Report No. 25640-GUA
Report No. 25640-GUA
Guyana
Development Policy Review
The Challenges of Governance and Growth
November 6, 2003
Caribbean Country Management Unit
Poverty Reduction and Economic Management Unit
Latin America and the Caribbean Region
Guyana
Development Policy Review
Document of the World Bank
CURRENCY EQUIVALENTS
Currency Unit: Guyana Dollar (G$)
US$l.OO = G$179.53 (as of October 20,2003)
FISCAL YEAR
January 1 to December 3 1
ABBREVIATIONS AND ACRONYMS
Alternative Dispute Resolution
Automated Vote Book
Basic Needs Trust Fund
Caribbean Community
Country Assistance Strategy
Commonwealth Development
Corporation
Common External Tariff
CET
Canadian International
CIDA
Development Agency
Department for International
DFID
Development (UK)
Education For All Fast Track
EFA-FTI
Initiative
Economic Recovery Program
ERP
Economic Services Commission
ESC
European Union
EU
Foreign Investment Advisory
FIAS
Service
Gross Domestic Product
GDP
Gender Empowerment
GEM
Guyana Economic Management
GEMP
Project
Guyana Geology and Mines
GGMC
Commission
Guyana National Commercial Bank
GNCB
Investment Promotion Agency of
Go-Invest
Guyana
Guyana Power Limited
GPL
Guyana Revenue Authority
GRA
GUYSUCO Guyana Sugar Corporation
Guyana Water Authority
GUYWA
Highly Indebted Poor Country
HIPC
Health Management Committee
HMC
Interim Poverty Reduction Strategy
I-PRSP
Paper
ADR
AVB
BNTF
CARICOM
CAS
CDC
Vice President
Country Director
Sector Director
Task Team Leader
David de Ferranti
Caroline D. Anstey
Ernest0 May
Mustapha Rouis
IDB
IMF
LAC
MDG
MOE
MOF
MOH
NDC
NDS
NGO
NPV
OAG
ODA
OECD
PAC
PNC/R
PPP/C
PRGF
PRSC
PRSP
PSC
RDC
SAA
SIMAP
STD
STEP
UNDP
USAID
VAT
WPA
WTO
Inter-American Development Bank
International Monetary Fund
Latin America and the Caribbean
Millennium Development Goals
Ministry of Education
Ministry of Finance
Ministry of Health
Neighborhood Democratic Council
National Development Strategy
Non-Governmental Organization
Net Present Value
Office of the Auditor General
Official Development Assistance
Organization for Economic Cooperation and Development
Public Accounts Committee
People’s National Congress/Reform
People’s Progressive PartyKivic
Poverty Reduction and Growth
Facility
Poverty Reduction Strategy Credit
Poverty Reduction Strategy Paper
Private Sector Commission
Regional Democratic Council
Semi-autonomous Agency
Social Impact Amelioration Program
Sexually Transmitted Disease
Skills Training and Employment
Program
United Nations Development
Program
United States Agency for
International Development
Value Added Tax
Working People’s Alliance
World Trade Organization
GUYANA
DEVELOPMENT POLICY REPORT
The Challenges of Governance and Growth
TABLE OF CONTENTS
PREFACE
.............................................................................................................................................................
....................................................................................................................................
...............................................................................
POLITICAL ECONOMY
- A CRISIS OF GOVERNANCE
i
EXECUTIVE
SUMMARY
11
1.
1
HISTORICAL
S E ~ N G...................................................................................................................................
DEADLOCK
AND THE CRISIS OF GOVERNANCE
............................................................................................
SHARED GOVERNANCE
vs . INCLUSIONARY
GOVERNANCE
.........................................................................
BREAKINGTHE DEADLOCK-THEMAY2003 COMMUNIQUE .....................................................................
CRIME AND GOVERNANCE
IN GUYANA
........................................................................................................
PERCEIVED ROLEOF DONORS
......................................................................................................................
CONCLUSIONS...............................................................................................................................................
2.
ECONOMIC
TRANSITION-AN OVERVIEW OF DEVELOPMENT
OUTCOMES .............................................
POLICY AND INSTITUTIONAL REFORM .........................................................................................................
9
THECHALLENGEAHEAD............................................................................................................................
9
11
13
15
17
19
IMPROVING PUBLIC SECTOR PERFORMANCE AND GOVERNANCE
.........................................................
20
ECONOMIC
PERFORMANCE-MIXED RESULTS
..........................................................................................
FISCAL
POLICY AND DEBT
SUSTAINABILITY ..............................................................................................
POVERTY REDUCTION AND SOCIAL PERFORMANCE ..................................................................................
AID EFFECTIVENESS
AND AID COORDINATION ..........................................................................................
3.
1
1
3
3
6
7
7
IMPROVING
PUBLIC FINANCIALMANAGEMENT
.........................................................................................
.............................................................................................................
ACCELERATING
JUDICIAL REFORM
............................................................................................................
CONCLUSIONS.............................................................................................................................................
...........................................................................................
4 . INVESTMENT CLIMATE AND GOVERNANCE
PRIVATESECTOR PROFILE..........................................................................................................................
ELIMINATING STATE DISCRETION
..............................................................................................................
IMPROVING
FINANCIALINTERMEDIATION
.................................................................................................
STRENGTHENING INSTITUTIONAL
CAPACITY .............................................................................................
IMPROVING
INFRASTRUCTURE
...................................................................................................................
...................................................................................................
5 . INVESTING
IN HUMAN
DEVELOPMENT
SOCIAL WELFAREPERFORMANCE-MIXED RESULTS
...............................................................................
REFORMING THE PUBLIC SERVICE
20
22
24
25
27
27
29
31
32
33
3j
CONCLUSIONS
.............................................................................................................................................
3j
37
41
44
GAIN AND EXPORT
DIVERSIFICATION
.............................
46
REVITALIZING AGRICULTURE-SHIFTING TOWARDS
MORE
COMPETITIVE ACTIVITIES ..........................
SUSTAINABLE
MININGDEVELOPMENT
.....................................................................................................
IMPROVING
NATURAL
RESOURCES
MANAGEMENT
...................................................................................
DIVERSIFICATION
FOR FUTURE
GROWTH
...................................................................................................
PROSPECTS AND RISKS...............................................................................................................................
46
49
j0
51
52
REFERENCES
...................................................................................................................................................
62
CROSS-SECTORIALCHALLENGES...............................................................................................................
SECTOR-SPECIFIC CHALLENGES ..................................................................................................................
6.
MEDIUM
TERMOUTLOOK-PRODUCTIVITY
BOXES
Box 1.1:
BOX 1.2:
BOX 2.1 :
Box 2.2:
BOX 2.3:
BOX 5.1:
Box 5.2:
Box 5.3:
TABLES
TABLE 2.1:
TABLE 5.1:
TABLE 5.2:
TABLE5.3:
TABLE 6.1:
FIGURES
FIGURE2.1:
FIGURE2.2:
FIGURE 2.3:
FIGURE2.4:
FIGURE
2.5:
FIGURE 2.6:
FIGURE2.7:
FIGURE 4.1 :
FIGURE
4.2:
FIGURE 5.1:
FIGURE6.1:
FIGURE6.2:
ANNEXES
TABLE1:
TABLE2:
TABLE3:
TABLE4:
TABLE 5:
TABLE 6:
TABLE 7:
TABLE 8:
REVISING THE 1980 CONSTITUTION................................................................................... 4
CRIME INCREASEIN GUYANA
.............................................................................................
7
A PROFILE OF POVERTY IN GUYANA................................................................................
16
A N OVERVIEW ASSESSMENT
OF THE PRSP ...................................................................... 17
EXTERNAL
FINANCIALASSISTANCE
TO GUYANA,2000-2002 .........................................
18
HUMAN
CAPITAL FLIGHTFROM GUYANA
........................................................................
INDIGENOUS PEOPLE IN GUYANA
.....................................................................................
POVERTY-REDUCTION AND SAFETY NETPROGRAMS......................................................
39
42
44
ECONOMIC
INDICATORS ....................................................................................................
SELECTED SOCIAL INDICATORS: GUYANA
AND COMPARATORS, 2000 ...........................
SOCIAL SECTOR EXPENDITURES:
GUYANA
AND REGION, 2000 .......................................
GUYANA:SELECTED EDUCATION
AND HEALTH
INDICATORS, 1999-2003 ......................
GUYANA,MEDIUMTERM PROSPECTS
..............................................................................
11
35
37
37
54
GUYANA:REAL GDP GROWTH(% CHANGE)..................................................................
GUYANA:GROSS
DOMESTIC
INVESTMENT
(YO OF GDP) ..................................................
GUYANA.INFLATION ........................................................................................................
GUYANA,EXTERNAL
TRADE............................................................................................
GUYANA,REVENUE& EXPENDITURES
(% OF GDP) .......................................................
DONORS’
SHARE OF DISBURSEMENTS
TO GUYANA,FY2000-2002 .................................
DONOR’S
SHARE OF DISBURSEMENTS
TO GUYANA,FY2000-2002 .................................
REGULATORY QUALITY ....................................................................................................
RULEOF LAW
....................................................................................................................
PRO-POOR GROWTH SPENDING.........................................................................................
SUGAR CANE: AVERAGE
YIELD 1999-2001 .....................................................................
RICE, PADDY: AVERAGE
YIELD 1999-2001 .....................................................................
11
12
13
13
14
17
18
28
28
36
46
48
KEYECONOMIC
INDICATORS
...........................................................................................
NATIONAL
ACCOUNTS
......................................................................................................
EXPORTS
AND IMPORTS ....................................................................................................
BALANCEOF PAYMENTS...................................................................................................
EXTERNAL
DEBTSTOCKS AND FLOWS
.............................................................................
PUBLIC FINANCE
...............................................................................................................
INVESTMENT
CLIMATE .....................................................................................................
VULNERABILITYINDICATORS
...........................................................................................
66
68
72
73
74
75
76
76
PREFACE
The main objective o f this report-Development Policy Review-is to provide an up-to-date, integrated
assessment o f Guyana’s development policy agenda, with the main focus on governance, growth and
poverty alleviation. The report consists o f three parts: assessment of development outcomes (chapter 2),
discussion o f the development policy agenda (chapters 3-5), and assessment o f the medium-term outlook
(chapter 6). Chapter 1 discusses some o f the key political economy issues that are critical to this
review+thnic
and political tensions, as well as the surge in crime and violence. The report draws on the
extensive wealth o f existing analysis (published and unpublished-see
bibliography and extensive
footnotes), within and outside the World Bank, and highlights the critical areas where further research i s
needed. The analysis was supplemented by extensive interviews with a wide range o f representatives
from government ministries and agencies, private sector, research institutions, c i v i l society, the donor
community and some MPs o f the opposition and ruling parties.
The Bank team consisted o f Mustapha Rouis (Team Leader), John Blomquist and Homa Z. Fotouhi
(Bank staff); and Ashok Khanna, Hendrik Koppen, Selwyn Ryan and Steven R. Tabor (consultants). The
Peer Reviewers were: Edgardo M. Favaro and Auguste Kouame. Others who provided contributions and
comments included: Antonella Bassani, Gabriel Castillo, Joelle Dehasse, Lucia Hanmer, Norman Hicks,
John Nelmes, Rossana Polastri, Adrienne Pratt, Jyoti Shukla, Loretta Sprissler, and Daniel Wallace. The
report was prepared under the overall supervision o f Caroline Anstey, Mauricio Carrizosa, and Orsalia
Kalantzopoulos.
The Bank team i s grateful to all government and non-government officials and others who cooperated
with the team during i t s field work in Georgetown in March 2003. The report was discussed in draft form
with government officials in August 2003. Subsequently, additional written comments were received
from the government. The draft report found its way to the media and generated extensive coverage.
Although the present version o f the report reflects, to the extent feasible, most government comments, i t
does not necessarily represent the official views o f the government, particularly with respect to the
political economy analysis (Chapter 1).
i
EXECUTIVESUMMARY
Guyana i s at a crossroads. I t could either
bounce back into high growth, last seen during
most of the 1990s, or continue to slide back with
the risk that too many people would be trapped
in abject poverty and that the ethnic divide could
give way to violent conflict, undermining the
very gains that a decade o f economic reform has
brought. The choices depend on whether Guyana
would be able t o pursue effectively policies o f
social cohesiveness and political inclusiveness
and to improve the investment climate. In the
long-run, renewed growth w i l l have to come
from exports, given the small size o f the
domestic market, with private sector leading the
effort.
place. Devolution o f centralized government
decision-making i s underway, and plans to
address the constraints to human development
have been devised.
The pressing issue now i s the implementation of
the remaining reform agenda, which i s s t i l l
large. The PRSP needs to be updated as the
economic situation has since deteriorated, with
economic growth rate and government revenue
collection much lower than anticipated. Radical
improvement in the business climate, namely
through
macroeconomic
stability,
better
governance, and improved social capital and
physical infrastructure; diversification o f the
economic base into high-value, competitive
activities; and the restructuring of the traditional
sectors-mining
and sugar-are
necessary
conditions for a better economic outlook.
Despite the significant challenges to improved
governance and economic growth, there has
been good implementation progress in several
policy areas. In recent months, the Parliamentary
deadlock has been resolved, the security
situation in the country improved and the reform
program-macroeconomic
as
well
as
structural-is
back on track. The slippages,
which occurred on the macroeconomic front in
2002/2003, are now being addressed under the
recently-approved Poverty Reduction and
Growth Facility by the IMF. Among the key
structural measures adopted in recent months are
the amendment of the tax law and o f the
procurement law and the start of implementation
o f the sugar restructuring program.
Under these conditions, Guyana could achieve a
growth rate o f 3-4 percent per annum during the
latter part o f this decade and could reduce the
poverty incidence to around 30 percent. These
would be no small achievements, considering
that the economy i s bound to experience only a
modest recovery over the next 2-3 years, given,
for instance, the immediate impact o f the
restructuring o f the mining sector and the
closure o f the Omai gold mine.
Guyana-A
Crisis of Governance
Guyana i s a multiracial society, with people o f
Indian, African, Chinese and Portuguese descent
and i t s indigenous peoples. Over 80 percent o f
i t s population of some 770,000 persons are o f
African (33 percent) and Indian (48 percent)
provenience. The two dominant ethnic
communities have been jostling for economic,
social, and political power and status for over
half a century. The focus on ethnic security and
survival by political parties that count their
constituency as primarily peoples o f African
descent (PNC/R) or Indian descent (PPP/C) has
consumed a great
deal
o f political,
administrative, and judicial time and energy,
w i t h the result that little was l e f t to undertake the
These achievements come on top o f progress
made in other reform areas since the adoption by
the Government of the Poverty Reduction
Strategy Paper (PRSP) in 2001. This includes
reforms in the social sectors, in the water sector,
and in the monitoring and evaluation system
(with pro-poor growth spending on the rise and a
poverty expenditure tracking system put in
place). Privatization o f utility companies-at
a more
least at the management level-has
mixed record with good progress in the water
sector but set-backs in the electricity sector,
which has recently been taken back into
government ownership. Plans to improve the
management of the public sector are also in
11
sustained, and that the parties use the n e w
measures as platforms f o r confidence building.
This i s vital.
many policies necessary to facilitate growth and
development, or to fight corruption and crime
which have now become deeply embedded.
Guyana’s ethnically polarized political system
constrains governance reform in three key
dimensions: it gridlocks the mechanics of
parliamentary decision-making; i t undermines
respect for the rule o f law by allowing
considerations of ethnicity and party affiliation
to take precedence over impartial treatment by
the state; and it erodes social capital.
