Guyana
Recent Economic Developments
Author:
International Monetary Fund
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Publication Date:
19 Jul 1999
eISBN:
9781451816730
Language:
English
Keywords:
ISCR; CR; Guyana; deficit; price; company; market forces; debt forgiveness
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This paper focuses on economic developments in Guyana during the 1990s. By 1991, economic performance had turned around in response to the shift in economic policies and the improved incentive framework. Following sizable reductions in 1989–90, real GDP grew by about 7 percent a year in 1991 and 1992, mainly owing to a recovery of export-related production and new foreign investments in the bauxite, gold, and forestry sectors. By 1992, inflation had declined markedly; the fiscal and external deficits were reduced substantially; and private and official capital inflows had risen significantly.

Abstract

This paper focuses on economic developments in Guyana during the 1990s. By 1991, economic performance had turned around in response to the shift in economic policies and the improved incentive framework. Following sizable reductions in 1989–90, real GDP grew by about 7 percent a year in 1991 and 1992, mainly owing to a recovery of export-related production and new foreign investments in the bauxite, gold, and forestry sectors. By 1992, inflation had declined markedly; the fiscal and external deficits were reduced substantially; and private and official capital inflows had risen significantly.

I. Background

1. Guyana, an open and predominantly agricultural economy with considerable natural resources, had virtually a state-run economic system for over two decades following its independence in 1966. Under this system, major productive sectors (sugar, rice, bauxite, and gold) and financial institutions were brought under government control, prices were extensively controlled, foreign exchange was rationed, and government-owned consumer and marketing agencies were established. As a result, private sector growth languished, a parallel economy emerged, government administration became overburdened, and the public finances deteriorated.

2. Following sluggish growth during the 1960s and 1970s, the economy suffered from a steady decline in output and large macroeconomic imbalances during the 1980s. Real GDP fell at an average rate of 3 percent per annum during the 1980s. Inadequate policy responses to a sharp deterioration in Guyana’s terms of trade and weak external demand for its major exports (bauxite, rice, and sugar) led to lower production, large fiscal deficits, high inflation, depletion of external reserves, and rise in external indebtedness. By 1988 external payments arrears (mainly on debt service) had accumulated to about US$500 million or 315 percent of GDP.

3. In mid-1988 the government adopted a medium-term Economic Recovery Program (ERP), with the assistance of the Fund and other donors, which aimed at fundamentally shifting the economy toward a market-oriented system. In mid-1990, Guyana cleared its overdue obligations to the Fund and negotiated a one-year Stand-By Arrangement and the first three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF). During 1989–91 the government eliminated virtually all price controls (except for sugar and utilities); adjusted public sector tariffs closer to cost recovery levels; abolished import prohibitions and simplified the tariff structure in line with the CARICOM common external tariff (CET); unified the exchange rates; and introduced treasury bill auctions which formed the basis for market-determined interest rates. The government sold some 14 public enterprises, placed the state-owned sugar and bauxite companies under private management contracts and transferred the rice sector to private ownership. In addition, the efficiency of the public sector was substantially enhanced through broadening the tax base, curbing current expenditure, reducing current transfers to public enterprises, and rationalizing public administration with a reduction in the number of ministries from 18 to 11.

4. By 1991 economic performance had turned around in response to the shift in economic policies and the improved incentive framework. Following sizable reductions in 1989–90, real GDP grew by about 7 percent a year in 1991 and 1992, mainly due to a recovery of export-related production (particularly sugar and rice) and new foreign investments in the bauxite, gold, and forestry sectors. By 1992 inflation had declined markedly (to 28 percent from about 90 percent in 1989); the fiscal and external deficits were reduced substantially; and private and official capital inflows had risen significantly. Section II below reviews economic developments since 1993. Structural reforms relating to the public sector, financial system, and external sector, are detailed in Sections III–V. Appendices I–III cover the reorganization of the central bank, the new legislations for the insurance and securities sectors and the current tax system.

II. Recent Economic Developments

A. Developments During 1993–97

5. Assisted by adjustment programs supported by the Fund and World Bank, Guyana’s economy continued to grow strongly in the period 1993–97 (Figure 1). Real GDP grew by an average of 7 percent a year during the period with a strong growth in agriculture (particularly rice and forestry), mining (bauxite and gold), construction, transport, and telecommunications (Tables 1–4). Structural reforms, with emphasis on private sector ownership and management, helped increase the production of rice and sugar (despite the negative or low growth of both sugar crops in 1997 due to the El Niño-related adverse weather). Increased confidence in the economy boosted investment (particularly foreign investment) in the bauxite, gold and forestry industries. Light manufacturing (e.g., clothing and processed food and seafood) also registered growth. Inflation declined from 100 percent in 1991 to an average of 10 percent a year in 1993–97 (4 percent in 1997), supported by generally restrained monetary and fiscal policies, structural reforms, and a relatively stable exchange rate (Table 6).

Figure 1.
Figure 1.

Guyana: Selected Economic Indicators, 1993–98

Citation: IMF Staff Country Reports 1999, 052; 10.5089/9781451816730.002.A001

Sources: Data provided by the Guyanese authorities; and Fund staff estimates and projections.1/ Contribution to liquidity growth.2/ 1996 projection includes the effect of the debt relief provided in May.3/ Excluding official transfers.4/ In percent of exports of goods and nonfactor services.
Table 1.

Guyana: Value Added by Sector

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Source: Bureau of Statistics.
Table 2.

Guyana: Value Added by Sector at Current Prices

(In millions of Guyana dollars)

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Source: Bureau of Statistics.
Table 3.

Guyana: Value Added by Sector at Constant 1988 Prices

(In millions of 1988 Guyana dollars)

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Source: Bureau of Statistics.
Table 4.

Guyana: GDP by Expenditure at Current Prices

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Sources: Bureau of Statistics; Bank of Guyana; and Fund staff estimates.

Including errors and omissions.

Table 5.

Guyana: Savings and Investment

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Sources: Bureau of Statistics; Bank of Guyana; and Fund staff estimates.
Table 6.

Guyana: Consumer Prices

(Percentage change, period average)

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Sources: Bureau of Statistics; and Fund staff estimates.

Staff estimates of the inflation rate are based on price data collected by the Bureau of Statistics representing about 60 percent of the old CPI basket for 1991-93. Publication of the consumer price index was resumed in 1994.

6. National savings increased to 16 percent of GDP in 1997 (Table 5). Public sector dissavings of 1.7 percent of GDP in 1993 turned to a saving of 9.4 percent of GDP by 1997, as tax collections improved, and current public expenditure was restrained. Private savings relative to GDP also increased in the period 1994–97 as inflation declined, the exchange rate stabilized and real interest rates turned positive.

