maintained throughout the allocation period. Net cash flows to Guyana will average US$22.7 million per year but will turn negative by 2021 (US$-6.4 million). Total net cash flows will equal US$113.3 million, and the outstanding debt to the IDB will grow to US$654.1 million by the end of the period (Annex IV). The scenario does not include grants or complementary funding sources, either direct or leveraged”, the strategy said.

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