Economic Outcomes and Prospects
At Independence in 1966, Guyana had the
potential to be transformed from a low-income
commodity exporter into a prosperous gateway
linking North America, South America and the
Caribbean. But this was not to be. Cooperative
socialism was introduced from 1966 to the late
1980s. While initially, in the 1960s and 1970s,
growth and development advanced, b y the late
1980s the policies had a devastating impact on
the economy and social welfare: output
plummeted (-3.5 percent per annum during the
1980s), living standards collapsed, the quality of
social services eroded and infrastructure
deteriorated. B y 1988, Guyana could no longer
service i t s external debts.
Nowhere i s the crisis of governance more
evident than in the area o f security. In the last
two years, Guyana’s crime problem has
worsened significantly, to the point where some
Guyanese claim that the rule o f law and the
security and judicial systems have almost
completely collapsed. While it i s difficult to
determine the root cause o f the escalation o f
crime in Guyana, i t i s certain that the
deterioration in the security situation has
discouraged investment, severely compromised
good governance, and fueled migration. The
crisis o f governance i s also evident in the
continuing disagreement as to what political
model (the “winner takes all” vs. consensual
paradigm) i s most suitable for Guyana’s
demographic circumstances and historical
experiences.
The 1989 Economic Recovery Program (EFW)
marked the beginning o f Guyana’s transition
from a socialist regime to a market economy and
a democratic system. Substantial progress on
the reform agenda has been made since then:
price controls were eliminated,
import
prohibitions abolished, exchange rates unified
and floated, the tariff structure simplified and
rates reduced,
market-based interest rates
established,
and some 38
state-owned
enterprises were privatized or placed under
private management. This resulted in higher
growth (averaging 7.1 percent per annum during
1991-97) and lower poverty headcount (falling
from 43 percent in 1992 to 35 percent in 1999).
Agreements reached between the Government
and the major party o f the Opposition (PNC/R)
as a result o f efforts to resolve the crisis
brokered by the Heads o f State o f the Caribbean
Community in the late 1990s, have been slow to
deliver concrete results. However, in May 2003,
the Government and the PNC/R issued a
Communique‘ whereby both parties agreed to
accelerate
the
implementation
of
the
constitutional and parliamentary reforms that
had been previously agreed upon.
Since 1998, the policy reform momentum has
slowed down because of a host of factors.
Unlike the first-generation of transition reforms,
transforming public institutions and practices i s
a more difficult and contentious process.
Moreover, adverse movement in the terms of
trade, the El Niiio drought, elections, civil
disturbances, criminality and labor unrest
weakened the authorities’ resolve to reform. In
some areas, such as privatization and fiscal
discipline, previous reforms have started to
unravel. As a result, the economy has been
moving side-ways, with economic growth
Since M a y 2003 the Government and the
Opposition have been working together to
implement the Communique’ and as o f
September significant progress had been made,
which suggests that both parties have taken their
responsibilities with respect to
improved
governance seriously. This augurs well for the
future providing, o f course, that the trust i s
...
111
averaging only 0.7 percent per annum between
1998 and 2002.
Revitalizing agriculture. Agriculture employs
70 percent o f the population and accounts for
one-third of GDP and nearly half o f merchandise
exports. Weak support services, deterioration of
the drainage and irrigation facilities, high cost
farm-to-market infrastructure and insecure land
tenure are amongst the key impediments to
agricultural growth. The sugar sector-a major
activity which has seen recently some
improvement in terms o f yields and
production-faces
tremendous challenges: the
uncertain access to preferential European
markets, l o w and declining world prices, and
antiquated factories. The state-owned sugar
company’s plan for the restructuring o f the sugar
industry i s a step in the right direction. In the
long-run, assuming that the sector becomes
competitive-which i s a big challenge-cane
producers w i l l need to share in both production
risks and returns, if the sugar sector i s to be an
engine o f rural development and poverty
reduction. This has been done in Thailand and
Malaysia, for instance, where state-owned
plantations were transformed into smallholdercooperatives and smallholder-owned limited
liability companies.
Fiscal and debt sustainability. In-spite o f the
substantial fiscal achievements under the ERP,
fiscal sustainability remains a concern. Since
the late 1990s, there has been a serious fiscal
spending
erosion,
with
public
sector
expenditures rising by 10 percentage points o f
GDP, after having fallen by twice as much
during the 1990s. Much of the rise can be
explained by a f i f t y percent increase in the wage
bill and a four-fold increase in subsidies (for the
bauxite and sugar sectors). The Government
acknowledges that public spending must be
substantially reduced ifmacroeconomic stability
i s to be maintained and scope i s to be created for
The Poverty Reduction
private initiative.
Strategy Paper (PRSP) calls for a reduction of
ten percentage points to about 36 percent o f
GDP b y the year 2010.
In-spite o f substantial debt relief under the
Highly Indebted Poor Country (HIPC) initiative,
Guyana’s external debt position remains
vulnerable to external shocks because of
volatility in export commodity prices and
uncertainties about access to preferential export
markets for sugar and rice.
Similar to sugar, Guyana has had recourse to
preferential market access for rice in the
European Union, where prices have ranged from
two to three times the world market level.
Given that rice production i s highly labor
intensive and wages in Guyana are four to five
times that in the low-cost Asian states, the longterm competitiveness o f this activity i s
questionable. The main immediate challenges
facing the rice sub-sector include the need to
strengthen research and extension services,
rehabilitate
drainage
and
irrigation
infrastructure, resolve mounting credit arrears
and improve the quality o f exports. With an end
to preferential market access approaching,
diversification into crops that can be produced
more competitively for export i s warranted.
Guyana produces a wide variety o f fruits,
vegetable and other crops, many o f which, if
grown with modern technology, have better
global market prospects than rice and sugar.
The prospect in forestry i s encouraging,
provided that
appropriate environmental
measures are put in place.
I t i s estimated that at the end of 2003, after debt
relief under the enhanced HIPC assistance and
after completion point, NPV of debt to revenue
would stand at 215 percent (compared to the EHIPC benchmark of 250 percent) and NPV of
debt to exports at 75 percent (compared E-HIPC
benchmark o f 150 percent). Both ratios are
below the projected figures at the decision point.
At present, progress towards the E-HIPC
completion point i s far advanced.
Debt management remains a concern, with
debt
managed
domestic
and
foreign
independently. Domestic debt, in the form o f
treasury bills and debentures, stood at 7 1 percent
o f GDP at the end of 2002. Guyana’s domestic
debt could become an important source o f
vulnerability,
unless
addressed b y the
Government.
iv
Promoting the Investment Climate
Restructuring the mining sector. Guyana has a
substantial mining potential. At present, mining
activities are concentrated on bauxite, gold and
diamonds. Guyana’s bauxite deposits yield highquality bauxite used for the refractory, abrasive
and chemical markets. In the 1960s, Guyana
supplied nearly three-quarters of global demand
for these products and alumina. Since then,
Guyana has lost market share as new
competitors (Brazil and China) entered the
refractory market with a lower priced and
superior quality product. Efforts to restructure
and privatize the distressed bauxite mines are
underway. With restructuring and identification
of
alternative markets,
Guyana’s
total
production o f metallurgic and non-metallurgic
bauxite could increase by 25 percent over the
next five years. The largest existing gold mine i s
expected to be exhausted by 2005. In the case o f
diamonds, most o f what i s now produced are
alluvial, industrial grade diamonds. Increasing
output w i l l require either chemical treatment to
raise recovery rates (which poses environmental
risks) or new investment in larger-scale mines.
If the Government introduces reforms that
encourage greater private investment in
sustainable mining, gold production could climb
back to i t s current level by 2010 and diamond
production could rise by at least 30 percent over
the next five years.
Good progress has been made in recent years in
improving Guyana’s economic policy regime.
The Government has recently taken important
steps to improve the business climate. I t
introduced a series o f fiscal reforms, submitted a
revised investment law to Parliament and
adopted a new public sector procurement law.
But, there are s t i l l important issues-policy as
well as implementation-which
are not
conducive to private sector development and
impede Guyana’s competitiveness within and
outside the region. The fiscal incentives are
often discretionary, and there i s no level playing
field. Many licenses are required to start up and
operate a business, and they are difficult to
obtain and renew. Impediments to clearing
goods through customs and irregularities in
public procurement continue. T h e legal and
judicial systems are cumbersome and subject to
a large degree o f discretion. Infrastructure i s a
serious bottleneck: Guyana lacks a deep-water
port, i t s road system i s deficient, electric power
is
unreliable
and
expensive,
and
telecommunications
services
are limited.
Qualified workers and managers are scarce
because o f emigration. The main problem for
business investors i s the perception of physical
risk resulting from riots in Georgetown.
Environmental Framework
Improving Public Sector Management and
Governance
Given Guyana’s natural resources’ endowments
(agriculture, forestry, mining and water) and the
central role of their exploitation for the country’s
economic
development,
any
sustainable
development strategy w i l l require a broader
environmental framework
that
combines
environmental, economic, and social concerns.
Such a framework should include policies and
institutions regulating user rights and obligations
in exploiting the country’s natural resources and
protecting areas for conservation.
The
Government i s committed to addressing
environmental issues, as spelled out in its recent
National Environmental Action Plan, but there i s
a need for a more focused and consistent
approach to these issues.
Widespread dissatisfaction with the provision of
public services have focused attention on the
quality o f governance, in particular on three key
aspects: financial management, public service
reform, and judicial reform. Given the large
share o f public spending in GDP, successful
development depends greatly on how well
public funds are used, as well as on a better
balance
between
public
and
private
expenditures.
The expenditure management
process i s in need o f major improvement.
Considerable technical assistance has been, and
continues to be, provided, but capacity
constraints and poor govemance limit i t s impact.
While progress i s being made in strengthening
external audit and procurement, reform o f the
V
Investing in Human Development
budget and accounting systems i s expected to
take time to implement. Improvements that
could be made in the near future include timely
approval o f the budget; greater fiscal
transparency on the part of a growing number of
semi-autonomous agencies; reduction in the
discretionary power of Government officials;
and adoption o f the audit act and the
procurement regulations.
The long-term goal o f reducing poverty in
Guyana depends on the success of its human
capital development. This recognition i s at the
core o f both the National Development Strategy
(NDS) and the PRSP. Guyana’s key social
indicators have improved since the launching o f
the Economic Reform Program in the late 1980s.
Yet basic indicators remain significantly below
those o f most other countries in Latin America
and the Caribbean. M a n y o f the challenges to
human development and service provision have
long been recognized b y Government and
stakeholders. They are largely inter-related and
include the following: the retention o f qualified
staff at all levels; the strengthening o f planning,
budgeting and monitoring processes at the
central line ministries; the formalization of
functional roles o f local government and service
agencies; and the clarification o f the role o f c i v i l
society, private sector, and NGOs in the delivery
and monitoring o f social services within a
devolved policy environment. The burden on
public social programs i s likely to grow with the
restructuring
of
traditional
industries,
necessitating greater reliance on short-term
social protection interventions.
Despite large court-enforced civil service wage
increases in 1999 and 2000, which led to sharp
rises in the wage bill-nearly
doubling as a
share o f GDP-and a hiring freeze, pay levels
and differentiation in the public sector are
insufficient to retain skilled staff. The pensions
database has been improved, a payroll audit has
been completed, and a series o f institutional and
organizational
capacity
assessments
are
underway to assist in the design o f a public
sector modemization program. However, to
attract qualified staff, the overall size and
structure of the public sector, and the
compensation system, w i l l have to be examined
within the constraints imposed by the budget and
what i s considered an affordable wage bill. An
effective working relationship with the unions
w i l l be crucial for this to be achieved.
In addition to these cross-sectoral challenges,
there are a number o f sector-specific challenges
which need to be addressed. In health, a major
priority i s the consolidation o f management and
service delivery reforms. In education, priorities
include teacher
training and retention,
availability o f books and school supplies, and
accessibility and affordability o f school
attendance. In social protection, the system
would benefit from consolidation o f programs,
better integration and coordination o f programs
across ministries, and improved benefits.
Priorities in the water and sanitation sectors
should be first infrastructure rehabilitation and
maintenance, and rationalization o f existing
facilities; and second expansion of water and
sanitation access to rural communities. The
housing difficulties can be largely attributed to
outmoded laws and procedures which need to be
addressed.
Decision-making i s highly centralized, with
most decisions, which could be expected to be
made at lower levels (individual ministers or
departments), being instead made by the
Presidency. Responsibility and accountability
for decisions need to be devolved to appropriate
levels o f Government.
The justice system
suffers from long delays and a serious backlog
o f cases, and there i s concern about the quality
o f judicial decisions. There are not enough
judges, those who are there are poorly trained
and equipped, and judicial procedures are often
cumbersome. Addressing all these issues i s a
matter o f urgency, so as to improve the social
and economic environment. Recent steps in
reviewing the criminal justice system and
exploring the use o f Alternative Dispute
Resolution methods are steps in the right
direction.
vi
The Amerindians, who make up about 8 percent
o f the population, are especially vulnerable, with
80 percent falling below the poverty line.
Although
Amerindian
communities
are
integrated to some degree into the cash
economy, the majority still engage largely in
subsistence activities and thus depend on the
natural
resources
of
their
immediate
environment (agriculture, forestry, mining)
which are under environmental threat. The
Government has implemented some programs
aimed at reducing poverty among the
Amerindian communities through improving
access to employment opportunities and
enhancing the delivery of basic services. I t has
also undertaken a program o f institutional
reforms to address the issues o f economic and
social development among the Amerindians,
including the establishment o f the Ministry o f
Amerindian Affairs. However, the Government
has yet to elaborate a comprehensive strategy for
fully addressing Amerindian concerns, notably
access to land, environmental degradation, and
economic empowerment.
Development Policy Agenda
Guyana i s a country heavily studied and most
issues are well known. What i s urgently needed,
however, i s the full and speedy implementation
o f the recommendations of the various studies
such as the country financial accountability
assessment, country procurement assessment,
taxation study, sugar sector study, and public
sector modernization work. In-spite of the
extensive economic and sector work on Guyana,
there i s s t i l l a knowledge gap in some critical
areas such as in the role o f central and local
governments in the delivery o f social services,
the functioning and performance o f semiautonomous agencies, the impact o f emigration
on the economy, audit of the judicial system,
and the causes and impacts o f the crime situation
in the country. In addition, project feasibility
studies need to be undertaken to shed light on
the
merit o f
strategic
investment
in
infrastructure: such as a deep-sea port, a road to
Brazil, and an export processing zone.
The attached matrix presents an agenda o f key
policy reforms that can help to propel Guyana
back onto a pathway of higher economic growth
and poverty reduction. The agenda i s neither
complete nor comprehensive. Progress on the
items listed w i l l require:
First and foremost, resolution o f the political
and ethnic divide that fosters lawlessness,
instability and uncertainty. The agreements
reached between the Government and
Opposition party in M a y this year are
important steps in improving governance,
and progress in their implementation needs
to be deepened and sustained;
An in-depth analysis of the causes and
impact o f the crime situation in Guyana,
though the security situation has improved
in recent months. The study should lead to
an action plan to enhance the capacity of the
security services with the aim o f improving
the security environment in the country; and
National courage and conviction to ensure
that difficult reforms are implemented
effectively and in a timely manner. High on
the agenda are reforms to improve public
sector management, the investment climate
and human development, and to foster
economic diversification. Notwithstanding
the need to restructure the traditional
sectors, Guyana needs to move urgently into
a new strategic direction-one
that
emphasizes private sector development and
economic diversification.