7. Public finances improved substantially during the period 1993–96. The overall deficit of the public sector fell from 21 percent of GDP in 1993 to 3 percent of GDP in 1996, reflecting substantial improvements in the finances of both central government and public enterprises (Tables 9–14). Given the relatively high ratio of tax revenues to GDP, improvements in the central government finances originated more from curbing expenditures than from increasing revenues. Tax revenue declined from 35½ percent of GDP in 1993 to 32 percent in 1996 despite the measures taken to strengthen tax administration and reform the tax system (mainly through the simplification of the tax system, increasing indirect taxes, and alleviating the tax burden on individuals and corporations). However, the decline in revenue was more than offset by cuts in central government current expenditure (from 31½ percent of GDP in 1993 to 24 percent of GDP in 1996)—mainly reductions in transfers to the public and private sectors, decline in interest payments due to debt relief, and the containment of wages. However, central government capital expenditure increased (by 2 percent of GDP between 1993 and 1996) and focused on infrastructure (urban and rural roads, drainage, and irrigation) and social sectors (especially education and health facilities). The overall balance of the public enterprises improved from a deficit of 5.2 percent of GDP in 1993 to a surplus of 2.7 percent of GDP in 1996, mainly due to divestment, liquidation of unviable entities, and engagement of private management.

Table 7.

Guyana: Population Estimates

(In thousands)

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Source: Bureau of Statistics.

Total births minus total deaths.

Table 8.

Guyana: Employment in the Public Sector

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Sources: Bureau of Statistics; and State Planning Secretariat.

Excludes staff of the Guyana Police Force, Guyana Defense Force, Guyana Fire Service, Guyana Prison Service, Guyana National Service, Teachers, Open Vote Workers, and staff of entities receiving subsidies and contributions.

Employment figures represent permanent employees. Guysuco has also employed temporary workers totaling 1,537, 1,529, and 2,250 in 1996, 1997, and 1998, respectively.

Table 9.

Guyana: Summary of the Operations of the Public Sector

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Sources: Ministry of Finance; and Fund staff estimates.

Current account balance.

Current expenditure of the central government.

Table 10.

Guyana: Operations of the Central Government

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Sources: Ministry of Finance; and Fund staff estimates.

Includes taxes paid by state enterprises.

Cash payments.

Includes on lending to public enterprises.

Table 11.

Guyana: Central Government Revenues

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Sources: Ministry of Finance; and Fund staff estimates.

Includes revenue from nonfinancial public corporations.

Table 12.

Guyana: Central Government Expenditures

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Sources: Ministry of Finance; and Fund staff estimates.

Includes rent, electricity, fuel, travel, postage, telephones, and other miscellaneous expenses.

Interest paid.

Table 13.

Guyana: Summary of the Operations of the Public Enterprises

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Sources: Ministry of Finance; and Fund staff estimates.

Taxes paid by enterprises.

Amortization payments are consolidated with central government amortization repayments.

Table 14.

Guyana: Operations of the Public Corporations

(In millions of Guyana dollars)

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Sources: Ministry of Finance.

8. However, the fiscal performance faltered in 1997, reflecting the elections-related economic disruption in the last two months of the year, expenditure overruns by two large public enterprises, and the adverse effects of the El Niño-generated drought. The overall public sector deficit before grants rose by 5½ percentage points of GDP to 8½ percent of GDP in 1997, mainly due to a weakening of the finances of the central government. The overall surplus of the public enterprises also fell by more than 1 percentage point of GDP, reflecting unanticipated outlays by GUYSUCO and Guyana Airways.

9. The growth of broad money decelerated from 28 percent in 1993 to 11½ percent in 1997, and the income velocity of money declined due to remonetization (Tables 15–18). During this period, the net domestic assets of the banking system fell at an average annual rate of 8 percent while the net foreign assets of the banking system increased sharply (mainly as a result of the Paris Club stock-of-debt reduction operation in 1996, and the transfer of foreign debt liability from the Bank of Guyana to the central government in 1997). The public sector increased its deposits at the Bank of Guyana, notwithstanding a reduction in 1997 reflecting the deterioration in the public finances. Growth in credit to private sector, while decelerating, was strong (averaging 37 percent per annum). The relative shares of bank credit to agriculture and service sectors increased in 1997 relative to 1993 (Table 19). In the banking system’s liabilities to the private sector, there was a shift in favor of the interest-earning assets such as time and savings deposits compared to currency in circulation and demand deposits (Table 20). The ratio of actual to required liquid assets of commercial banks declined from 2.9 in 1993 to 1.7 in 1997 indicating increased preference for longer term placements, while the ratio of actual to required reserves increased somewhat (from 1.1 to 1.3) over the same period, indicating banks’ continued comfortable liquidity position (Tables 21 and 22).

Table 15.

Guyana: Monetary Survey

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Source: Bank of Guyana.

Excludes interest-free debentures issued to the Bank of Guyana to cover losses.

Table 16.

Guyana: Accounts of the Bank of Guyana

(In millions of Guyana dollars)

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Source: Bank of Guyana.

Excludes interest-free debentures issued to the Bank of Guyana to cover losses.

Table 17.

Guyana: Accounts of the Commercial Banks

(In millions of Guyana dollars)

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Source: Bank of Guyana.
Table 18.

Guyana: Net Foreign Assets of the Banking System

(In millions of U.S. dollars)

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Source: Bank of Guyana.
Table 19.

Guyana: Commercial Bank Credit by Sector

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Source: Bank of Guyana.
Table 20.

Guyana: Liabilities of the Banking System to the Private Sector

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Source: Bank of Guyana.
Table 21.

Guyana: Commercial Banks Liquid Asset Requirements

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Source: Bank of Guyana.
Table 22.

Guyana: Reserve Requirements of the Commercial Banks

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Source: Bank of Guyana.

10. At end-1997, 75 percent of the private sector domestic financial assets were held in claims on the banking system and 23 percent with nonbank financial institutions (the Building Society, insurance and trust companies, and pension schemes). Nonbank financial institutions’ claims on the private sector and other financial institutions increased substantially over 1993–97, partly at the expense of claims on the central government (Table 23–24).

Table 23.

Guyana: Private Sector Holdings of Domestic Financial Assets

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Source: Bank of Guyana.
Table 24.

Guyana: Private Nonbank Financial Institutions

(In millions of Guyana dollars)

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Source: Bank of Guyana.

11. The treasury bill rate decreased from 15.4 percent in 1993 to 8.2 percent in 1997 as a result of the decline in inflation and the reduction in government borrowing (Table 25). Reflecting partly the high administrative costs and nonperfoming loans, the spread between the lending and deposit rates widened from 8 percentage points at end-1993 to about 10½ percentage points at end-1997. During this period the banking system reform progressed with the expansion of the supervisory role of the Bank of Guyana and the transfer of foreign liabilities from its books to the central government, the merger of two government-owned financial institutions (the Guyana National Commercial Bank and the Guyana Agricultural and Industrial Bank), the sale of the government’s share in another bank (the National Bank of Industry and Commerce), and the restructuring of the only remaining government bank (the Guyana National Co-operative Bank).

Table 25.

Guyana: Selected Interest Rates

(In percent per annum)

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Sources: IMF, International Financial Statistics; data provided by the Guyanese authorities; and Fund staff estimates.