The proposed reform agenda i s pro-poor growth,
which i s consistent with the thrust o f both the
PRSP and the HIPC Initiative. I t consists
largely o f policy actions which have proven to
be effective (based on a wide body o f crosscountries’ empirical research) in promoting
growth
and
reducing poverty,
namely
macroeconomic stability, investment in human
capital, institutional reform, and governance.
Given the current challenges in the political and
security climate in the country, i t i s also
expected that improvements in these two areas
w i l l have major impact on growth and poverty.
vii
e
e
e
e
e
. e
e .
e
e
e
e
e
e
. . . . . .
.. . .
Y
9
m
X
.
. .
I
.
.
....
Y
1.
POLITICAL ECONOMY
- A CRISIS OF GOVERNANCE
Historical Setting
1.1
Guyana i s located on the northern coast o f South America, and i s the only English speaking
country on that continent. I t i s bounded on the north by the Atlantic Ocean, on the east by Suriname, on
the south and south west by Brazil, and on the north and west by Venezuela. Ethnically, Guyana i s a
multiracial society, with people of Indian, African, Portuguese and Chinese descent and its indigenous
peoples. Over eighty percent o f i t s population o f some 770,000 persons i s o f African and Indian
provenience. The Indo-Guyanese, who are in the majority, constitute some 48 percent o f the population,
live largely in the rural areas, and are associated with the sugar and the rice sectors. The Afro-Guyanese
account for some 33 percent, live largely in the urban areas and are associated with the civil service and
the mining sector. The indigenous Amerindian population i s estimated to be 8 per cent while the mixed,
white, and “other” groups together account for the remaining 11 per cent. In the absence o f up to date
census data (a census i s currently being processed), and given very substantial migration, these figures are
at best guesstimates.
1.2
Guyana achieved self-government in 1953 and won i t s independence in 1966 under the leadership
of the People’s National Congress (PNC), one o f Guyana’s two major political parties. The other major
political party, the People’s Progressive Party/Civic (PPP/C), from its very beginning, sought to unite the
two major racial groups in the society. I t s success in achieving this goal was short lived. A traumatic and
painful split along ethnic and ideological lines occurred in 1955. The failure o f that experiment in
political unity continues to cast i t s shadows on politics in contemporary Guyana.’
1.3
Prior to and following upon Independence, the two largest ethnic communities jostled for
economic, social, and political power. Each group wanted to be “on top” and to gain advantage and
maintain paramountcy. Ethnic security was deemed an imperative, seemingly even more important than
economic well being. The strategies used over the succeeding 50 years to achieve ethnic dominance
included, inter alia, constitutional engineering, executive aggrandizement, parliamentary marginalization,
boycotts o f parliament, patrimonial resource allocation, ideological posturing, and politicization of
bureaucratic appointments. The focus on ethnic security, survival, and competitive prestige consumed a
great deal o f political, administrative, and judicial time and energy, with the result that little was left to
undertake the many policies that were necessary to facilitate growth and development, or to discourage
corruption and crime which have now become deeply embedded.’
Deadlock and the Crisis of Governance
1.4
The PPP/C came to power in 1992 in what were generally regarded as free and fair elections.
Despite the fact that the ruling party enjoys majority control o f the legislative and executive branches, the
political system has been characterized b y deadlock. This i s in part due to the fact that the AfroGuyanese, who are the main supporters o f the opposition PNC, are dominant in the public sector
generally, and in the police and defense forces in particular. B y virtue o f i t s control o f the capital city
Georgetown, the Opposition also frequently paralyses the city to further i t s political agenda. The ruling
party has often complained that i t lacks effective political space and that many critical decisions which i t
makes are routinely perceived as being driven b y racial or party considerations, and not b y concern for the
national interest. Policy decisions are thus routinely delayed or deferred, and the Government i s regarded
by supporters and detractors alike as being i r r e ~ o l u t e .The
~ main opposition party, the PNC/R i s also
politically risk averse and fearful o f taking decisions which might alienate either i t s militants or i t s middle
class supporters. Decision avoidance has thus become both a strategy and a tactic. In sum, both parties
1
find it difficult at crucial times to accept the political costs o f doing what i s right or necessary in the
national interest.
1.5
National surveys indicate that most of Guyana’s political and state institutions lack cross ethnic
l e g i t i m a ~ y .C
~ i v i l society groups are also ethnically typed and accused o f being politically partisan. The
suspicion as to motive and bona-fides serves to disempower and inhibit their involvement in social action.
Civil society groups also show reluctance to become involved in the political process. Efforts to reform
state bodies, whether b y constitutional restructuring, or b y administrative or judicial improvement have
had their effectiveness undermined. Efforts have been frustrated in part because each group looks at what
i s proposed in terms o f zero sum outcomes, rather than in terms o f “win-win” alternatives.
1.6
The political environment and the political culture are deeply rooted in the past. The PPP often
complains about i t s past marginalization, especially the years 1964-92, during which it was forced to
languish in opposition in spite o f the fact that i t represented the largest group in the society. The PNC i s
seen b y Indo-Guyanese and even some Afro-Guyanese who support the Working Peoples Alliance
(WPA) as a symbolic enemy, and deemed to be an inappropriate party with which government cannot be
shared. The PNC, for i t s part, often seeks to delegitimise the PPP and questions i t s capacity for good
governance as stated repeatedly in i t s press releases. I t has endorsed the “shared governance” concept,
but has made it clear that i t believes the formula would only work if the PNC was the hegemonic party.
In the view o f i t s leaders, power must be re-won. Groups in c i v i l society and small parties such as the
WPA that seek to follow a “third way”, complain that both major parties use strategies and modes o f
communication that polarize the society. Both are charged with playing the “race card” when ne~essary.~
1.7
At the local level there are several issues that need to be addressed in order for the local
government system to be more responsive to the needs of local communities. Most importantly, local
government elections have not been held since 1994. The Local Government Reform Task Force, a bipartisan body established by the leaders o f the PNC-R and PPP/C to make recommendations for a revised
local government electoral and administrative systems consistent with the 200 1 Constitutional Reform,
has not yet presented i t s recommendations to the leaders o f the two parties. The submission and
acceptance o f the recommendations o f the task force b y the two leaders are required before the new
electoral legislation i s drafted and approved.
1.8
The Guyana Poverty Reduction Strategy Paper (PRSP, 2001) recognized poor governance as one
of the key constraints to the achievement o f poverty reduction, and it listed five main indices of poor
governance. These were: (i)poor performance o f the Regional Democratic Councils (RDC) and
Neighborhood Democratic Councils (NDC); (ii)insecurity and inadequate access to justice;
(iii)
corruption and lack o f accountability; (iv) discrimination; and (v) insufficient attention to
decentralization. The National Development Strategy (200 1-20 10) also makes the point that ”there can be
little lasting and sustainable social and economic development in the absence o f good governance. This i s
true for all societies, [but] especially so for multi-racial societies such as Guyana in which fixations with
ethnic origins often transcend policies, plans, strategies and performance.”6
Guyana’s contemporary crisis i s in a profound sense, a crisis o f governance. The social and
1.9
economic problems facing the country, and i t s inability to develop i t s fabled resource potential, i s in the
final analysis, the result o f political factors which are deeply embedded in, and driven by the country’s
demographic realities and historical experiences. The crisis i s also due to the failure o f the postindependence political class to do the things necessary to transcend that historical and demographic
inheritance.’
2
Shared Governance vs. Inclusionary Governance
1.10
Guyana's political system i s a hybrid that combines elements o f both the Westminster and the
Philadelphia models.* For one thing, i t s current electoral system does not take a first-past-the-post form,
but rather i s a mixed version of proportional representation in which 40 seats are deemed national and 25
are deemed regional. A third o f all the candidates nominated must be female. The introduction o f
geographic representation for the 2001 election was a response to complaints that in a system which
regarded the whole country as one constituency with a national list, no national parliamentarian was
responsible for any particular region. As a result, there was no member o f parliament to whom
constituents could turn if they had a problem. I t should also be noted that, unlike in other Caribbean
states where the Head o f State i s ceremonial, Guyana has an elected President who has extensive
executive powers.
1.11 The crisis o f governance i s evident in the continuing disagreement as to what political model i s
most germane to Guyana's demographic circumstances and i t s historical experiences.'
There i s
continuing controversy as to whether the "winner takes all'' Westminster model should be retained as the
operating paradigm, or whether it should be replaced by a more consensual paradigm. The PPP/C i n s i s t s
strongly that the basics o f the Westminster model should be retained, albeit with arrangements which
would enhance the power of the National Assembly, while the PNC has argued with equal vehemence for
executive power sharing which it sees as the only formula that would ensure ethnic security and genuine
inclusiveness. The advocates of executive power sharing argue that the "winner-takes-all" formula i s
exclusionary and undemocratic, and that Guyana's chance o f achieving stability and good governance
w i l l only come when all groups in the society feel that they are equitably represented in the power
relations o f the state. At issue here i s not only symbolic representation which i s deemed to be critically
important, but economic and political security as well. For this group, the alternative to power sharing i s
persistent conflict, state failure, and political collapse.''
1.12
Those who oppose executive power sharing claim that i t w i l l divide and polarize the country even
more. They also argue that it w i l l institutionalize political horse trading which would in turn obscure
transparency, inhibit accountability, and increase corruption since political power w i l l be monopolized b y
an "elite cartel". The consensual system, which i s currently in place in neighboring Suriname, frustrates
reform minded groups in civil society as well as out parties who have no alternative but to seek to outbid
those within the cartel. Executive power sharing i s thus seen to be contrary to the norms o f Caribbean
democracy which i s patterned on the British model which assumes a government and an adversarial
opposition operating inside the parliament.
The PPP i s opposed to power sharing because o f the negative consequences said to be associated
1.13
with it, including the institutionalization of ethnic rivalry and the absence of political opposition. I t also
argues that "no continued system o f governance w i l l succeed in a situation where t r u s t and good faith do
not exist between the political parties." Some observers argue that the PPP fears that concessions to the
PNC would be regarded by i t s supporters as appeasement and a sign o f weakness."
Breaking the Deadlock-The
May 2003 Communiquk
1.14
The existence o f a crisis o f governance in Guyana i s recognized and acknowledged b y almost all
political parties and civil society groups in the country. Under pressure from indigenous and international
stakeholders, the leaders o f the ruling PPP/C and the opposition PNC/R met during the early months o f
2003 and signed o f f on a complex o f constitutional and political arrangements which served to break the
parliamentary deadlock which had characterized Guyana's political process for close to 14 months. In a
Communique' dated M a y 6", 2003, the President and the Leader o f the Opposition indicated that they had
held constructive discussions in an atmosphere o f seriousness born o f their recognition o f the need to find
3
“immediate solutions to problems which go to the heart o f Guyana’s socio-economic and political
development.” They also indicated that they had made firm commitments to a timetable for the
expeditious implementation o f the agreed solutions.’*
4
1.15
The Leaders reached agreement on the composition and terms o f conditions o f operation for the
various parliamentary committees and commissions which had previously been agreed to in principle as
part o f the constitutional review exercise (see box 1.1). The Constitutional reform was the outcome o f the
Herdmanston Accord o f 1997 and the St. Lucia Statement o f July 1998, both o f which had been brokered
by Heads o f Government of the Caribbean Community (CARICOM) in the wake o f the PNC/R’s refusal
to accept the results o f the 1997 General Election.
1.16
Among the decisions which were formally announced in the CommuniquC were the following:
0
0
0
0
0
0
0
0
The creation of seven new standing committees o f the National Assembly which brought to
twelve the number o f functional committees on the Assembly’s establishment;
The establishment o f a Parliamentary Management Committee, the critical need for which
had been agreed to by the St. Lucia Statement;
The establishment of four sector committees that would monitor the key policy areas o f
foreign relations, natural resources, economic services and social services. The committees
were to consist o f 7 members, of whom 4 would be members o f the PPP/C and 3 o f the
PNC/R. The chairmanships o f the committees were to be shared equally b y the two major
parties and were to rotate every two years;
Agreement on the composition and terms o f appointment o f the Constitution Reform
Committee. This parliamentary Committee was to be mandated to keep the Constitution
under on-going review and reform in order to strengthen and deepen the democratic process;
The undertaking o f steps to provide the necessary financial, human, administrative and
physical resources, within the capacity o f the National Treasury, to allow for the effective
functioning o f the National Assembly and i t s various policy and managerial committees.
Given the increased workload o f parliamentarians, their remuneration package was to be
reviewed;
The immediate implementation o f steps to have the various Constitutional Commissions
appointed, including the Judicial, Public Service, and Police Service Commissions, as well as
the Public Procurement, Human Rights and Ethnic Relations Commission and i t s Tribunal. I t
was also promised that the controversial Public Procurement Act No. 6 o f 2002 would be
amended, and that the new Act would be reviewed by the Public Procurement Commission
following i t s appointment;
The appointment o f a Disciplined Forces Commission b y the President after consultation with
the Leader o f the Opposition. The terms and conditions of the Commission would include,
inter alia, an examination of the ethnic composition o f the Discipline Forces, and would give
priority to the operations o f the Guyana Police Force. That inquiry was to be completed
within 3 months o f i t s commencement; and
The establishment o f adequate provisions for the effective functioning o f the Constitutional
office o f the Leader o f the Opposition.
1.17
In addition to these long outstanding constitutional and political matters, the two leaders also
resolved to implement those decisions that had previously been agreed to b y the bi-partisan “dialogue”
committees which had been appointed following the 2001 election b y President Jagdeo and the late
Leader o f the Opposition, Desmond Hoyte. That dialogue process had collapsed in March 2002, amidst
charges and counter charges o f failure to implement decisions agreed upon, and had prompted the P N C R
to walk out o f the National Assembly and boycott i t s proceedings for 14 months. The committees had
dealt, inter alia, with the allocation and distribution o f house lots, local government reform, the needs o f
5
depressed communities, the state radio monopoly, border and national security issues, the resuscitation o f
the bauxite industry, and the membership of state boards, commissions, and committees. Ominously, the
vexed question o f the politicisation o f the Public Service was deferred. The President and the Leader o f
the Opposition also agreed that the PPP's paper, Towards Inclusive Governance in Guyana (2002) would
be discussed and dealt with at a subsequent meeting.
1.18
Since M a y 2003 the Government and the Opposition have been working together to implement
the CommuniquC and in September 2003 the high representatives o f both parties reported to a
stakeholders group on what had been achieved to date. As of September significant progress had been
made, which suggests that both parties have taken their responsibilities in respect o f improved governance
s e r i ~ u s l y . ' ~This augurs well for the future providing of course that the trust i s sustained, and that the
parties use the new measures as platforms for confidence building. The measures should be given a
chance to work before any further installments o f power sharing are contemplated. I t seems certain,
however, that elements within the PNC w i l l continue to make demands for power sharing at the executive
level and that the PPP w i l l continue to resist such demands. The PNC i s aware that voting in Guyana i s
akin to a racial census and that ethnic support for the two main parties i s virtually automatic. Given the
numerical dominance of the Indo-population and the PPP/C, the Opposition sees itself as being likely to
be permanently excluded from the comdors o f power.
Crime and Governance in Guyana
1.19
Perhaps nowhere i s the crisis o f governance more evident than in the area o f security for life and
property. In the last two years, Guyana's crime problem has become worse than i t ever was, to the point
where many believe that the rule o f law, and the security and judicial systems have almost completely
collapsed. Confidence in the army (GDF), the police (GPF), and the judiciary have largely evaporated. In
the past, the GPF, which traditionally drew close to 90 percent o f i t s recruits from the Afro-Guyanese
population, was feared by the Indo-Guyanese. Most of the complaints about police brutality and "extra' ~ emanate
judicial killings" (Le., people being shot by the policy or dying while held in c ~ s t o d y ) now
from the Afro-Guyanese population, which accuses the Government o f having created an elite Tactical
Special Squad (TSS) within the GPF which i s engaged in illegal activities and uses excessive force. The
TSS i s also accused o f targeting political opponents o f the ruling party.