12. The external position strengthened substantially during 1993–96. The current account deficit narrowed from 29½ percent of GDP in 1993 to 9½ percent of GDP in 1996 while gross official international reserves were at about five months of imports of goods and nonfactor services (Tables 26–32). The reduction in the current account deficit reflected increased exports (particularly sugar, rice, and nontraditional exports) and an improvement in the services account due to lower interest payments resulting from the debt relief. In the capital and financial account, the surplus fell slightly between 1993 and 1996 largely because of a slowdown of direct investment following the completion of major private projects in the timber and gold sectors. The large capital account surplus in 1996 reflected the effect of the 1996 Paris Club debt-stock operation under which Guyana received a debt forgiveness equivalent to around US$524 million.

Table 26.

Guyana: Balance of Payments

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Sources: Bank of Guyana; Statistical Bureau of Guyana; Ministry of Finance, and Fund staff estimates and projections.

In 1996 Guyana received a debt-stock reduction on Naples terms from Paris Club Creditors, including Trinidad and Tobago. For 1999 comparable treatment from Non-Paris Club bilateral creditors is assumed.

Debt forgiveness of future maturities is presented as a capital transfer and debt forgiveness of arrears and current maturities is captured under exceptional financing.

Table 27.

Guyana: Value, Price, and Volume Indices for Exports and Imports

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Sources: Fund staff estimates based on data from the Bank of Guyana.
Table 28.

Guyana: Commodity Composition of Exports

(Value in millions of U.S. dollars, volume in thousands of metric tons, and unit value in U.S. dollars per metric ton)

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Sources: Bank of Guyana, Bureau of Statistics; and Fund staff estimates.
Table 29.

Guyana: Composition of Imports 1/

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Sources: Bank of Guyana; and Fund staff estimates.

Classification of imports from 1997 is based on the newly introduced ASYCUDA system and is not directly comparable to data prior to 1997.

Table 30.

Guyana: Services Account 1/

(In millions of U.S. dollars)

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Sources: Bank of Guyana; and Fund staff estimates.

Classification from 1997 reflected the use of new Bank of Guyana survey forms and data are not directly comparable to previous years.

Table 31.

Guyana: External Public Debt and Debt Service

(In millions of U.S. dollars)

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Sources: Data provided by the Guyanese authorities; World Bank Debtor Reporting System; and Fund staff estimates and projections.

Including valuation adjustment.

Including nonfinancial public enterprises.

Reflects Paris Club stock-of-debt operation in May 1996.

In percent of exports of goods and nonfactor services.

In 1997 the ratio reflects interest payments carried over from 1996 upon conclusion of bilateral agreements under the Paris Club framework. In 1998 the ratio reflects arrears payments.

Interest payments as a percent of average stock of debt. 1997 and 1998 reflects payments on interest arrears.

Table 32.

Guyana: External Public Sector Debt 1/

(In millions of U.S. dollars)

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Sources: Ministry of Finance; Bank of Guyana; and Fund staff estimates.

The stock of debt outstanding at end-year, reflects Paris Club stock-of-debt operation in May 1996.

13. In 1997 the balance of payments weakened and the Guyana dollar depreciated. The external current account deficit rose to 14 percent of GDP from 9½ percent of GDP in 1996 due to the adverse effects of El Niño and a sharp decline in export prices. Value of imports rose by 8 percent partly on account of an acceleration in retooling (mainly in the manufacturing sector). Net capital inflows remained unchanged, with the increase in private capital inflows being offset by a smaller net official inflows (including transfers). Reflecting these developments, the overall balance of payments surplus fell from US$60 million in 1996 to US$4 million in 1997, and gross international reserves also declined although remaining at about 4½ months of imports of goods and nonfactor services. The weakening of the external position led to a depreciation of the Guyana dollar in terms of the U.S. dollar but in real terms the Guyana dollar appreciated by 8½ percent.

14. Guyana’s external public debt (including to the Fund) declined from about 461 percent of GDP (about US$2 billion) at end-1993 to 183 percent of GDP (US$1.4 billion) at end-1997 (Table 32). The decline reflected mainly the effect of the stock-of-debt reduction (on Naples terms) in May 1996 from the Paris Club creditors (including Trinidad and Tobago). Debt to multilateral institutions increased steadily, constituting about 70 percent of the total debt at end-1997, while obligations to bilateral creditors continued to decline. Both the scheduled and actual debt service relative to exports of goods and nonfactor services declined during the period, with the latter falling from 19 percent in 1993 to 17 percent in 1997 (including the carryover of some interest payments from 1996 upon conclusion of bilateral agreements under the Paris Club stock-of-debt operations into 1997).

B. Developments in 1998

15. In 1998 real GDP declined by 1½ percent reflecting the lingering effect of the El Niño-induced drought and forest fires, weaker demand and prices of Guyana’s major exports, and continued civil disturbances through mid 1998. Output of sugar, rice, timber, gold, and many manufactured products declined compared with 1997. Retail sales also declined significantly, as many businesses were shut down during the periods of civil unrest. Consumer prices rose by 4½ percent, with increases in telephone charges and food prices being offset partly by lower oil prices.

16. The overall public sector deficit before grants was reduced from 8½ percent of GDP in 1997 to 5 percent of GDP in 1998 (Table 9). However, the overall public sector deficit after grants increased by ½ percentage point of GDP to 3½ percent of GDP. The deficit was financed by net external loans and borrowing from the domestic banking system in amounts that more than covered the deficit, thereby allowing the public sector to reduce its other domestic debt and to recapitalize the Bank of Guyana.

17. The overall deficit of the central government (before grants) fell by 2½ percentage points of GDP to 8 percent of GDP in 1998 (Table 10). The improvement resulted from a reduction in interest obligations and a decline in capital spending, which overcompensated for the decline in revenue and a rise in the wage bill. The increase of ½ percentage point of GDP in the wage bill resulted mainly from salary increases (averaging 19 percent), which were partly offset by reduction in employment.1 No new taxes were imposed in 1998. However, the customs valuation exchange rate was adjusted (from G$134 per US dollar to G$144 per U.S. dollar), and certain fees and charges were increased (licenses fees for vehicles, airport departure fees, inter alia) to cost recovery levels.

18. The operating surplus of the rest of the public sector increased by ½ percentage point of GDP in 1998, reflecting mainly a strengthening of the financial position of the National Insurance Scheme (NIS). The operating balance of the NIs improved by ½ percentage point of GDP as a result of the sale of its shares of the NBIC, which was only partially offset by higher benefits payments and lower interest income.2 The operating surplus of the state enterprises remained constant at around 2 percent of GDP. The operating surplus of the sugar company (which accounts for almost half of public enterprises’ total operating revenue) stabilized (at 2½ percent of GDP) as the impact of a 7½ percent reduction in sugar production was offset by the depreciation of the Guyana dollar. One bauxite company (BERMINE) improved its operating balance due to reduced freight costs and the depreciation of the Guyana dollar. The other bauxite company (LINMINE) incurred a deficit similar to that registered in 1997 as its production capacity was curtailed, reflecting technical and marketing problems. The state airline’s operating balance continued to deteriorate in 1998 (with a deficit of 0.5 percent of GDP) due to technical difficulties (including the grounding of a leased aircraft several times during the year). The other small enterprises realized an operating surplus before taxes similar to that registered in 1997.