1.20
Each group views the crime problem through ethnic or political lenses. Afro-Guyanese claim that
they are the principal victims o f extra-judicial killings. The Indo-Guyanese, for their part, claim that they
are the ones who are robbed, beaten, kidnapped and killed.I5 Spokespersons for the Indo-Guyanese
community blame a weak Government for the crisis, as well as the PNC which they accuse o f protecting
and glorifying petty criminals who pose as "resistance fighters." The Government denies that the TSS i s
either ethnically or politically partisan, and charge the PNC with seeking to demoralize the police service
and to undermine public confidence in i t s performance and professionalism.
1.21
The problem of crime i s complex and many sided, and different explanations are offered b y
analysts depending on their political and ethnic affiliation (see box 1.2). I t i s widely recognized that the
crime problem i s extremely critical and has served to destabilize the society and the political system in
general, and the economy in particular. I t generates fear and anxiety, fuels migration, discourages long
gestation investment needed to reinvigorate the economy, and severely compromises good governance.
Although the security situation, including in the village o f Buxton,I6 has improved in recent months, an
in-depth analysis o f the causes and impact o f the crime situation in Guyana i s s t i l l needed. The study
should lead to an action plan to enhance the capacity o f the security services with the aim of improving
the security environment in the country.
6
Perceived R o l e of Donors
1.22 There i s an ongoing discussion as to the role currently being played by bilateral and multilateral
lending and donor agencies. There i s a view within opposition circles that much o f the aid and
concessional loans that are channeled to Guyana are not properly used and accounted for. Donor agencies
were also criticized by groups in civil society for seemingly not doing enough to bring pressure to bear on
Guyana's political parties to get them to end the political impasse which was contributing to the "crisis o f
governance" which Guyana i s currently experiencing. Members o f the WPA and the PNC have called
to stop bankrolling the ruling party unless
upon donor countries and multilateral financial institutions: (i)
i t takes steps to reform itself and the procedures it uses, particularly in the area o f public procurement,
financial management and accounting, and the use o f discretionary powers exercised selectively b y public
officials for personal and political enhancement; and (ii)to ensure that agreements or protocols entered
into with donor agencies are shared fully with the parliamentary parties, and are made available for timely
debate in the National Assembly and b y the public.
1.23
While many agree that the Government o f Guyana has not fulfilled donors' expectations, they
also recognize that sanctions involving the cessation o f aid or concessionary funding under the PRSP w i l l
have a negative impact on development efforts in the country and the welfare of i t s people. Close to half
o f the funds which Guyana needs to close gaps in i t s budget comes from concessional funding, and great
hardships would ensue if such funding were not forthcoming. Poverty reduction programs and vital
humanitarian services would be sharply impaired. Also, many infrastructure projects such as building
roads and bridges, or repairing sea wall defenses would have to be curtailed or abandoned.
1.24 Donors could, through increased collaboration both among themselves and with the authorities,
ensure that the Government o f Guyana delivers on commitments made in respect o f the PRSP for which it
can reasonably be held responsible. The Opposition and stakeholders in c i v i l society have a role in the
good governance process, and need to be better informed about what contractual agreements the
Government o f Guyana undertakes in the name o f the people, as i s constitutionally required by terms of
Article 13 o f the revised Constitution. The donors could also help the government to enhance the
capability o f the security services with the aim o f reducing the incidence o f extra-judicial, inter-ethnic,
and drug related killings. Some Government programs are already underway with the help o f the British
government which i s providing training and new equipment for the GPF and the GDF which seem to be
having a positive effect on the crime situation.
Conclusions
1.25
In 1992, Guyana, with the help o f the regional and international community, opted for political
reform. Free and fair elections were held in that year and initiatives, which were begun in the eighties
under the PNC to liberalize the economy, were continued. There followed a period o f dynamic economic
recovery and growth. Economic growth has since slowed considerably, and the consolidation o f political
democracy which many expected has not materialized. Indeed, Guyana i s once more at a tipping point,
7
and could either go backwards or begin anew the long-march to improved governance and economic
recovery. The recent agreements between the government and the opposition are encouraging steps.
However, unless they are sustainably implemented, Guyana’s political, social and economic situation
could be further undermined.
1.26
The Government o f Guyana may consider, inter alia, taking the initiative to:
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0
ensure that the agreements entered into to resolve the parliamentary deadlock are fully
implemented and that the issues which undermine ethnic trust are addressed;
ensure that, b y the next local and general elections, the Elections Commission has the
capacity and i s equipped to conduct free and fair elections at the local and national levels
and to count the ballots expeditiously. This w i l l entail expeditious completion o f the
Local Government Task Force work so that the new electoral legislation can be approved
by parliament in a timely manner;
ensure that members o f the National Assembly and civil society in general are informed
about the commitments being contemplated or negotiated with donor countries and
agencies in order to allow for timely debate and discussion as i s constitutionally required;
and
while the security environment has improved, there i s need to continue to enhance the
capability o f the security services with the aim o f reducing the incidence of crime and
violence.
8
2.
2.1
ECONOMICTRANSITION-AN
OVERVIEW OF DEVELOPMENT
OUTCOMES
At Independence, Guyana's economy was dominated by a narrow range of export commodities
- sugar, rice and bauxite - whose production and marketing was in the hands o f a small number o f
foreign-managed enterprises. Natural resources were abundant, economic infrastructure well-developed,
and the population enjoyed access to adequate social services. Guyana had the potential to be
transformed from a low-income commodity exporter into a prosperous gateway linking North America,
South America and the Caribbean.
But this was not to be. In the run-up to Independence, Guyana's two main political parties
2.2
championed state socialism, ostensibly to liberate the economy from foreign influence. Under the PNC
rule, cooperative socialism was introduced from 1966 to the late 1980s. Price and exchange controls were
established; large enterprises, the media and the banks were nationalized; ownership o f almost all land
was retained by the state; financial markets were repressed; public debt piled-up; and what little private
enterprise remained was subject to punitive taxation, over-regulation and vicarious treatment b y the
authorities. B y 1988, the Government controlled over 80 percent of all external trade and accounted for
more than 85 percent o f all investment.
2.3
The economic reaction was predictable: output plummeted and living standards collapsed.
Despite generous flows o f foreign assistance, per capita income f e l l from US$786 in 1966 to US$350 in
1988, amongst the lowest in the Caribbean." With production incentives blunted b y an over-valued
exchange rate, exports tumbled from US$410 million in 1980 to US$262 million in 1985. Economic
infrastructure deteriorated and the quality o f social services eroded". A steadily increasing flow o f welltrained Guyanese emigrated to North America, the United Kingdom and the rest o f the Caribbean,
depleting the human capital o f both the public and the private sectors. Perhaps most telling i s the fact that
infant mortality rose b y 17 percent between 1978 and 1988, a decade in which Latin America and the
Caribbean registered double-digit improvement in infant mortality levels. B y 1988, Guyana could no
longer service i t s external debts.
Policy and Institutional Reform
2.4
Economic Recovery Program (1989). The ERP marked the beginning o f Guyana's transition
from a socialist to a democratic, market economy. Backed by substantial external technical and financial
support, implementation o f the ERP during 1989-1993 eliminated virtually all price controls, abolished
import prohibitions, unified and floated the exchange rate, simplified the tariff structure, simplified and
reduced external tariffs, and established market-based interest rates. In addition, Guyana joined the
World Trade Organization in 1995. Between 1990 and 1998, the Government launched an ambitious
privatization program. Some thirty-eight financial institutions, utilities and commercial enterprises were
privatized or placed under private management during these years. Thanks to privatization and a freeze
on recruitment, public sector staffing was reduced from 56,000 to nearly 3 1,000 persons and government
borrowing from the domestic banking system declined.
2.5
Since 1998, the policy reform focus has shifted to building the institutional foundations o f a
market economy.20 In the financial sector, the Bank o f Guyana was re-capitalized and made more
independent, allowing i t to stem i t s losses and improve the use o f indirect monetary management
instruments. Supervision o f the financial system was strengthened, a Money Laundering Prevention Act
was passed and the largest public bank-the Guyana National Cooperative Bank-was restructured and
sold in 2003. In the area o f public finance, a new Revenue Authority was made operational, and various
measures were taken to strengthen tax administration and revenue collection. Cost recovery measures for
9
drinking water and health services were introduced and the first phase o f the CARICOM Common
Extemal Tariff (CET) was implemented by reducing the maximum import duty to 20 percent, with a top
rate o f 40 percent for agricultural items. Various implementing agencies were delinked from policy
ministries and provided greater operational autonomy.*’ As discussed in the next chapter, some reforms
have been introduced in the budgetary process and the civil service. Guyana Airways, the Guyana
Electricity Company, the state-owned pharmaceutical company, and Guyana Stores were privatized in
1999-2000.
2.6
Consultative, participatory planning has served to guide post-1997 reform. A National
Development Strategy (NDS), prepared by some 23 technical working groups was launched in January
1997. Within the framework established by the comprehensive NDS, Guyana’s Interim Poverty
Reduction Strategy (I-PRSP) was formulated in 1999, and after intensive public consultation and
refinement, a full PRSP was completed in 2002. The NDS and (1)PRSP call for a deepening and
acceleration o f macroeconomic and structural reforms to bolster the institutional foundations o f a market
economy. T o combat poverty, the PRSP details a seven-pronged reform strategy aimed at fostering: (i)
broad-based, job-generating economic growth; (ii)stronger institutions and better governance; (iii)
investment in human capital, with emphasis on basic education and health; (iv) investment in
infrastructure to support better services in water, sanitation and housing; (v) improved safety nets; (vi)
investment in infrastructure to support growth, including sea defenses, road and river transport, drainage
and imgation and rural electrification; and (vii) special intervention programs to address regional pockets
o f poverty.
Policy Reform Momentum Slows in the Lute 1990s. Compared to the ambitious reform agenda
2.7
outlined in the NDS, I-PRSP and PRSP, the pace o f post-1997 policy reform has been disappointing.
Unlike the first-generation o f transition reforms, transforming public institutions and practices i s a more
difficult and contentious process. Moreover, adverse movement in the terms o f trade, the El NiAo
drought, elections, civil disturbances, criminality and labor unrest weakened the authorities’ resolve to
reform. In some areas, such as privatization and fiscal policy, previous reforms have started to unravel.
Large upward adjustments in public sector wages in 1999 (about 30 percent) and 2000 (27 percent)
compromised fiscal stability. Government’s reluctance to boost utility tariffs caused mounting losses in
the electricity company. Privatization efforts for the loss-making state mining companies failed and large
losses incurred by rice producers added to the burden o f non-performing loans in the banking system. Key
issues that adversely affect public sector efficiency, including skill-shortages, over-centralization o f
decision-making in the executive branch, a lack o f transparency and dissemination o f public sector
information, over-staffing (particularly in state enterprises), weak financial management, and overlapping
jurisdictions, were left unresolved.
2.8
Weak Economic Governance Drags the Economy Down. The institutional reforms launched
during 1998-2002 represent the first, albeit tentative, steps in what by necessity w i l l need to be a much
more extensive process o f economic governance reform. Despite privatization and public enterprise
restructuring, the largest state-owned enterprises continue to operate with a soft budget constraint,
receiving subsidies and capital injections to remain afloat. For the domestic utilities, privatization itself,
without adequate regulatory safeguards to ensure competitive practice, has resulted in the creation o f defacto private monopolies.22 The Government continues to own or lease-out some 90 percent o f the
nation’s lands, and difficulties in obtaining access to suitable lands continues to constrain private
investment, both in urban and rural areas. Private investment in medium and large-scale enterprises
requires Cabinet approval and these are then provided licenses for a restricted set o f activities. The court
system remains clogged. Although revenue to GDP i s very high, the tax base remains narrow, with high
marginal rates on corporate and personal taxes, and relies heavily on cascading sales taxes, trade taxes
and commodity levies.23 Tax implementation i s marred b y a plethora o f discretionary tax holidays and
exemptions. Public expenditures remain large, compared to the size o f the economy. As discussed in
10
Chapter 3, public financial management remains inefficient: i t i s fragmented, not well integrated, and
involves a large degree o f discretion. B y law, Parliament has the constitutional authority to oversee public
spending, but it has tended not to exercise true oversight over the budget.24 The c i v i l service i s neither
well motivated nor professionally managed.
Economic Performance-Mixed
Results
sectors rebounded to levels last
reached in the early 1960s. Faced
with a decline in protection,
Output
in the
imp0rtreliant manufacturing sector, such
-10
'
-15
1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002
Annual Average for
1980s
1991-1997
1998-2002
Compound growth rate of real GDP
-3.5
7.1
0.7
Poverty Incidence
26 (1980)
43.2 (1992)
35.0 (1999)
17.7
7.1 ('92- '97)
5.2
Inflation (period average)
NFPS Fiscal deficitGDP (incl. grants)
na.
5.1
5.2
Public debt/GDP (end of period)
429
223
205
27.2
142.4
191.3
Exchange rate (end of period)
Source: Poverty incidence-Guyana PRSP; Other estimates from World Bank and IMF.
Indicator (%)
2.10
Since 1998, Guyana's economic performance has been lackluster due to a combination o f
domestic and external factors. Economic growth averaged only 0.7 percent per annum between 1998 and
2002. Economic performance has been adversely affected by domestic political disturbances following
the general elections o f December 1997, a prolonged strike b y c i v i l servants in 1999 over wages, the
uncertainties in the run-up to the 2001 elections and the social unrest thereafter, until quite recently a
breakdown in the negotiations over constitutional reforms, disputes over parliamentary management, a
sharp increase in organized crime, and policy slippage. External factors include adverse climatic
conditions associated with El Niiio and a cyclical decline in key commodity prices (sugar, rice and gold).
A 10 percent deterioration in the external terms-of-trade between 1999 and 2002 was a major contributor
to the growth slowdown. Exports and imports fell in real terms from 1997 to 2002 by 10 percent and 12
percent, respectively.
11
2.11
Thanks to large foreign
assistance
inflows,
public
investment had ranged between 12
and 17 percent o f GDP for much
o f the 1990s. From 1992 to 1994,
private investment soared to more
than 30 percent o f GDP, reflecting
mainly the sale o f state enterprises
to the private sector. Since 1998,
private investment has declined
steadily from 13.4 percent of GDP
in 1998 to 7.4 percent o f GDP in
2002 (see figure 2.2). Since
replacement investment would
ndrmally require 4 to 5 percent o f
GDP, this implies that very little
new private capital accumulation
has taken place since 1998.25
1
I
I
figure 2.2: Guyana: Gross Domestic Investment (%of GDP)
60
50
40
30
20
10
I
1
1
0
%
+,
,e, e
, % \e% e
,b e
,6e
, 6 e, 2
e
, 9 % 0 %s* %&%
Source: Statistical Bureau, Government o f Guyana
2.12
Movements in financial market aggregates mirror the decline in private investment. Between
December 1999 and November 2002, total loans and advances to the private sector fell from GY$52.2
billion to GY$45.8 billion, a decline o f nearly 14 percent. The downward drift in commercial bank
lending to the private sector i s a reflection o f more cautious commercial bank lending policies, heightened
risk perceptions and a sharp erosion in private sector confidence.
2.13
Taking the 1990s as a whole, Guyana’s overall growth performance was quite respectable.