19. Broad money and private sector credit slowed down markedly in 1998, but net credit to the public sector accelerated. Growth of broad money slowed from 11½ percent in 1997 to 7 percent in 1998, while the growth of currency also slowed from 12½ percent to 1½ percent. Credit to the private sector increased by 15½ percent compared to 23½ percent in 1997. Net credit to the public sector increased by 26½ percent (compared to 10 percent in 1997) as the central government drew down its deposits while the rest of the public sector improved its net asset position at the banking system. The gross international reserves of the Bank of Guayana fell from US$315 million at end-1997 to US$276 million at end-1998, but the net foreign assets of the banking system improved reflecting the transfer of certain external debt of the Bank of Guyana to the central government. Deposit rates declined from 8½ percent at end-1997 to 8.2 percent at end-1998 while the weighted average lending rate remained virtually unchanged at 18.4 percent. The 91-day treasury bill rate rose by 60 basis points to 8.8 percent at end-1998.

20. The external current account deficit (excluding official transfers) narrowed slightly from 14 percent of GDP in 1997 to 13½ percent of GDP in 1998 as a decline in export proceeds was virtually offset by lower import payments and the services account improved due to lower interest payments (Table 26). The external terms of trade worsened by 1 percent, as a decline in export prices was only partially offset by lower oil import prices (Table 27).

21. Export receipts fell by 7½ percent in 1998, as both prices and volume declined (Table 28). Sugar export suffered from lower production, with export volume declining by 7½ percent due to the effect of El Niño. The volume of rice exports contracted by over 12 percent as production of the first crop was adversely affected by the drought and export of the second crop was delayed. The gold price continued its slide, with export earnings declining by over 9 percent. Timber export was substantially lower due to the Asian Crisis which depressed demand and price. The volume of plywood exports recovered by 18 percent as labor relations normalized and technical difficulties were resolved. However, this was offset by a 30 percent decline in the export price of plywood. Nontraditional exports of garments, fish, and shrimp registered strong growth, though from a low base.

22. Imports were lower by about 6 percent compared to 1997, as a result of depressed economic activities and lower oil prices (Table 29). Imports of consumption goods increased by 6½ percent, as large increases in the first quarter reflected carryover from last year due to political unrest, which delayed the imports for the holiday season at end-1997. Imports of intermediate goods experienced a slight decline, with sharp contractions in capital goods imports resulting from lower investment. In the services account, interest payments were lower mainly due to debt relief and the appreciation of the U.S. dollar against major currencies, which was partly offset by the lower tourist earnings due to political uncertainty.

23. There was a sharp decline in net official capital inflows, as project loans and grants declined due to shortage of locally produced construction materials (bricks, stones, etc.), difficulties in meeting conditionalities associated with projects, and the limited project implementation capacity of local contractors. Net private capital inflows (including errors and omissions) increased marginally as the decline in direct investment (resulting from uncertainties in the domestic and external financial markets) was more than offset by lower other private capital outflows. Reflecting these developments, the gross international reserves declined from US$315 million at end-1997 to US$276 million at end-1998.

24. The Guyana dollar depreciated from G$144 per U.S. dollar at end-1997 to G$165 per U.S. dollar at end-1998 despite central bank interventions. In real effective terms, the Guyana dollar depreciated by around 9 percent during 1998, thereby offsetting a large part of the appreciation of the preceding three years (Table 33).

Table 33.

Guyana: Effective Exchange Rates and Related Series

(Index: 1990 = 100)

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Sources: Data provided by the Guyana authorities; and IMF, Information Notice system.

Increases mean appreciation.

Using seasonally adjusted price indices.

25. The authorities continued to make efforts to normalize relations with the creditors and continued to pursue a prudent external debt management policy to maintain a high degree of concessionality in new external borrowing. In 1998 rescheduling agreement with the OPEC Fund to clear arrears was implemented and negotiation with bondholders continued. The stock of external debt remained at about US$1.4 billion, or about 192 percent of GDP. Actual debt service ratio rose to about 19 percent of exports of goods and services, reflecting the payments of arrears. The fiscal burden of debt remained heavy, with actual government debt service payments in 1998 amounting to almost 40 percent of the central government revenue.

26. The authorities have been improving the debt management capacity, with technical and financial support from the Debt Relief International (a donor funded nongovernmental organization) and the UK Department for International Development (DFID). Since February 1999, a reorganization plan is being implemented for the Debt Management division in the ministry of finance that distinguish clearly between recording and analytical functions.3 A comprehensive training program covering both recording and analytical aspects of the debt management and computerization for the staff has been agreed with the Debt Relief International and consultants have been recruited.

III. Public Sector Reform

A. Fiscal Reform

27. Until 1989 the tax system had suffered from several deficiencies, including a narrow income tax base with six tax brackets and high marginal rates (with a maximum of 55 percent). State corporations were exempted from the payment of consumption taxes and import duties, and their payments of dividends and income tax to the government were not seriously enforced. In addition, there were many specific taxes and corporations paid taxes annually on the basis of the previous years’ profits. Also, the overall tax administration was weak.

28. Efforts to correct these deficiencies started in 1989 with the conversion of all specific consumption taxes to ad valorem bases, the ending of exemptions of state corporations from consumption taxes and import duties, and a reduction in the number of consumption tax rates from fourteen to three. In addition to these measures, the government entered into an agreement with the UNDP to provide training and resources to improve tax administration.

29. In 1991 a comprehensive tax reform program was introduced. An important action was the increase in the personal income tax threshold from G$ 10,000 to G$48,000. The concept of taxable income was expanded to include income (cash and in kind) from all sources, and all previous allowances and deductions were withdrawn. The six income tax brackets were replaced with three, and the highest marginal rate was reduced to 40 percent. Other important measures included a withholding tax on gross interest earned by individuals and companies, the introduction of the rice levy,4 and an amnesty for taxpayers in arrears for the period 1984–90. The corporate tax rate was reduced from 55 percent in 1992 to 35 percent in 1995 and the income tax threshold rose continuously from G$48,000 in 1991 to G$216,000 by 1998.

30. Also, since 1991 efforts have been made to improve tax administration and enforcement. These efforts included more frequent tax audits of individuals and corporations, and revisions to the registry of manufacturers in 1991 and the registry of landlords in 1993. In addition, the tax base was widened by targeting self-employed with the introduction of a minimum tax on gross sales and some increases in licenses and fees. In 1994 the authorities abolished the system of tax holidays while allowing those in existence to remain in place until their expiration dates. Equally important were efforts to remove corrupt officials including the introduction of several regional anti-smuggling squads.

31. In 1995 a comprehensive approach was taken with respect to reforms in the Customs and Inland Revenue departments. The new initiative sought to remove these divisions from the civil service and create a new autonomous Revenue Authority to be run by its own board. In July 1996 the National Assembly approved the Revenue Authority Act, which combined the mandates of the two departments and placed them under a commissioner general who would report to a governing board. The main objectives of establishing the Revenue Authority are to: (a) improve the efficiency of both departments by eliminating the duplication of common services and functions, such as management and legal services, human resource management, and internal audit; (b) improve collection, compliance and enforcement activities by strengthening existing units; and (c) attract and retain expertise in the tax and customs departments and operate more closely in line with the needs of the business community by relieving the administration from the government’s constraints on hiring, salary, and operations.