Indeed, much o f Latin America and the Caribbean witnessed a pronounced growth-slowdown in the latter
half o f the decade. I t has been shown that this was the result o f a combination o f adverse external
developments, o f the openness and narrowness o f many of the smaller economies, and o f sluggish policy
reform performance.26 Taking the region as a whole, good policy was able to contribute as much as 2-3
percent to annual g r o w t h 4 y c l i c a l factors, peace and political stability, and intemational trading
conditions, explains much o f the rest.
2.14
Guyana has a large underground economy, whose presence makes i t difficult to obtain accurate
statistics. In the 1970s and 1980s, businesses and consumers turned to the underground economy to
survive the extensive state controls, regulations and rationing. In the 1990s, smuggling and drugtrafficking were added to the underground economy as state controls were rolled back.27 Faal (2003)
estimates that the underground economy accounted for about 40 percent o f GDP in the 1970s, before
increasing sharply during 1980-89.28 From 1992-2000, the underground economy was estimated to be
equivalent to 40 percent o f GDP, a level comparable to that in other low-income transition ec~nomies.~’
2.15
Macroeconomic Stability. In the wake o f trade and exchange rate liberalization, domestic prices
rose rapidly. Price inflation peaked at 80 percent in 1991 before falling to 15 percent in 1992. From
1992 to 1997, fiscal imbalances improved significantly. This, together with prudent monetary policy, led
to a fall in inflation to just over 5 percent in 1997. Between 1998 and 2000, the authorities pursued a
tight monetary policy to offset the inflationary effects o f supply shortages resulting from the El NiAo
weather disturbances (1998), rising utility and fuel prices (1999), and a two-month c i v i l service strike and
flooding (2000). Thanks to tight monetary policy and foreign financing o f the budget deficit, inflation
remained low, falling from 7.5 percent in 1999 t o 5.3 percent in 2002 (see Figure 2.3). Starting in mid2001, the monetary stance was eased and nominal T-bill interest rates fell. Commercial bank rates have
yet to decline, with short-term rates remaining in the range o f 17 to 18 percent between 1998 and 2002.
12
High real commercial bank interest rates reflect
the bank's perception of a high credit risk and
the overhang o f weak commercial bank
portfolios. Although the commercial banks have
been restructured several times in the 1990s, in
December 2002, the share o f non-performing
assets in the commercial banks portfolio was
quite high at 33 percent.30
Figure 2.3: Guyana, Inflation
2.16
Between 1992 and 1997, the real
effective exchange rate appreciated by 29
percent in response to tight monetary conditions,
buoyant aid receipts and transition-induced
recovery in traditional exports, while the terms1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
of-trade deteriorated by 30 percent. The latter
continued deteriorating by another 11 percent
between 1998 to 2002,-but rather than
Figure 2.4: Guyana, External Trade (US$ millions)
finance the shock, the exchange rate was
allowed to partly adjust, with the real
effective exchange rate depreciating by 16
percent. The trade deficit remained in the
range o f US$80 million to US$115 million
per annum during
1998-2002, an
improvement over the earlier part o f the
decade, despite adverse external market
conditions (see Figure 2.4). The external
current account deficit (excluding official
transfers) widened from 14 percent o f GDP
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
in 1997 to 14.8 percent o f GDP in 2002 in
response to higher foreign aid inflows.
While monetarypolicy was-eased in 2001 and 2002, this proved to be too little and too late, after nearly a
decade o f an appreciating real exchange rate, to bolster non-traditional exports.
I
Private Remittances. Although no reliable data exists about the number of Guyanese living
2.17
abroad, the number may be as high as 500,000. As discussed in Chapter 5, remittances sent back to
Guyana are substantially higher than that reported in official statistics, and are as much as net Official
'
private remittances and aid inflows, together equivalent
Development Assistance (ODA) f l o ~ s . ~Large
to more than a third o f GDP, have important implications for macro-competitiveness. While the real
exchange rate rises and falls depending on short-term trade flows, large unrequited transfers boosts the
absolute level o f the real exchange rate, increases domestic wages and augments demand for imported
goods and services. A strong real exchange rate, wages out-of-line with domestic productivity and high
levels o f import penetration discourage domestic investment in tradable goods and services.32
Fiscal Policy and Debt Sustainability
2.18
From Fiscal Consolidation to Fiscal Erosion. Large fiscal deficits, which persisted during the
1980s, were substantially contained in the early years o f the ERP. Privatization and the restructuring o f
the state sector substantially reduced transfers from the Treasury, debt rescheduling and relief lowered
interest payments, and government expenditures were tightened. The overall public-sector deficit (after
grants) fell to 3 percent of GDP b y 1996, from 21 percent o f GDP in 1993, notwithstanding a 2 percent o f
GDP increase in central government capital expenditures during that period.
13
2.19
In recent years, the fiscal deficit (after grants and debt relief) has remained high, representing
5.9 percent in 2002. Preliminary projections call for a doubling o f the fiscal deficit ratio in 2003. The
increase in 2003 reflects higher capital spending, largely on account o f the modernization o f the sugar
company; the weak performance o f the state-owned bauxite companies and the associated cost o f their
restructuring; an increase in public sector wages and shortfalls in taxes due to tax exemptions and weak
economic performance.
Public Spending Rises. Non-financial public sector expenditures as a share o f GDP declined
2.20
from an average o f 57.6 percent during 1988-1989 to 39.1 percent o f GDP in 1999, with a reduction in the
wage bill, transfers and debt service accounting for practically all o f the fiscal consolidation. Since 1999,
public expenditures have risen reaching 46.4 percent o f GDP in 2002 and estimated 50 percent in 2003
(Figure 2.5).33 Much of the increase can be explained by a fifty percent increase in the wage bill and a
four-fold increase in subsidies and
miscellaneous expenditures between
Figure 2.5: Guyana, Revenue &Expenditures (%of GDP)
1999 and 2002. The wage bill as a 60
share in GDP went from 8.5 percent
o f GDP in 1998 to 11.5 percent in 50
2002. Spending in social services, as
discussed in chapter 5, also increased 40
substantially during the same period.
30
Government acknowledges
that
public spending must be substantially
20
reduced if scope i s to be created for
private initiative and macroeconomic
10
stability i s to be maintained. Official
forecasts call for a substantial
0
reduction in public expenditures, to
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
35.7 percent o f GDP by the year 2010,
So u rce : Wo rld B ank, LDB (Central Go vemme nt ,e xc 1. grants )
with current spending targeted to fall
b y 10 percent o f GDP to 24percent
b y 2010.34
2.21
Faal (2003) estimates that as much as 7 percent o f GDP in annual tax revenues was lost between
1970-2000 due to the large underground economy-contributing to persistent fiscal deficits and
unsustainable public debt. While total elimination o f the underground economy i s impossible, the relative
decline in i t s size in the 1990s shows that market-oriented reforms reduce incentives to operate informal
business. A comprehensive reform o f the tax system aimed at widening the tax base, further deregulation,
and improved governance o f core public services would likely help reduce the size o f the underground
economy.
External Debt Relief. B y 1988, Guyana’s external debt had become unsustainable, reaching
2.22
US$1.95 billion in long-term debt (equivalent to 470 percent o f GDP) and US$76 1 million in short-term
debt. The country f e l l behind on debt service and arrears built-up both on commercial and official
borrowings. After the exchange rate was floated, the ratio o f public debt to GDP peaked at 560 percent o f
GDP (1992) with debt service payments equivalent to 46 percent o f export earnings. About half o f the
external debt was owed to multilateral development banks and 20 percent to neighboring Trinidad and
Tobago, which until 1986 was its principal supplier o f petroleum products. Between 1993 and 1997,
interest payments on the public debt accounted for an average o f 25 percent o f public spending, crowding
out much-needed social sector expenditures and hampering the process o f fiscal consolidation.
14
2.23
With a good track record o f economic performance under the ERP, Guyana managed to get
substantial debt relief from i t s multilateral and bilateral creditors, first under traditional debt relief
and then under the HIPC Initiatives (original HIPC in 1997 and the enhanced
mechanisms (Paris
HIPC in 2000).36 In 2000, i t was projected that once Guyana achieves the E-HIPC completion point, the
two HIPC initiatives together would have eliminated more than half o f the country’s future debt service
and i t s outstanding net present value (NPV) debt would have been reduced by 53 percent (World Bank,
2000a)37. Also, public sector debt service payments would decline from 12.8 percent o f GDP in 1997 to
an average o f 7.5 percent o f GDP during 2002-2005. Furthermore, social sector spending would increase
from 8.4 percent o f GDP to 14 percent o f GDP during the same period.
2.24
Preliminary updates o f Guyana’s debt sustainability indicators show that the NPV o f external
debt to GDP ratio would fall to 68 percent in 2003 after enhanced HIPC assistance and after completion
point. This translates, under certain assumptions (notably economic growth o f 1%-2% percent and
inflation o f 2-3 percent), into a NPV o f debt to revenue ratio o f 215 percent and a NPV o f debt to exports
ratio target o f 75 percent at end 2003 after assistance. Compared to decision point projections (2000),
both ratios are lower. At decision point, the NPV of external debt to exports was projected at 82 percent
in 2003 after unconditional HIPC assistance and the NPV o f debt to government revenues was projected
at 218 percent. The primary balance that w i l l stabilize the post-HPC level o f debt i s projected at
4 percent compared to 6 percent in 2002.
At present, progress towards the E-HIPC completion point i s far advanced, with all but two
2.25
triggers related to the civil service reform achieved. Progress on the civil service reform per se has been
mixed. While a number o f the original measures have either been implemented (computerization o f the
payroll system) or achieved through other reform actions taken elsewhere in the public sector (the case of
the civil service downsizing), other measures have been reformulated as part o f a more comprehensive
civil service reform program which i s being supported b y the IDB.38Guyana’s external position remains
vulnerable to external shocks because of volatility in export commodity prices and uncertainties about
access to preferential export markets for sugar and rice. Debt management remains a concern, however,
with domestic and foreign debt managed independently, the national debt committee inactive, and the role
o f the various government institutions in contracting new borrowing unclear.
Domestic Debt Rises Rapidly. Progress in reducing the public debt burden b y HIPC relief has
2.26
been partly offset by rapid growth in domestic borrowing between 1997 and 2002. Domestic public debt,
in the form o f treasury bills and debentures, stood at 7 1 percent o f GDP at the end o f 2002. Interest
payments on domestic debt reached 3.1 percent o f GDP in 2002, compared to 4.6 percent o f GDP on
external debt. Unless addressed by the Government, Guyana’s domestic debt could become an important
source o f vulnerability.
Poverty Reduction and Social Performance
2.27
Poverty Profile. Guyana has made significant improvements in reducing the depth and severity
o f poverty since the 1980s. In 1980, the proportion o f the population classified as poor was estimated at
26 percent using income data in the absence o f household survey data.39 B y the early 1990s, the poverty
rate had increased to 43 percent o f the population. With the resumption o f high rates o f economic growth,
poverty incidence has fallen sharply. The poverty rate dropped to 35 percent b y 1999, with an elasticity
Moreover, the incidence o f households classified as extremely poor
o f 0.8 to per capita GDP
f e l l from 28.7 percent to 21.3 percent. Income distribution remained moderate, with a Gini coefficient
estimated at 0.4 for 1999, or just slightly more unequal than average OECD incomes.
2.28
Much o f the improvement in living standards in the 1990s can be explained b y the increase in
productivity (given the high increase in per capita income) and the drop in ‘inflation that boosted real
15
wages. The improvement in living standards has not been uniform (see Box 2.1). Poverty has worsened
since 1992 in the hinterland areas, reflecting a strong geographic influence. Afro-Guyanese are slightly
better o f f on average than Indo-Guyanese although, according to the poverty statistics, both groups are
wealthier than the Amerindians. In addition, poorer households typically have larger families and less
formal education than the rest of the population. Groups particularly vulnerable to poverty and other
social disadvantages include the unemployed, out-of-school youth, single women-headed households, the
elderly and disabled, and low-wage workers in traditional industries such as sugar and mining.41
2.29
Social Performance. The PRSP envisages a reduction in poverty from the estimated 35 percent
of the population to 31 percent in 2005. Twenty-seven quantitative targets are set in areas such as income
poverty, access to, and quality of, education, health and basic services. These correspond to all o f the
seven Millennium Development Goals (MDGs) apart from gender equality?’ While the PRSP does not
provide projections through 2015, an extrapolation o f the targeted gains through 2005 to 2015 reveals
that, o f the seven MDG indicators contained in the PRSP, four would be met if progress envisaged in the
PRSP was achieved and sustained up until 2015. Unless public policies and political stability improve
substantially and investor confidence returns, even the targets up to 2005 are likely to prove ambitious (a
more detailed discussion o f social sector performance i s given in Chapter 5).
2.30
The PRSP Implementation Status. B o x 2.2 provides an overall assessment o f the PRSP based on
the joint BankRund staff assessment. Since i t s adoption b y the Government in 2001, there has been good
implementation progress in some areas, including social sectors, water sector, sugar sector, and
monitoring and evaluation system (with poverty spending tracking system put in place). All these areas
are discussed in detail elsewhere in the report. On the other hand, there have been slippages on the macro
front. Under the recently approved PRGF, the Government i s making efforts to improve macroeconomic
performance. The PRSP needs to be updated as the macroeconomic situation has since deteriorated
significantly, with economic growth rate and government revenue collection much lower than anticipated.
I t i s currently estimated that GDP would grow by 1.0 percent at best per annum during the period 20022005 compared to 2.7 percent according to the PRSP addendum and 4.1 according to the original PRSP.
This pessimistic outlook would call for a further prioritization o f an already ambitious PRSP program.
The Government i s expected to prepare a PRSP progress report in early 2004.
16
Aid Effectiveness and Aid Coordination
Towards Better Aid Effectiveness. Guyana i s a very large recipient o f external assistance, with
2.31
official development assistance (ODA) amounting to US$ 133 on a per capita basis and 14.6 o f GDP in
2001 (see figure 2.6). Box 2.3 and figure 2.7 present an overview of donor external assistance to Guyana
over the period 2000-2002. The IDB i s Guyana’s largest multilateral donor, with annual disbursements o f
external assistance averaging US$40-50 million. The IDB outranks the next largest donor, the EU, by a
factor o f four. The USA, UK and Canada are the largest bilateral sources o f assistance.
2.32
N e t financial transfers are even larger than these figures would suggest. Transfers are provided
directly and indirectly to Guyana in five forms: as debt relief; as access to preferential export markets; as
unrequited official transfers (grants); as net transfers from foreign borrowing; and as private transfers.
The combination o f all five was equivalent to at least one-third of GDP in 1999-2002, implying that aid
and other financial transfers would have substantial macro-economic effects. The net effect on external
balance i s equivalent to an outward shift in the supply o f foreign exchange o f some 25 percent o f GDP,
causing the nominal exchange rate to be around 15 percent higher than the (with no aid) equilibrium
exchange rate. These figures are purely indicative and need to be refined.43
I
I
Figure 2.6a: Per Capita Official Development Assistance
2001 (US)
Figure 2.6b: Official Development AssistancelGDP
Aid has both positive and negative effects on productivity. I t allows a far higher level o f
2.33
consumption and investment in human resources than would be possible in i t s absence. Large aid inflows
have tended to build big government, and inadvertently, may have crowded out private initiative.