32. Consultants have been recruited to develop organizational and legal structure, job descriptions, and computer systems in the new Revenue Authority. However, a court decision enjoined government from establishing the Authority as some staff of Customs and Excise departments had instituted a court action against the government for elimination of their positions in the Revenue Authority. On June 4, 1998, the government filed a motion to have the injunction lifted, and it is expected that the Revenue Authority would become operational as soon as the court injunction is lifted.

B. Civil Service Reform

33. In order to improve the efficiency of the civil service and the ability of the government to attract and retain skilled personnel, the government has been working since 1993 to reform the civil service with the assistance of the World Bank, IDB, and bilateral donors (particularly the United Kingdom). However, progress has been slow partly due to the fact that new organizational structures and staff responsibilities have not been matched by simultaneous improvements in compensation and conditions of service due to the budgetary constraints. Employment in the public sector has been declining, resulting in a significant understaffing of professional, managerial, and technical positions.

34. The government currently pursues a broader civil service reform strategy, which has two essential components: vertical reforms in individual public institutions to strengthen organization, management, and human resources; and horizontal reforms across institutional boundaries to improve the environment in which public sector entities function. Under vertical reforms, the reorganization of the ministry of finance was completed in 1998. The reorganization focused on the organizational weaknesses such as overcentralization, ineffective management and decision-making processes, unclear lines of authority, and inadequate staff development policies. To deal with these weaknesses, several actions have been taken, including preparation of a staff handbook to define the human resources policy framework and guidelines; and assessment of leadership requirements, training and development needs, scope of work rules and responsibilities, staffing needs and job descriptions for all positions within the new organizational structure. In addition, major renovation and rehabilitation took place to prepare the physical facilities for upgrading the management information system as well as to prepare departmental offices for hiring qualified personnel. Vertical reforms are also proposed for the ministries of education and health under the HIPC Initiative in the social sector. The restructuring of the ministry of finance is being used as a prototype to restructure these ministries.

35. While these vertical restructuring efforts are being implemented, crucial and complementary horizontal reforms have been carried out simultaneously. In this context, the government is committed to reviewing and streamlining the public service rules. To this end, a committee of private sector, government, and public sector union officials began to review the public service rules in May 1998, and the review was completed in December 1998.

36. Recognizing that one of the main problems in attracting skilled workers was that real public sector wages had deteriorated significantly in the 1980s and early 1990s, the government first introduced a new 14-band salary structure in 1993. Since 1994, the government has granted a series of wage increases intended to achieve the medium-term goal of bringing public sector wages gradually to within 10 percent of the median for comparable jobs in the private sector. In addition to these across-the-board increases, the government provided supplements over base pay to key and critical positions, where the salary gaps are much larger. At the same time, to maintain a sound fiscal position, the government has been reducing the size of the civil service.5

37. Despite these efforts, the government continues to experience difficulties in attracting and retaining skilled personnel. Under the current ESAF arrangement, the government has renewed its efforts to overcome this problem. In 1998 the government commissioned two surveys to compare the pay scales in the public and private sectors. The surveys concluded that public sector pay remained lower than private sector pay for comparable positions. To address this, the government is working on a new remuneration structure for professional, technical, and managerial positions.

IV. Financial Sector and Business Environment Reforms

A. Financial Reforms

38. The financial system consists of the Bank of Guyana, the country’s central bank established in 1965; seven commercial banks (four domestic and three foreign-owned banks) with a network of 30 branches;6 a large number of credit unions including the New Building Society;7 six insurance companies; and five trust companies. All commercial banks and trust companies are governed by legislation under the Financial Institutions Act of 1995 and are supervised by the central bank.8 At end-1998 about 74 percent of private domestic financial assets were held with the banking system, while the remainder was held with nonbanks (25½ percent) and in government securities (see Table 23). Commercial banks invest about 28 percent of their net domestic assets in treasury bills, which are the central bank’s principal monetary management instrument. Markets for long-term debt securities (e.g., debentures), interbank money and securities are still very shallow.

39. Prior to reforms which started in 1988, monetary policy was conducted mainly through direct controls on credit and interest rates (the latter, through the rediscount rate fixed by the central bank and used by commercial banks to set their deposit and lending rates) and adjustment of the minimum liquid and reserve requirements. Open-market operations were precluded by the lack of an established financial market and by the substantial losses of the central bank (due mainly to its high foreign debt-service payments).

40. Financial reforms in Guyana were started in 1988 and aimed at enhancing efficiency by increasing reliance on market forces, reducing controls on the financial system, strengthening the capacity to conduct monetary policy, and improving the effectiveness of policy responses to external shocks (Box 1). In 1988 interest rates and credit controls were removed, launching the move to a market-oriented economic system. By end-1989 interest rates had increased to about three-fold their pre-reform levels.

Guyana: Selected Financial Reform Measures

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41. Monetary management was strengthened by improving the conduct of its treasury bill auctions, and interest rates policies. In mid-1991 the central bank introduced competitive bidding in its monthly 91-day treasury bill auctions (operated on behalf of the government); and since March 1992, administered rates such as the bank rate, special deposit rates, and the rediscount rate have been set in relation to the market-determined 91-day treasury bill rate.9 Also, to enhance competition in the treasury bill market, the central bank decreased the rate on special deposits (from 2½ to 3½ percentage points below the Bank rate) and increased the penalty for using the rediscount facility (from 2 to 3 percent). In April 1993 the central bank started to auction longer maturity treasury bills (182-day and 364-day), while the frequency of the 91-day treasury bill auctions was increased to a biweekly basis in January 1994, and to a weekly basis in February 1996. In January 1999 the central bank removed the collar on the treasury bill bids in the weekly auctions to allow interest rates to reflect market forces more quickly.10

42. Reserve and liquid asset requirements were also used to increase the effectiveness of monetary policy. In keeping with an increasingly restrained monetary stance and given banks’ generally comfortable liquidity position, reserve requirements on demand, and saving and time deposits respectively were raised by 4–5 percentage points in April 1994. In July 1998 the scope of reserve requirements was enlarged to include all licensed nonbank depository institutions and the coverage was extended to include foreign currency deposits. However, reserve requirements were reduced from an average of 15 percent to 12 percent on all liabilities (demand, savings, and time deposits) in February 1999 mainly to reduce the cost of funds and, thereby, lending rates. Treasury bills were issued in higher volumes and with longer maturities to mop up the initial increase in liquidity due to the freed reserves. The liquid assets requirement has remained at 25 percent for demand deposits and 20 percent for time deposits since May 1991.

43. To enhance the efficiency and competitiveness of banks, financial reform also included the reduction of the government’s share in the financial sector. Toward this end, the government agreed with IDA to bring down its share in financial entities to no more than 25 percent of the asset value of those entities at end-1993. The government achieved this goal with the sale of all its shares in the largest two commercial banks: the Guyana Bank for Trade and Industry in August 1994, and the National Bank for Industry and Commerce in October 1997.