Guyana’s many donors sponsor a large number o f small individual projects, each o f which i s wellintentioned, but collectively pose a tremendous management and coordination burden on the
Government.@ Project design and implementation i s impeded b y what donors perceive to be excessive
centralization o f decision-making processes; a lack o f integration between public expenditures and
17
priorities identified in the PRSP and declining rates o f delivery o f development programs, projects and
loans.45 Many projects cannot be adequately implemented because o f a shortage o f counterpart funding in
the budget. In many cases, a dearth of technical staff, and weak institutional capacity, impedes
implementation o f agreed aid projects. To compensate, aid projects tend to employ a great variety o f
specialists, often in project implementation units, under varying terms and conditions. This, in turn,
contributes to donor-driven staff shortages and inequities across the public service. In the face of poor
performance, aid fatigue sets in but i s overtaken by the poverty reduction imperative.
2.34
Collier and Dollar (2001) find that those developing countries that followed good policies, with
the former defined in terms o f sound macroeconomic, structural, public sector management and social
inclusion policies, were able to attract more
aid and to
it more
Figure 2.7: Donors’ share of disbursements to Guyana
e f f e ~ t i v e l y ~ ~Their
.
research shows that
FY2000-2002,as a % of total US$287 million
there i s little that foreign assistance can
accomplish when policies and governance
UN, 1%
Canada,3%
Germany
combine to discourage private initiative. 1
Dedicated leaders and a broad base o f
IMF,6% A
national ownership and commitment are
essential to fostering social cohesion,
transforming governance and establishing
policies
conducive
to
sustainable
development. If Guyana’s three decades o f
large aid inflows had been used as
effectively as by those developing countries
Collier and Dollar identified that nurtured
USA, 13%
,
private-sector led growth, per capita
(does not include debt relief)
~
,
1
2.35
Towards Better Aid Utilization. In keeping with i t s PRSP commitments, the Government has
established a Poverty Reduction Strategy, Coordination, Monitoring and Evaluation Unit within the
Office o f the President. Thematic working groups, chaired by portfolio Ministers and provided secretariat
18
services b y donors, have been established in the areas of health, education, infrastructure, water and
housing, and governance and trade. New working groups are to be established on economic policy and
PRSP monitoring. The working groups have provided a useful venue for information exchange between
donors and government. In some instances, the working groups (i.e. health and water supply) have
developed specific strategies and action programs to guide public investment. Although the PRSP was
designed to serve as a framework for channeling donor spending towards agreed poverty reduction
programs, i t would take time for donors to shift to this new paradigm, given particularly the need to have
high governance standards in place to permit external assistance to be utilized effectively as budget
support.
2.36
Under the HIPC initiative, however, Guyana’s main multilateral and bilateral donors are
providing deep debt forgiveness in exchange for a commitment to move the policy reform process
forward. In contrast to other donors, the World Bank has shifted support from stand-alone investment
operations to program assistance linked explicitly to progress made in implementing the nation’s PRSP.
In addition, several donors have shifted the focus o f their funding support from financing inputs to
financing the achievement o f particular MDG’s. The Education For All Fast Track Initiative (EFA-FTI)
i s an example o f this, in which several donors have pledged to provide financial assistance to ensure that
each child has access to a quality primary school education.47 Key ministries have instituted
organizational reforms to better utilize foreign assistance. For example, in the Public Works Ministry,
various project implementation units have been consolidated into a Work Services Group in order to
better utilize scarce project management capacity. Reform o f the public procurement legislation should
also help to reduce the large backlog o f un-disbursed aid commitments.
The Challenge Ahead
In light o f recent political instability, and consequent delays in policy implementation, even
2.37
achieving the near-term PRSP objectives may be difficult. In the long-run, renewed growth must s t i l l
come largely from exports given the small size o f the domestic market. But, without radical improvement
in the business climate, diversification o f the economic base and the restructuring o f the traditional
activities-mining
and sugar sectors-the outlook for exports remains bleak. The structure o f the
economy remains s i m i l a r to what it was at Independence, implying that structural change and economic
diversification have yet to emerge as new sources o f growth. Ultimately, the private sector must lead the
process o f economic growth and poverty reduction. But this w i l l happen only if the ethnic political divide
i s bridged and a bipartisan political commitment to good economic governance emerges.48 The joint
Government/Opposition Communique, which was issued in M a y 2003, represents a step in the right
direction.
19
3.
IMPROVING PUBLIC SECTOR PERFORMANCE AND
GOVERNANCE
3.1
During the process o f public consultation that was a central part o f the preparation o f the PRSP,
widespread dissatisfaction was voiced with the provision o f public services. Inadequate coverage and
quality of services was associated with poorly performing, unresponsive and sometimes corrupt
government agencies. While it i s true that providing public services to a small population spread out over
a large, and not easily accessible, area offers special challenges, there also i s much evidence that public
sector performance can be improved, and thereby contribute to achieving the country’s development
goals. This chapter deals with three central aspects o f governance: public financial management;
performance of the civil service; and the functioning o f the judicial system.
ImprovingPublic Financial Management
3.2
The public sector i s large, even for a small, scatterly populated country. In 2002, the expenditure
to GDP ratio o f the non-financial public sector was 46.4 percent. Comparable figures (for 2000) are: 20.7
percent for low-middle income countries, 21.9 percent for L A C countries, and 25.8 percent for the world
as a whole. This ratio would be even higher if extra-budgetary funds were fully taken into ac~ount.~’
Apart from maintaining aggregate fiscal discipline, the success of the country’s development efforts thus
depends to a large extent on how well public resources are used, both in terms o f their allocation to
priority areas, e.g. as set out in the PRSP, and their efficient utilization.
3.3
Current situation. Despite progress with the help o f significant technical assistance since the
mid-l990s, weaknesses remain in most phases o f the public financial management process. Reform
efforts have been hindered b y the political stalemate which lasted until M a y 2003 and by capacity
constraints in the Ministry o f Finance (MOF) and other agencies suffering from a depleted and poorly
qualified public service. The government budget consists o f separate recurrent and capital budgets, the
latter prepared by the State Planning Secretariat, which i s independent o f the MOF. Both budgets are
presented on a line item basis, but use different account classifications. Some agencies have started to
introduce a form o f program budgeting and integrate the capital and recurrent budgets.50 Expenditure
Management and Planning Units (EMPUs) have been established in the education and health ministries.
Budget information i s made available on a website.
3.4
Weaknesses in the budget preparation and approval process include notably: (i)
a lack of fiscal
transparency from the growing number o f semi-autonomous agencies (SAA); (ii)late approval o f the
budget-up to three months into the fiscal year. While this practice i s consistent with the Constitution,
which obliges the Government to present i t s budget on or before March 31, i t does disrupt and delay
budget preparation on a cash basis, which ignores large contingent liabilities o f
spending programs; (iii)
the State, e.g. on account o f borrowing by state entities; (iv) the line item basis o f the budget; and
(v) weak parliamentary oversight over the budget. The budget estimates do not receive detailed scrutiny
and tend to be approved without amendments by a simple majority vote. With the recent establishment o f
the Economic Services Committee (ESC), it i s expected that parliamentary oversight would be
strengthened.
3.5
Effective implementation, monitoring and control o f budgetary spending are hindered by the
absence of modern management systems and a lack o f skilled staff. The present accounting system i s
entirely manual and the Accountant General’s Department suffers from poor working conditions and i s
under~taffed.~’Introduction in 1998 o f the Automated Vote Book system (AVB), with help from CIDA,
has had limited results. The systems for preparing the recurrent and capital budgets are different and are
not integrated with the AVB. While delays in closing accounts have been much reduced, there are serious
doubts about the accuracy o f the information generated by the accounting system.
20
3.6
According to the Public Expenditure Review (2002), monthly releases o f funds to agencies tend
to be late, and the process o f fund release i s cumbersome. Agencies have limited flexibility in moving
funds within their budgets, usually requiring permission from the Budget Office. Current public
tendering and procurement arrangements hamper efficient budget execution, but reforms are being
introduced. Existing internal and external systems o f control and audit, the principal mechanisms for
ensuring proper execution o f the budget and the integrity o f public financial management, are in need o f
improvement. Unreliable accounts and a lack o f knowledge o f operating procedures often interfere with
the proper functioning of controls. Controls are often circumvented b y government officials, who have
discretionary powers that are strengthened by limited public and parliamentary oversight.
3.7
The Office o f the Auditor General (OAG) i s responsible for the external audit o f all entities in the
public sector. Formerly responsible to the Executive, the Auditor General now reports to the Public
Accounts Committee (PAC) o f Parliament following the Constitutional Amendment in 200 1. Despite
limited resources, the O A G has performed well. Audit reports on agencies are currently up to date.52
While the reports have disclosed numerous financial irregularities, these have generally been ignored by
the Executive-following up and imposing sanctions require a letter from MOF, which has not been done
regularly in many years-and the PAC lacks authority to impose sanctions.
Ongoing reforms. Ongoing donor-supported reforms in the area o f public financial management
3.8
cover four main areas: modernization of the budget preparation and approval process, procurement
reform, improving the accounting system, and strengthening the audit function. The principal donors are
CIDA, the IDB, and the World Bank through the PRSC and PSTAC.
3.9
Modernization of budget preparation. Efforts to improve budget preparation have been going on
for some time, notably through CIDA’s Guyana Economic Management Project (GEMP) since 1996, now
in i t s third phase. A key aim o f this phase i s to change budget presentation from a line item to a program
basis and to prepare the ground for a multi-year budget. A draft Financial Management Act has been
prepared and i s being reviewed by MOF. The draft Act also requires Government to submit the draft
budget to Parliament for approval before the start o f the fiscal year. The Economic Services Committee
in Parliament, established under the 2001 Constitutional Amendment, i s supposed to scrutinize budget
proposals. However, the appointment o f members and their confirmation b y Parliament had been held up
until May this year by the political stand-off. The committee w i l l need staff and resources.
3.10
Public procurement reform. Until 2002, the public procurement process was inefficient and
lacked transparency. I t suffered from understaffing, l o w thresholds, conflicts o f interest and a lack o f
centralized oversight that led to delays and misuse o f funds. A new Procurement Act, passed by the
National Assembly in M a y 2002, addressed some o f these issues. However, i t allowed Cabinet
intervention in the approval process, made no mention o f the role o f the Public Procurement Commission
(PPC) in Parliament, and centralized the decision making process. Following discussions with IDA in
early 2003, the Government agreed to amend the existing Procurement Act and present a revised Law to
Parliament, which would address the deficiencies in the public procurement system discussed above, for
consideration by mid-2003. Subsequently, a new procurement law was approved by Parliament on June
19, 2003 and assented to by the President on July 25, 2003. For the most part, the new law addresses the
concerns stated above. In one area-the timeframe for review o f bidders’ protests by the independent
authority-the law deviates from what was originally envisaged. As i t stands, i t neutralizes the important
benefit of imposing a short-term deadline. But this shortcoming could be addressed in the rules and
regulations that should follow the procurement act.
3.11
Accounting and audit systems. Phase I11 o f the GEMP includes the replacement of the public
accounting system, including the AVB system, b y a modem management information system. C I D A i s
reviewing bids for software and preparing training programs. A functional review o f the Accountant
21
General’s Department i s also planned. The new draft Audit Act, prepared with help from the IDB, i s
under review. The Act gives the O A G greater authority to manage i t s resources, encourages the
Executive to respond to audit reports, and introduces the possibility o f sanctions. The IDB i s providing
assistance to complete the Policies and Procedures Manual to accompany the National Audit Act. In
addition, the IDB i s providing TA for institutional strengthening o f the O A G and for making the OAG
fully autonomous, which i s conditional on the passage o f the Act.
3.12
Needforfurther action. Once the ongoing reforms o f budgetingand budget execution, including
o f the procurement, accounting and audit functions, are fully implemented, they w i l l represent a major
step towards modernizing financial management. However, expectations about the pace o f reform should
take into account the history o f implementation delays, the lack o f skilled staff and the difficulty o f
retaining newly trained staff, as well as the pace o f political reform. Passage o f the draft Financial
Management, Procurement, and Audit Acts, and the effective operation o f parliamentary committees,
notably the ESC and PAC, which oversee public spending, should be feasible now that there i s a
functioning Parliament.
3.13
While the adoption of modern budgeting and accounting systems w i l l take time, other measures
to strengthen financial management are easier to implement. These include: timely presentation o f the
budget; wider consultation in budget preparation; increased fiscal transparency, e.g., through better
information on the role and activities o f SAAs (this i s an area where a study i s needed with possible
funding from the IDB). In this regard, the draft Financial Management and Accountability Act needs to
be amended to properly address the need to bring the SAAs into a broader financial management
framework), access to public tender minutes and results, and to minutes o f ESC and PAC meetings; clear
rules and procedures regarding access to supplementary appropriations and the Contingency Fund; and
streamlining procedures for the monthly release o f funds. While the Government agreed to the principle
o f reducing discretionary powers of individual officials, processes should be developed that effectively
reduce the discretionary element in decision making.
3.14
The Government should also re-establish capacity for preparing a macroeconomic framework for
the budget and for formulating a budget strategy at the start o f the annual budget process. Once internal
control and audit have been strengthened, managing agencies might be given increased flexibility in
reallocating resources within their budgets. Before procurement reform can become effective, members
o f the Procurement and Tender Board and o f the Public Procurement Commission have to be appointed,
detailed regulations for implementation of the Act and standard bidding documents need to be prepared
and disseminated, and training programs developed and implemented. An early start with preparation o f
the Operations and Procedures Manual for the Office o f the Auditor General would allow improvements
in the audit process to come into force as soon as the new Audit Act has been passed.
Reforming the Public Service
3.15
Current situation. According to the payroll system, some 9,100 people are currently employed
in the civil service (excluding teachers). This compares with around 17,700 workers in GUYSUCO, 250
in Linmine and some 8,000 primary and secondary school teachers. There used to be many vacancies, but
all vacant positions have been abolished and, following the imposition o f a hiring freeze, any new
positions need approval o f the Public Service Ministry. Exceptional recruitment has been on a contract
basis, until the Service Commissions that should confirm appointments i s fully functioning. While there
i s some evidence of overstaffing, there are also severe shortages o f skilled personnel, e.g. trained nurses
and teachers.
3.16
Since 1994, the Government has tried to make the public sector more competitive b y bringing
salaries in line with those in the private sector, initially through a series o f selective wage supplements.
22
Following strikes, public sector salaries were raised by nearly two-thirds between 1999 and 2000. As a
result, budget expenditure on wages and salaries doubled between 1994 and 2002. It went from 6 percent
o f GDP to 11.5 percent. Nevertheless, the level and differentiation o f pay remain insufficient to attract
qualified technical and managerial staff. This has led to distortions in the salary structure, as staff in
newly established semi-autonomous agencies (e.g. the Guyana Revenue Authority) and in donorsupported project units are paid more. The strong Public Service Union i s resisting reductions in the size
o f the civil service, a sensitive issue given the ethnic composition o f Government and the civil service.
3.17
A survey o f public officials in 1999 tested a number o f assertions about the civil service. Some
o f the findings o f the survey are: (i)public sector jobs are considered attractive despite l o w pay, as bad
the incentives system
pay i s balanced b y job security and pension provision in the public sector;53 (ii)
communication and
does not encourage good performance or discourage bad performance; (iii)
participation in decision making i s poor; (iv) corruption i s a serious concern; (v) budget management i s
weak; and (vi) few opportunities exist for in-service training.