44. Strengthening and updating the regulatory and supervisory framework for financial institutions reinforced the monetary policy reforms and was effected through the enactment of the Financial Institutions Act (FIA) in May 1995. To ensure the safety and soundness of the financial system FIA required that all financial institutions be licensed by the central bank, and extended the central bank’s surveillance responsibility to all deposit taking financial institutions;11 upgraded the capital adequacy requirement and asset risk classification to internationally accepted standards; and introduced other regulations to limit risk and concentration of ownership of financial institutions (e.g., limits on loans to single borrower and on investment in nonbank companies; and rules regarding insider trading, loan classification and provisioning, and minimum capital for setting up a bank).

45. Institutional strengthening of the Bank of Guyana with a view to enhancing its autonomy and capacity to conduct monetary policy formed another key element of financial sector reform (see Appendix I). Efforts to strengthen the Bank have culminated in the passage by parliament in November 1998 of the revised Bank of Guyana Act (1998). The revised act recapitalized the central bank by raising its authorized and paid-up capital to G$l billion from G$6 million; allowed the transfer of further foreign debt liabilities from its books to the central government; prohibited the central bank from extending credit to the central government or public enterprises; authorized the central bank to issue and trade its own securities for the purposes of open market operations; and introduced organizational changes in the bank’s board of directors.

B. Reform of Business Environment

46. In order to improve the business climate for private sector, legislation was passed in late 1998 to establish the regulatory frameworks for the insurance and securities trading and to reform the Deeds Registry. The Insurance and Securities Acts seek to strengthen the regulatory aspects of the two industries and improve the rules regarding medium- and long-term credit to local businesses and small investors (Appendix II). Reform of the Deeds Registry (including making it a semi-autonomous entity) will expedite the processing of land titles, allow for the use of a more diverse range of collaterals and thus enhance private sector access to capital. Reform of the land tenure policy will step up the conversion of lease-holds to free-holds, allow the extension of long-term leases beyond 25 years, and increase the sale of state lands. The government also has prepared legislation (to be tabled in parliament in 1999) on bankable property rights with a view to improving private sector access to bank credit.

V. External Sector Reform

47. During the transformation from a public sector dominated economic system to a market based, private sector led economy, major progress has been made in external sector reforms, including the liberalization of foreign trade, the elimination of foreign exchange controls, and the opening up to foreign direct investment. Currently, Guyana does not maintain any restrictions on making payments and transfers for current international transactions. Its external trade system is virtually free of quantitative controls, except for restrictions on import of few items relating to health and security.

48. In the 1980s Guyana’s trade system was overly restrictive, complex and riddled with prohibitions, licenses, and limited access to foreign exchange. Imports were subject to high tariffs, individual licensing by the ministry of trade, and allocation of available foreign exchange from the central bank. Exporters had to surrender most of their foreign exchange earnings to the central bank and some of the major exports (rice and gold) had to go through marketing boards.

49. From the late 1980s the trade system was gradually liberalized (Box 2). Licensing requirements for imports have been abolished, except for petroleum products12 and some 20 items affecting national security, health, public safety, and the environment. Foreign exchange surrender requirements were abolished in December 1996, and restrictions and marketing board arrangements on exports were removed except for licenses for exports of gold13 and wildlife, and quotas for the supply of some commodities to preferential markets.

50. The import tariff has been reduced substantially since the government passed legislation in February 1991 to apply the Common External Tariff (CET) to all imports from outside the CARICOM market. Current tariffs range from 5 percent to 25 percent, with a few exceptions: notably, passenger and private vehicles (with a 45 percent tariff), and alcoholic products, cigarettes, and other tobacco products (with a 100 percent tariff). In principle, intra-CARICOM trade is free of import duties. However, there exists a few exceptions to duty free trade from CARICOM, including alcohol, pharmaceuticals with high content of alcohol, perfumes, matches, and curry.

Guyana: Selected Structural Reforms in the Trade System, 1988–99

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51. The exchange rate is determined freely in the market, with the central bank intervention limited to smoothing sharp movements in the exchange rate. The Bank of Guyana conducts certain transactions on the basis of the cambio exchange rate by averaging quotations of the three largest dealers. The present exchange rate arrangement developed from the successive efforts to reform the market: the unification of the official and cambio markets in February 1991, the abolishment of Exchange Control Act in December 1995, the reduction and eventual abolishment of foreign exchange surrender requirements in December 1996 (Box 3).

Guyana: Selected Structural Reforms in the Exchange System, 1987–96

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1

Civil service wage negotiations for 1998 were concluded in July 1998, which included 9½ percent increase from January 1, 1998 and additional increases ranging from 4½ percent (for higher grades) to 20½ percent (for lower grades) effective July 1, 1998.

2

In 1998 the NIS decided to begin to hold government papers of longer-term maturities, which shifted the receipt of interest on their papers from 1998 to 1999.

3

Three additional technical persons were hired in early 1999 and additional computers and office equipment were put in place by March 1999. The training started in February and will last for about a year.

4

Set at the level of cost recovery to the Rice Board.

5

Between 1991 and 1998 central government employment declined from 17,800 to 9,400 and total public sector employment (including state enterprises) decline from 65,700 to 36,300 (Table 8). However, this data does not include security forces, teachers, public health care workers, regional administrators, and staff in autonomous agencies.

6

Of these, only the Guyana National Co-operative Bank (formed by the merger of two state-owned banks in May 1995) is still state-owned. In October 1997, a 51 percent share of the National Bank of Industry and Commerce (NBIC), formerly owned by the government, was sold to the Republic Bank of Trinidad and Tobago.

7

Because of weak performance, the Guyana Co-operative Mortgage Finance Bank (a specialized financial institution established in 1973 to provide home mortgage for low-income families) was closed at end-1998 and its loan portfolio was transferred to the Guyana Co-operative Financial Services.

8

The New Building Society, the main mortgage-finance institution is governed by the Co-operative Financial Institutions Act (COFA), while the insurance companies are under the supervision of the Commissioner of Insurance.

9

Special deposit rates applied to banks’ excess reserves at the central bank and remained in effect until end-1994, after which excess reserves became nonremunerated.

10

This replaced the previous system which required that the deviation in yield in bids in a current tender be no more than two percentage points of the average yield in the previous tender.

11

These included all commercial banks and trust companies and other deposit-taking institutions; insurance companies remained under the supervision of the Commissioner of Insurance.

12

The Government of Guyana does all importation of fuel to the country through GNEA, which does documentation and importation and sells to private distributors, GUYOIL (government owned) and government departments, all at the same price.

13

Exports of gold required permits from the Guyana Gold Board. Licenses were granted to eight local dealers in May 1997 for one year experiment and has been extended by another year from April 30, 1998.

APPENDIX I Guyana: The Strengthening and Reorganization of the Bank of Guyana (BOG)

1. Efforts to strengthen the functioning of the central bank (the Bank of Guyana) have proceeded in earnest over the last few years and have culminated in the passage by parliament at end-November 1998 of the revised Bank of Guyana Act (1998). These efforts have aimed at the modernization of the bank’s structure and operations, enhancing its autonomy, and increasing its capacity to conduct monetary policy.