3.18
Ongoing reform. Since the late 1990s, with help from IDA and the IDB, the Govemment has
taken a number o f actions to improve public administration. Public service rules relating to employee
discipline, severance, and annual performance evaluation have been introduced, but there i s evidence that
these are not being implemented. The payroll and pensions database has been improved. The IDB i s
assisting the Govemment with the design o f a Public Sector Modernization Program. A payroll audit has
been carried out, but the planned assistance with preparing job descriptions and a performance appraisal
system and with the design o f a compensation system was postponed in favor o f undertaking institutional
and organizational capacity assessments for each ministry and across ministries and agencies.54 One o f
the main findings o f a recent study i s the dysfunction of government’s “horizontal planning” and
management systems.55
Need for further action. Apart from the capacity assessments o f agencies, a review o f the broad
structure of government i s needed. In the early 1990s, with British assistance, the Government simplified
the ministerial structure, but in subsequent years this policy was reversed and new ministries were
created. There are currently about thirty ministries/departments and over fifty statutory bodies.
3.19
Simplification of the broad structure o f administration and a review o f the relevance o f statutory bodies
might help reduce the number of public service jobs.
3.20
Without adequate pay and benefits it w i l l not be possible to attract and retain qualified staff in the
public service. Given the overall budget constraint and what i s considered an affordable wage bill, the
overall size and structure and compensation o f the public service have to be examined. As part o f this,
and following the ongoing functional reviews, efforts need to refocus on developing job descriptions and
a performance evaluation system and on designing a compensation system. The four Service
Commissions (for public service, police, teachers and the judiciary) have been recently re-instated by
Parliament. Success in implementing reforms aimed at creating a slimmer, better paid, motivated and
trained public service rests in large part on establishing an effective working relationship between the
Government and unions.
In Guyana the decision-making process i s often highly centralized, in part as a result of weak
3.21
institutional development. For example, a recent review o f the country’s public financial management
systems and processes found that they are basic and fragmented (World Bank 2002b). In the case o f
central government i t i s several donor’s perception that the Office o f the President takes decisions that
would normally be delegated and overrides line ministries. Institutional governance reforms and measures
to ensure that they are effectively implemented are needed to improve financial accountability and
transparency in the public sector.56 Responsibility and accountability for decisions need to be devolved to
appropriate levels of government. Within the central government, this means giving more responsibility
23
to line ministries, but also, over time, within line ministries to managers of programs and projects. At the
local government level, efforts are being made to strengthen the financial position of local
administrations. However, any decentralization of the provision o f services w i l l also have to take into
account the serious human resources constraint throughout the public service, and hence the need for
capacity building.
Accelerating Judicial Reform
3.22
Current situation. Good governance requires the effective establishment o f the rule o f law. This
involves general compliance with, and enforcement of, laws and regulations. Non-compliance b y
individuals and the-formal and informal-business sector in Guyana i s being encouraged by the lack o f
enforcement. The resulting weak legal and judicial environment has serious social and economic
consequence^.^^ The justice system suffers from long delays and a serious backlog o f cases, and there i s
concern about the quality o f judicial decision^.^^ Almost 3,500 c i v i l cases were pending in the H i g h
Court at the end o f 2000, and a net additional 1,600 were filed in 2001. It typically takes five years for a
civil case from filing to completed trial in the High Court. In 2002, the Court was hearing cases filed in
1995 and 1996. While there i s a widely held belief that the judiciary lacks independence, and that the
Government influences decisions, the quality o f justice i s also affected b y the delays, both in criminal and
civil cases. Defendants can spend a long time in prison awaiting trial and claims in civil cases lose value
over time, the more so as enforcement of awards and court decisions often i s difficult.59 There i s no
systematic record o f court rulings. The required annual publication o f court proceedings was last issued
in 1974 which, for a system based on case law, i s a serious drawback.
3.23
Factors contributing to this situation include:
a shortage o f judges; at all three levels - Magistrates, High Court and Court of Appeal - only
two thirds o f the positions o f judges are currently filled.60 N o appointments can be made
until the Judicial Service Commission i s re-established.
a lack o f support staff and equipment. There are no tape recorders and very few court
reporters. Judges have to take notes personally, a time consuming practice. I t i s hard t o
attract staff for the many vacancies because o f l o w pay and strong competition from private
law f i r m s ;
the fact that judges are appointed and paid b y the executive;
a lack o f continuing professional education; judges may not know trial procedures well
enough or lack experience in case management and, more particularly, in dealing with
commercial disputes; and
cumbersome judicial procedures as well as delaying practices by judges and lawyers. These
include barriers to plea bargaining, and the practice o f part-heard trials and willingness to
grant continuances. The judicial system lacks features that could speed up the process.
Lawyers tend to discourage clients from settling.61
Ongoing reforms. Among the judiciary, and the legal profession generally, there i s broad
3.24
support for action to deal with the problems o f backlog and delay. The Carter Center report
recommended the formation o f a ‘Planning Team’ to guide the reform process, which i s aimed at the use
o f Alternative Dispute Resolution (ADR) methods!*
A group o f people representing a wide range o f
interests from within the judiciary and legal profession convened recently and a planning team o f nine
members was established under the Chancellor o f the Judiciary. The team i s to submit a report by mid2003.
24
3.25
In January, 2002, the Chancellor appointed a Criminal Law Review Committee to review the
criminal justice system and make recommendations. The Committee submitted an ‘interim’ report to the
Attorney General in April, 2002, because some o f the problems it had identified needed immediate action.
I t raised concern about the overcrowding o f prisons, pre-trial imprisonment and the lack o f granting bail,
unfair trials, and the lack o f timely inquests in cases o f extra-judicial killings. 63
3.26
Need for further action. While the recent initiatives to address some o f the problems with the
enforcement o f the rule o f law are to be commended, the establishment o f a fair, transparent and efficient
system o f justice w i l l require, in addition to continuing the ongoing efforts, further action in several areas.
Widening the use o f ADR mechanisms can be helpful. However, experience elsewhere has shown that
these mechanisms tend to work well when the judicial system in general works well. The following
priority measures have been suggested, but require full public backing from the Government to be
successful. They need to be costed and fully funded, including financing from the donor community:64
Expanding the use o f A D R settlement mechanisms, such as mediation, arbitration and others;
this w i l l require a campaign to ensure awareness among the general public o f the benefits of such
methods; the question of who w i l l pay for i t also needs to be addressed; recourse to ADR could
be made mandatory for certain types o f cases. (IDB i s providing technical assistance in this area).
Reviewing the backlog o f civil cases to identify those that have been abandoned or are no longer
active and thus could be dismissed.
Undertaking an audit of the judicial system to improve i t s efficiency b y simplifying court
procedures;
Ensuring a full complement o f judges, an increase in support staff, and basic equipment. The
Chancellor recommends an increase in the number o f H i g h Court judges to 15. These
appointments require a functioning Judicial Service Commission and, thus, action by Parliament.
Introducing a program of sustained training o f judges and prosecutors.
Establishment o f a commercial court with IDB assistance.
Conclusions
3.27
The link between governance and development i s much debated. Recent research suggests a
strong positive effect of better governance on income and, given the evidence o f weak or negative effect
of income on governance, argues for positive and sustained interventions to strengthen g ~ v e r n a n c e . ~ ~
This chapter has focused on critical aspects o f governance-reform o f public financial management, the
judiciary and the public service. Improvements in these areas can be expected to favorably affect
development prospects in three major ways. I t can:
e
Achieve a more efficient and effective delivery o f public services in general; this would address a
major complaint voiced during the consultations with civil society as part o f the PRSP
preparation process;
e
Strengthen the rule of law, thereby improving the security situation and, more generally, creating
a greater sense of trust in government. That, in turn, facilitates service delivery and, more
specifically, helps create a favorable climate for private sector activity; and
e
Have a positive fiscal impact through improved revenue collection and greater allocative and
operational efficiency in public spending. As a result, the Government would get more value for
the money it spends, have the means to lower the deficit, and could reduce the size o f the budget,
thereby diminishing the crowding-out effect o f the budget.
25
While action in all three areas of reform i s needed to improve development prospects, perhaps the most
crucial i s improving performance in the public service which, apart from the c i v i l service, includes,
teachers, police and the judiciary. I t i s hard to see how progress in other areas o f reform can be achieved
without better qualified and motivated public sector employees.
26
4.
INVESTMENT CLIMATE AND GOVERNANCE
4.1
This chapter discusses the investment climate in Guyana, with particular focus on governance, the
financial sector, institutional capacity and infrastructure. Other critical areas such as macroeconomic
stability and human capital are discussed elsewhere in the report. Overall, private sector development
remains seriously hampered by the increased deterioration in the security situation, the political tensions
which have been diffused only recently, corruption, and state discretion in implementing laws and
regulations and poor physical infrastructure services. Some progress has been made in these areas, but
much remains to be done in order to improve the business climate for, and promote, private sector
development.
Private Sector Profile
4.2
The private sector participates in all sectors o f Guyana’s economy and contributed about twothirds to GDP in 2001. The main activities remaining in the public sector are sugar (16 percent o f GDP),
government services (12 percent) and bauxite mining (2.5 percent). Guyana’s small size and historical
approach to economic development has resulted in a small number of firms o f all sizes. Although reliable
statistics are not available, there are six to ten large private sector groups with operations in
manufacturing, distribution, lumber, agro-business and finance that dominate the private sector, a few
medium-sized companies in mining, shrimp and fish, timber and wood products and rice, and many small
and informal micro enterprises. Guyana’s economic management during the 1966-1988 period
encouraged the growth o f a substantial underground economy. As controls were removed with economic
liberalization after 1988, profits in the parallel economy eroded. Underground activity declined, but
remains substantial as discussed in Chapter 2.
4.3
Investment activity in Guyana has been especially l o w in recent years, with private investment
declining from 12 percent o f GDP in 1997 to 8 percent in 2002. Expectedly, short-term credit to the
private sector at the end of 2001 was the same as in 1997 and term loans did not increase between mid2000 and end-2001. Foreign direct investment averaged about US$50 million per annum between 19972001, mainly in mining, forestry and fishing. The main private sector exports are gold at US$125 million,
rice at about US$50 million and all manufactures at about US$75 million per annum in 2000-2001.
4.4
The government’s Public Enterprise Privatization Program has divested most o f i t s public
enterprises including seven financial institutions, national airline and distribution, pharmaceuticals,
engineering, telecommunications and electricity companies. The government’s sale or liquidation
transactions total at least 60 percent o f i t s net asset holdings. I t i s taking steps to privatize the bauxite
mining companies and improve management in the sugar industry, the two main commercial activities
s t i l l owned by the government (see Chapter 6). Slow progress in establishing appropriate institutional
and regulatory frameworks for privatized industries such as telecommunications, electricity and air
transport has limited the gains from privatization (see below). The Government Privatization Unit plans
to study the impact of privatization.
4.5
A wide range o f business associations exist, including the Guyanese Manufacturers Association,
sectoral associations such as the Forest Products Association o f Guyana and Chambers o f Commerce in
each region. Many o f these organizations belong to the Private Sector Commission (PSC), the umbrella
business advocacy organization. PSC had only 14 corporate and 14 business association members at the
end o f 2001. In October 1999, the Government organized a Business Summit with the private sector. I t
formulated an action plan to advance private sector development and a joint govemment-private sector
unit was established to oversee implementation. Although several measures have been implemented,
business leaders complain that no real improvements have occurred.
27
4.6
Good progress has been made in recent years to improve Guyana’s economic policy regime.
However, there are s t i l l important issues-policy as well as implementation-which are not conducive to
private sector development and impede Guyana’s competitiveness within and outside the region. The
fiscal incentives are often discretionary, and there i s no level playing field. Many licenses are required to
start-up and operate a business, and they are difficult to obtain and renew.66 Also, impediments to
clearing goods through customs and irregularities in public procurement continue to impede private
initiative. The “quality o f regulations” index in Guyana i s rated at the very l o w end o f the scale o f the
Caribbean Region for 2002 (see figure 4.1)67.
Figure 4.1 : Regulatory Quality, Caribbean Region, 2002
Cayman Islands
Bermuda
Bahamas
Puerto Rico
Barbados
Martinique
French Guiana
Dominica
Antigua and Barbuda
Trinidad and Tobago
Grenada
Jamaica
St Vincent and the Grenadines
St. Lucia
St. Kitts and Nevis
Belize
REGIONAL AVERAGE
Guyana
Suriname
Haiti
Cuba
I
10
0
20
40
30
50
60
70
~
80
100
90
Figure 4.2: Rule of Law, Caribbean region, 2002
Cayman Islands
Barbados
Bahamas
Bermuda
Mart niqJe I
P,enoRico
I
Antigua and Barbuda
French Guiana
Dominica
St Vincent and the Grenadines
Trinidad and To bag0
St. Kitts and Nevis
St Lucia
Grenada
Belize
REGIONAL AVERAGE
Suriname
Jamaica
Guyana
Cuba
Haiti
0
-i-I
3
10
20
40
30
Source: Kaufmann et al. (2003).
28
50
60
70
80
90
100
4.7
The legal and judicial system also makes i t difficult to do business in Guyana. As discussed in
the previous chapter, the courts are clogged, waiting l i s t s are long, and judges have little experience in
resolving commercial disputes. Decisions are not systematically written or published and executing any
kind o f judgment or arbitration award i s not easy. These shortcomings account, among other factors, for
the l o w score o f the “rule of law” index (see figure 4.2).68 Infrastructure i s a serious bottleneck to private
investment. Despite three decades of public investment, Guyana lacks a deep-water port, i t s road and rail
systems are deficient, electric power i s unreliable and expensive, and telecommunications services are
limited. Finally, qualified workers and managers are scarce because o f emigration.
4.8
The main problem for business investors, highlighted in the FIAS report (2002), i s the perception
of physical risk resulting from political riots in Georgetown. The inter-party warfare has impeded the
reform process and dampened the investment climate. L a w and order has emerged as a serious concern,
with the incidence of violent crime reaching unprecedented proportions in urban Guyana and now
becoming the main concern o f private b u s i n e s s e ~ .T~o~ attract substantial new investment, Guyana needs
to persuade potential investors that i t i s an orderly, reliable democracy. Investors are also deterred b y the
extent to which delay characterizes policy decision making in Guyana. This i s in part a by-product o f
Guyana’s highly centralized political decision making process.
EliminatingState Discretion
4.9
Decades o f socialist government and ideology have l e f t an anti-business residue. Government
officials view the business community with suspicion. Recently, government-business relations suffered
a setback in drafting the new Investment Code (see below). The business community preferred an
automatic, non-discretionary tax regime. This clause was, however, removed by the government. While
there were substantive arguments on both sides, the incident reinforced existing suspicions. Guyana’s
business environment suffers from excessive government regulation and discretion. In the Heritage
Foundation’s Index o f Economic Freedom, Guyana ranks 93rd out o f 161 co~ntries’~.In the “government
intervention” component, i t places lower than any country in the Latin American region except Cuba,
Haiti and Venezuela. Excessive regulation and case-by-case discretion lead to red tape and corruption,
which i s endemic in Guyana. Any regulation that does not serve a public need should be eliminated and
remaining rules should be automated, especially in taxation and investment.
Tax System. Since 1990, Guyana’s tax system has undergone a series o f reforms aimed at
4.10
reducing fiscal imbalances. These welcome reforms sought to broaden the revenue base, improve
compliance and remove earlier distortions including conversion of all specific consumption taxes to ad
valorem bases, elimination o f exemptions for state corporations and a reduction of consumption tax rates
from 14 to 3. The tariff structure for imports was simplified and the share o f exempted imports reduced.
The market exchange rate was adopted for customs purposes and the operations o f the Customs and
Inland Revenue Departments merged under the newly created Guyana Revenue Authority (GRA).