2. Key reforms prior to the passage of the revised BOG Act included the following:

  • (i) Strengthening the income and balance sheet positions of the bank by reducing foreign debt liabilities on its portfolio either through debt relief or by the transfer of foreign debt from its books to central government. Under the Paris Club debt-stock reduction operation for Guyana in May 1996, BOG’s foreign liabilities were reduced by about US$287 million. Also, in 1997 foreign liabilities of US$145 million owed to Paris Club creditors were transferred from the BOG to central government. Largely because of these operations, BOG’s net foreign asset position was substantially strengthened (from -US$540 million at end-1995 to US$14 million at end 1998), and the bank started to make profits since 1997 (amounting to G$458 million in 1998).

  • (ii) The introduction of a reserve money programming framework in early 1998 to improve liquidity management in line with the foreign reserve and inflation objectives, and to enhance the coordination with debt management. This framework guided the bank in open market operations (through the treasury bill auctions) and in interventions in the foreign exchange market.

  • (iii) The implementation since May 1995 of the Financial Institutions Act (FIA) which aimed at ensuring the safety and soundness of the banking system by the strengthening and modernization of the regulatory and supervisory framework under which the central bank operates. The FIA expanded the central bank’s supervision to all deposit-taking institutions; and raised to internationally accepted standards (Basle committee and BIS standards) the prudential requirements as to capital adequacy, loan classification and provisioning, and exposure limits on single-borrower and concentration of ownership of financial institutions.

  • (iv) Enhancing the bank’s monetary management and economic research capacities, and improving its organization, payments, budget and audit, and information management systems with technical assistance from the Fund. Achievements in these areas included the operation and enhancement of a competitive weekly treasury bill auction system (further strengthened by the removal of limits on bid prices as of January 22, 1999); development of the statistical data base and reporting system including the compilation of the balance of payments statistics; automation of check clearing and the establishment of a National Clearing House; and introduction of a Foreign Exchange Market Information System (FEMIS) for bank and nonbank cambios and guidelines for banks foreign exchange risk management.

  • (v) Restructuring of the bank and strengthening of its human resources functions through staff training (including through participation in the courses and seminars at the IMF Institute), improving internal communication within the bank, and establishing and strengthening of the policy unit in the bank.

3. The revised Bank of Guyana Act (1998), which amended the previous Bank of Guyana Act of 1995, had originally been tabled in Parliament in 1997 but had lapsed because of the December 1997 elections. The new act recapitalized the bank, allowed the transfer of further foreign debt liabilities from its portfolio to central government, barred the bank from extending credit to the public sector, and introduced other changes to increase the efficiency and autonomy of the bank in performing its functions. Key features of the act are as follows:

  • (i) increased the bank’s authorized and paid-up capital to G$l billion (from G$6 million which has remained unchanged since the bank’s establishment in 1965). The recapitalization was effected through the issuance of marketable securities by the government to the bank; these securities will be used by the bank solely for open market operations and will be rolled over upon maturity.

  • (ii) increased the number of the bank’s directors from five to six (with the Governor and Deputy Governor appointed by the president and the rest by the minister of finance); staggered the directors’ terms to expire one year apart; and empowered the Governor in consultation with the Board to appoint, reorganize, train and determine the conditions of employment of staff and consultants. Under the repealed Act, all directors were appointed simultaneously and their terms ended concurrently, and the finance minister set the terms of conditions of employees and consultants. The above-noted amendments would provide the bank with a larger measure of autonomy and continuity at the policy-making level.

  • (iii) allowed the transfer of foreign debt liabilities (amounting to US$64 million) owed to non-Paris Club creditors (Argentina, Kuwait, and Libya) from the bank’s books to the central government.

  • (iv) prohibited the bank from extending any credit (including by means of advances and negotiable securities) or guarantees directly or indirectly to the government or the public sector entities. This provision, beside helping to maintain the bank’s net worth, would enhance its capacity to promote a non-inflationary macroeconomic environment. In the past, large fiscal deficits have been partly financed by credit and guarantees by the central bank. Also, the bank’s quasi-fiscal activities including borrowing externally in support of the budget deficit, and making loan guarantees and interest payments on behalf of the Government have been largely responsible for the bank’s losses and negative net worth.

  • (v) authorized the bank to issue and trade its own securities for the purposes of open market operations (beside trading in government securities for open market operations purposes already allowed under the previous act). This provision, together with the recapitalization of the bank, will substantially increase the bank’s ability to conduct a more active monetary and exchange rate policies especially through more extensive open-market operations.

  • (vi) charged the bank with the sole responsibility of preparation of the balance of payments accounts and the external assets and liabilities position of the country. This formalized the practice which had been in effect for the preceding year and half, before which the compilation of the balance of payments was shared between the bank and the Bureau of Statistics (due to the inadequate technical resources at the two institutions). The provision would increase the efficiency of the balance of payments compilation and reporting and ensure greater consistency between the balance of payments and monetary accounts.

  • (vii) formally mandated the bank with the responsibility of the custody and management of Guyana’s external reserves (denominated in foreign currency and gold).

  • (viii) removed the requirement that financial institutions incorporated outside Guyana should maintain a proportion (25 percent) of their statutory reserves in foreign exchange. The abolished requirement, which originally was intended to garner foreign exchange, has been rendered inconsistent with the liberalized exchange rate regime and the FIA regulations of creating a level playing field in the financial system.

  • (ix) authorized the bank to examine all records, accounts and books of licensed financial institutions and their holding companies or affiliated subsidiaries, stipulated the due notices and fines for failure to submit such information, and assured institutions of the confidentiality of the provided information. This provision seeks to ensure full disclosure and transparency of operations of financial institutions with a view to safeguarding the soundness of the individual institutions and the financial system.

APPENDIX II Guyana: Reform of the Insurance and Securities Trading Industries

1. Reform of the insurance and securities trading industries is an important element of the government’s effort to enhance the business environment and increase the role of the private sector in the country’s economic development. In December 1998 the parliament passed two bills to establish the regulatory frameworks for the insurance and securities trading industries. Two independent boards, the Insurance Commission and the Securities Council, would be formed and their respective heads appointed (by end-1999) to oversee the implementation of the two acts and monitor the activities of the insurance and securities sectors in accordance with the newly passed legislation.

2. The Insurance Act (1998): This act, drafted in collaboration with the associations of the insurers and insurance brokers in Guyana, replaced the previous insurance legislation developed in the 1970s. The act provided for the regulation of the insurance industry, including promotion of competition and consumer protection. The act opens new avenues for insurers to adequately cater for the needs of the insuring public, particularly through new products and better services.

3. Total assets of the insurance companies expanded rapidly from G$398 million in 1985 to G$10.8 billion at mid-1998. Guyana’s six insurance companies currently hold the largest share of the assets of nonbank financial institutions and can play a major role in mobilizing long-term financial resources and developing Guyana’s capital market. Insurance companies have pursued conservative policies in the investment of their substantial resources, opting mainly for the safety of the foreign sector. At mid-1998, about 45 percent of insurance companies’ assets were placed in foreign securities, loans and bank deposits, with the rest invested locally in the banking system (10 percent), private sector businesses (11 percent), government securities (1 percent), and other assets. The new act provides incentives to insurance companies to invest more in loans to local businesses (see below).

4. Key features of the new act are the following:

  • (i) The Commissioner of Insurance is to be invested with the power to regulate the insurance industry, a much stronger role than under the repealed act. The commissioner is appointed by, and reports directly to, the minister of finance and could be removed by him with the approval of the president. The commissioner is authorized to appoint actuaries, consultants, managers, and other staff. Under the new act, the commissioner is relieved from being the principal arbitrator in disputes between clients and insurer firms and agents, but he would be represented on an insurance arbitration board (see below).

  • (ii) The commissioner’s office may, if necessary, supplement its budget (primarily funded by registration fees, fines and allocations by the National Assembly) through a levy assessed on the insurance industry (insurers, insurance brokers, underwriters association and pension fund managers under the commissioner’s jurisdiction).

  • (iii) All insurers are required to make a deposit with the commissioner’s office and maintain statutory funds. Long-term insurers (life, health, and pensions) will deposit an amount equal to G$5 million per class of insurance business, while general insurers (accident, sickness, motor vehicles, etc.) will deposit the greater of G$5 million or 20 percent of net premium revenue in the preceding year. In addition, insurers are required to establish a statutory fund equal to their liabilities (to policyholders) and contingency reserves (less amounts deposited with the commissioner’s office). Long-term insurers are required to invest 85 percent (as against 95 percent under the previous act) of this fund in Guyana. Also, the act increased the fines for offences on companies and individuals.

  • (iv) The provision that all insurers should maintain statutory funds allows for greater consumer protection and corporate stability than under the repealed act, which required only long-term insurers to maintain statutory funds. Also, the new act provided incentives for companies to invest in the common stocks of the Guyanese companies by reducing the domestic investment required (from 85 percent to a minimum of 75 percent) if the insurer invested in the common stock or long-term debt of companies in Guyana. The act provides a similar incentive for the investments of funds of pension plans. These provisions are intended to coordinate the Insurance Act with the new Securities Act to promote investment in public companies in Guyana.

  • (v) Two new entities for dispute resolution are to be established: (a) an Insurance Arbitration Board (composed of representatives of the commissioner, and the associations of insurance firms and brokers) to resolve disputes between policyholders and insurers, and (b) an Insurance Board of Review (IBR) to listen to appeals of the decisions of the commissioner. Appeals from the decisions of the IBR are resolved by the High Court (instead of the minister of finance under the repealed act).

  • (vi) Insurance brokers and agents are to be directly regulated by the commissioner who is empowered to issue a code of conduct for them. This improves on the repealed act which required the commissioner to have insurance companies registered but not regulated by his office. Also, the new act authorized the commissioner to register and regulate pension plans (which previously fell under the jurisdiction of the Inland Revenue Department). This was deemed more appropriate since many pension plans are managed by insurance companies.

  • (vii) Policyholders are enabled to name beneficiaries and beneficiaries to collect benefits without being affected by the policyholder’s will (unlike under the previous act in which benefits were paid to the estate of the insured). Also, the act introduced a provision which prevented insurers from voiding policies based on the state of health of the insured (except if the insured failed to disclose something or lied about the state of his health). These provisions are considered to offer consumers greater protection than under the previous act.

5. The Securities Industry Act (SIA), 1998: The act regulates the securities issuance and trading in Guyana through provisions for the registration and efficient operation of securities’ issuers, brokers and dealers, and their respective associations. The act constitutes the first step in the development of a stock exchange in Guyana and repeals comparable parts of the Companies Act (1991) and the Capital Issues (Control) Act (1995). It aims to encourage long-term financing and capital formation by fostering a deeper and more efficient capital market, protecting purchasers of securities, and promoting professional and ethical conduct in the securities industry. It is expected that the act will allow wider ownership of shares by Guyanese and encourage more companies to go public to make use of available capital. Also, the act will assist in implementing transparent disclosure mechanisms for share offerings.

6. The act was modeled after the Trinidadian securities act, taking into account the local conditions, especially the relative immaturity of the Guyanese securities market (compared for instance to that of Trinidad and Tobago or Jamaica). This will increase the likelihood that the securities laws and practices developed under the act will be in harmony with those in neighboring Caricom states and enhance Guyana’s interest in becoming a significant participant in the regional capital market. To enhance the effectiveness of the act, the government has mounted a campaign to inform the public of the benefits of having a securities exchange. This is particularly important in view of the fact that there is no well established securities market in Guyana and most companies are family-owned businesses. Since December 1993, a Call Exchange has been in operation, but the trading has remained thin and the exchange has been witnessing a declining turnover.

7. Key features of the act are as follows:

  • (i) A Securities Council will be established to administer the act and advise the minister of finance on matters relating to securities. The council will have three-five members (including an officer from the Bank of Guyana), and a chairman—all appointed by the minister of finance. The council will appoint a manager to handle day-to-day operations and will be funded from appropriations approved by parliament and from fees paid by securities’ issuers and dealers, and other securities intermediaries.

  • (ii) Self-regulatory organizations (SRO), such as securities exchanges, clearing agencies, and associations of securities companies and intermediaries, will be recognized by the council (subject to approval by the Minister) and will be charged with the task of licensing of securities companies, dealers, and brokers. Relieving the council of the tasks of licensing and monitoring the conduct of market activities will reduce its administrative and financial burden and better ensure the application of substantive standards of professional and financial competency.1

  • (iii) Companies based in Caricom states or companies registered as foreign businesses in Guyana are eligible for registration with the council. This would promote economic regionalism within the Caricom and also encourage foreign investment and participation in the Guyanese securities market and business activity.

  • (iv) A self-regulatory clearing agency is to be formed for the purpose of enabling participants to trade in securities by book entry instead of physical delivery of certificates. This is expected to facilitate trading, enhance confidence and promote an efficient securities market.

  • (v) Comprehensive standards are set forth regarding malpractice, the conduct of business by securities professionals, insider dealings, and takeover bids. In particular, the act prohibits market rigging transactions (e.g. deceptive devices and schemes, “churning” or excessive trading in clients’ accounts etc.); mandates the disclosure of certain conflicts; requires the mailing of confirmations and the maintenance of records; regulates “insider trading” by requiring persons owning more than a stipulated percentage (to be established by the council) of a reporting issuer’s securities to publicly disclose the amount, nature and purpose of its ownership; and regulates certain aspects of takeover bids including requirements for public disclosure and treatment of all stockholders on equal footing (e.g. in case of excess tendering the purchase from all stockholders on a pro rata basis, or paying the best price to all tendering stockholders). The act stipulates that self-regulating organizations could not make rules (e.g. by virtue of the authority delegated to them by the council) that contravene these standards.

APPENDIX III Guyana: Summary of the Tax System as of December 31, 1998

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1

This approach of assigning licensing responsibilities to self-regulatory organizations rather than to the securities council or commission is similar to that used in Trinidad and Tobago and the United States (where in the latter the principal SRO is the National Association of Securities Dealers and its affiliate Nasdaq Stock Exchange), but not in Jamaica.

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Cover IMF Staff Country Reports
Guyana: Recent Economic Developments
Author:
International Monetary Fund
Volume/Issue:
Volume 1999: Issue 052
Publisher:
International Monetary Fund
ISBN:
9781451816730
ISSN:
1934-7685
Pages:
68
DOI:
https://doi.org/10.5089/9781451816730.002
Figure 1.

Guyana: Selected Economic Indicators, 1993–98