4.1 1 Despite these reforms, Guyana’s tax structure remains typical o f developing countries, with more
reliance on indirect than on direct taxes. Business taxes are high and complex with many exemptions,
remissions, holidays, and government discretions. In particular, import taxes have remained high and the
level o f tax exemptions granted has escalated since 1999.7’ These exemptions have adverse fiscal
implications and impose an administrative burden. Enforcement o f filing income tax returns and paying
corporate taxes i s selective. Thus, only a few people and companies file returns and pay taxes.72 The tax
system i s also inequitable because o f a low threshold for personal income tax, which i s mostly paid b y
employees and largely evaded b y the self-employed.
4.12
To address these problems, the Government i s implementing a comprehensive tax reform
program that would broaden the tax base, reduce economic distortions, improve equity and strengthen tax
29
and customs administration. I t has established a GRA and appointed a new head in August 2003 whose
main task was to increase revenue collection, reduce corruption at the GRA and transform the work
In August 2003, the Government also amended the fiscal tax law to introduce a number o f
cu1tu1-e.~~
policy reforms. The reforms in tax policy, which have either been adopted or remain to be adopted, are:
Eliminating discretionary tax and customs duty exemptions and repealing sections o f the
Income Tax, Customs, Consumption Tax and the Financial Administration and Audit Act
(done);
Limiting income tax holidays to new firms that create employment located in depressed areas
or that conduct economic activity in specific fields. Limiting most tax holidays to five years
and making them nonrenewable (done);
Imposing consumption taxes (at a rate o f 10 percent) on all services provided b y hotels and
professionals (done);
Converting the Consumption Tax into a Value Added Tax (VAT). Introducing a system o f
excises on standard commodities, while abolishing selective indirect taxes such as on travel.
Introducing a presumptive tax for businesses below the VAT threshold (to be undertaken);
Reducing the corporate income tax for “commercial” companies in two phases from 45
percent to 35 percent, which i s the rate for “non-commercial” companies (to be undertaken);
Changing the base o f minimum tax from turnover to gross assets, while maintaining the rate
at 2 percent, and extending the tax to “non-commercial” companies (to be undertaken);
Increasing withholding taxes from 10/15 percent to 20 percent, the minimum rate under the
personal income tax (done); and
Increasing the annual threshold o f the personal income tax in three phases beginning in 2003
from G$216,000 to at least G$300,000; increasing the top marginal rate from 33.3 percent to
35 percent (to be undertaken); and imposing a minimum income tax on self-employed
professionals (done).
Investment Code: Guyana i s a signatory to the International Center for the Settlement o f
4.13
Investment Disputes Convention (ICSID) and to the Multilateral Investment Guarantee Agency
Convention (MIGA). I t also has bilateral investment agreements with a number o f countries. Recently,
Guyana sought to change i t s investment legislation to improve the investment climate, provide investor
protection and advertise i t s hospitality to foreign investors. As a result o f the business summit in 1999, a
team o f international and local consultants prepared a draft investment law and two reports that
conformed to best international practice. The draft law was extensively discussed with private and public
sector stakeholders. Before i t was submitted to parliament, however, two important changes (among
many others) were made: first, the automaticity o f the tax regime was removed; and secondly, the law
was converted into a “code”, which i s a non-binding guideline in the Guyanese legal system.
4.14
Thus, an opportunity was lost to improve transparency, level the playing field for all investors,
and provide them with legal protection. Moreover, private sector confidence in the Government’s
commitment to improving the investment climate was dented. Recently, the Government has approached
the Private Sector Commission to revive discussions with a view to amending the code. Consequently, a
new investment law was tabled in Parliament in August 2003 with additional amendments made in
October. The draft law represents a major improvement over the investment code and i s consistent with
the new tax law which was approved in August. Guyana has in general a relatively liberal investment
regime with few restrictions on entry and most sectors open for investment. I t has no limitation on
foreign equity participation and foreign investors are not screened, unless they lobby for special
incentives. T o bolster private sector confidence, it i s recommended that the Government reinstate the
30
non-discretionary tax regime and other important clauses and convert the investment code into an
investment act.
The Mining Act. The existing mining act was introduced in 1989 and i s no longer consistent
4.15
with the regulations in effect for environmental protection. A new mining law i s being formulated to
make the sector more attractive to foreign investment and more balanced in i t s treatment o f the
environment and issues related to indigenous tribes. Establishment o f any large new mines, and associated
facilities such as access roads, camps and company towns, w i l l require careful regulation to minimize and
mitigate adverse environmental and social impacts. Three o f the major issues that need to be addressed
the removal o f restrictions on foreign investors to own medium-scale (between 27 and 1400 acres)
are: (i)
claims (at present, small (up to 27 acres) and medium-scale claims are reserved for Guyanese f i r m s only);
(ii)
security o f land tenure; and (iii)
the redefinition of the state’s role b y establishing the legal basis for
public mining institutions to focus on leasing and regulation. The new Mining law and implementing
regulations, as presently envisaged, should provide a firm legal basis for controlling the ongoing, highly
destructive informal placer mining (for gold and diamonds), such as b y requiring settling ponds to keep
sediment from degraded rivers.
ImprovingFinancial Intermediation
4.16
Guyana has a small, almost entirely private financial system with six commercial banks (three
domestic and three foreign), one merchant bank, one building society, four trust and finance companies, a
pension fund (public), several general and life insurance companies and a securities exchange i s
scheduled to start operations in May 2003. I t has a relatively high M2/GDP ratio at about 0.71, probably
because of sizeable remittances from emigrants and the large underground economy. Interest rates have
declined in recent months partly because Treasury bill rates have come down and bank liquidity i s high.
Because o f a slow economy, the demand for loans i s slack. Moreover, banks are cautious to lend because
o f a high level o f non-performing loans in their portfolios. Nevertheless, interest spreads remain large to
cover bad debt provisioning requirements. Commercial banks’ non-performing loanshotal assets were
about 33 percent at the end o f 2002, mainly because o f a downturn in the rice sector. Domestic banks are
more exposed than foreign banks. However, banks’ bad debt provisions have already reached 50 percent
o f outstanding loans and capital i s considered adequate. Negotiations are in progress to reschedule these
loans with government support.
The Bank of Guyana, the central bank, regulates the banks, the finance companies and the
4.17
building society. Recently, i t strengthened banking prudential regulations and supervision to ensure
compliance with the Financial Institutions Act (FIA). Prudential regulations are scheduled to conform
with Bank o f International Settlements standards in the near future. FIA regulations relating to
procedures for the efficient resolution and exit o f insolvent financial institutions from the market w i l l
need to be upgraded and modernized. The Government i s continuing to implement the Securities Act,
1998. A Securities Council has been established and companies with more than 50 shareholders have
begun to register. Management for the Securities Exchange has been appointed and i t i s scheduled to
open soon. An Insurance Act has been passed and a Commissioner o f Insurance appointed. A Money
Laundering Prevention Act was passed in 2001, giving the Bank o f Guyana implementation
responsibility. I t intends to begin operations with technical assistance to train staff. Key financial
legislation i s under review to support future growth o f the sector and strengthen the central bank.
4.18
The number o f Guyanese living abroad i s high and their annual remittances are sizeable (see Box
5.1). These flows are estimated at US$90 million, almost double the amount o f annual foreign direct
investment (USAID, 2002). Potentially, these flows could increase t o about US$300 million annually.
The cost o f making these transfers i s high, however, and there i s no competition in that service. The use
of banking institutions and electronic transfer facilities through automatic teller machines would reduce
31
the transfer cost considerably. In March 2003, National Bank o f Industry and Commerce, Guyana’s
largest commercial bank, launched an account to account transfer facility using SWIFT.
Strengthening Institutional Capacity
4.19
For reasons discussed in chapters 2 and 5, qualified and experienced staff are now difficult to
retain in the private and public sectors, and professional ranks are fast being depleted. In response to this
situation, Demarara Distillers Limited, one of Guyana’s largest groups, has enhanced its staff recruitment,
training and development. I t has taken proactive initiatives b y reaching out to new university, technical
school and secondary school graduates with training attachments and work-study opportunities. Because
o f the slow economy, employment opportunities for newly qualified graduates are limited. At the current
pace of emigration, Guyana w i l l not have many experienced and qualified people over the medium-term.
C i v i l service capacity i s especially weak and administration systems are outmoded. In order to improve
the investment climate, capacity strengthening i s needed in investment promotion, tax administration and
land administration.
4.20
Investment Promotion: Guyana has an investment promotion agency (Guyana Investment
Agency or Go-Invest) which i s in need o f strengthening. Although the agency gets substantial support
from USAID’s Guyana Economic Opportunity Project, it lacks the resources and organization needed to
fulfill i t s mandate (FIAS, 2002). Nevertheless, a new chief executive officer i s trying to revive its
usefulness.
0
0
0
Go-Invest could contribute to policy reform by functioning as the channel o f communication
between the private sector and the Government. I t should act as the Secretariat for the
business-government dialogue process;
Go-Invest could fulfill i t s functions more efficiently. I t could provide assistance to existing
companies and potential investors in dealing with government agencies. It could also
compile information about Guyana and some domestic companies and disseminate i t to
interested investors. More proactively, i t could provide services to match domestic
companies and foreign investors and also market Guyana to targeted countries in selected
sectors; and
Go-Invest i s also responsible for export promotion, a role i t has recently begun to emphasize.
I t s mandate i s to assist Guyana in diversifying exports and improve export competitiveness.
I t could support local companies b y providing market information and links and help them to
participate in overseas trade fairs and hold domestic exhibitions.
4.21
Tax and Customs Administration: Recognizing the need to improve the GRA’s capacity and
efficiency, the Government has appointed a new director and his deputy to the GRA and plans to take the
following steps:
0
0
0
0
Strengthen GRA’s management and give i t full authority to recruit and dismiss employees.
Improving GRA’s work culture and code o f conduct and implement a credible plan to eliminate
corruption. Form a team o f trusted officers to verify the most important corporate tax returns
submitted in the past two years;
Implement a new taxpayer identification number in the internal revenue department and customs
and trade administration;
Introduce a self-assessment system for income and property taxes and repealing the requirement
to f i l e by employees with only one source o f income; and
Improve inter-agency cooperation to fight smuggling.
32
4.22
Access to Land: Most land in Guyana i s publicly owned and usually leased and investors do not
have easy access to land.74 “There i s a substantial incidence o f informal transactions in the land market.. .
[as] formal mechanisms .. are widely perceived as being too costly, unfair or lengthy as to be either
practical or aff~rdable.”~’Generally, the absence or inaccuracy o f lease and ownership documents and
widespread conflicts have undermined tenure security over land rights?6Guyana’s objective should be to
have an ample supply o f privately owned land, which an investor can buy or lease with security o f
tenure.77 Guyana’s land administration i s weak and surveys and new registration systems are needed.
Documenting rights through adjudication and titling w i l l be difficult because o f conflicting claims. With
support from the IDB and DFID, the Guyana Commission for Lands and Surveys has made good progress
in implementing a program o f institutional strengthening, the objective o f which i s to enhance tenure
security and access to land, reduce vulnerability, encourage better and more sustainable use o f resources,
and promote private investment for opening new land for economic d e ~ e l o p m e n t . ~Despite
~
these
institutional advances, most land i s s t i l l owned by the state and policies can pose impediments to private
investment.
Improving Infrastructure
4.23
Good infrastructure services are necessary to encourage private investment in productive areas.
For a poor country with a small population, export led growth i s the only option. All potential exports
such as agro-processing, tourism, garments, electronics, information technology, etc. require reliable
electric power at international prices, good road, port and air facilities and world-class
telecommunications capability (the water sector i s discussed in chapter 5). Although Guyana has made
significant improvements in the last decade, many shortcomings remain. As demonstrated b y the
electricity and the telecommunications sectors, in-spite o f privatization, there has been little benefit to the
economy. The issue i s not privatization per se, a policy which should be maintained, but rather the
absence of good regulations and their lack o f adherence.
Electricity. Guyana’s small electricity system provides services to about 60 percent o f the
4.24
population, mostly along the coast. In 1999, the Government sold a 50 percent stake in the Guyana
Electricity Company (now Guyana Power Limited, GPL) to AC Power Ltd., a consortium o f the
Commonwealth Development Corporation (CDC), the Electricity Supply Board of Ireland and the
Government. GPL was under a private management contract whose terms include a guaranteed rate of
return, accompanied by performance targets. A new Electricity Sector Reform Act (ESRA) was also
passed, which maintained GPL’s exclusive rights over distribution, but which limited exclusivity in
generation to a five year period, after which independent power producers were expected to bid to supply
the power needs o f the company.
4.25
Despite privatization, electricity service i s not consistent (outages and voltage variation) and
scheduled prices are the second highest in the Caribbean region, requiring companies to install their own
generating capacity. GPL contends that many consumers make only partial payment for their electricity
usage by bribing GPL staff. Lower revenue collection, a delayed tariff adjustment, and the imposition by
the Public Utilities Commission o f a heavy fine upon A C Power for i t s failure to meet technical and
commercial loss reduction targets have exacerbated financial pressure on GPL, which was already
suffering because o f rising o i l prices. This led to a crisis in March 2003 which culminated in the
withdrawal o f the strategic investor as CDC sold i t s holding for US$1. The authorities now face the
immediate challenge o f preventing further blackouts by correcting under-investment in essential
maintenance, whilst maintaining fiscal stability. In the coming months, they w i l l need to develop an
action plan for steering GPL towards renewed private participation, under an improved contractual and
regulatory framework.
33
4.26
Transport. Guyana’s road network stretches for 1610 miles. About one-fifth of the network i s
primary roads, another fifth i s feeder roads, and the remainder i s interior roads and trails. Much o f the
network i s in poor condition. Improving overall maintenance and rehabilitating selected roads and
bridges could lower the cost o f transport substantially and spur economic activity in several areas.
Guyana does not have any deep sea port facilities, which l i m i t s the size o f ships that can dock. Port
facilities handle merchandize inefficiently, although competition has lowered handling charges by up to
30 percent. Ports need major improvement. Equipment i s needed to remove wrecks, to dredge, to load,
to make pallets, and to fight fires. The feasibility study o f developing a deep-water harbor and a container
port should be initiated. Air transport i s limited in coverage and in passenger and cargo capacity. It i s
also very expensive. Many o f Guyana’s airports lack landing lights and navigation equipment which are
expected to be funded under the IDB’s Air Transport Reform project. As the Government does not have
the capacity or resources to substantially improve transport infrastructure, it should consider concessions
or other forms o f public-private partnership arrangements.
Telecommunications. Guyana has adequate telecommunications infrastructure to support the
4.27
development o f information and communication technologies. Telecommunications service i s considered
expensive, however, and the existing private monopoly has impeded the introduction of wireless
technology and o f internet services. With multilateral aid, there i s a substantial program aimed at
increasing connectivity and access. I t i s recommended that competition be allowed in this sector and/or
regulations be improved to facilitate Guyana’s access to world-class telecommunications services.
34
5.
INVESTING IN HUMAN
DEVELOPMENT
5.1
The goal o f reducing poverty in Guyana depends on the success o f i t s human capital investment
strategy. Indeed, strengthening and sustaining human capital w i l l be critical if the economy i s to grow in
the medium and long term. This recognition i s at the core o f both the National Development Strategy
(NDS) and the PRSP. Implementing the strategies means improving the quality o f health and basic
education and expanding services to the hinterland, expanding retraining opportunities for newly
displaced workers, and protecting and enhancing the human capital investments o f the poor and
vulnerable population through social protection interventions. Progress has been made, but major hurdles
remain to achieve these objectives. This chapter examines some o f the critical challenges facing the social
sectors and outlines key policy recommendations.
Social Welfare Performance-Mixed
Results
5.2
Guyana’s social welfare as measured by key social indicators has improved since the
deterioration evident through the 1980s and early 1990s. Yet basic indicators remain significantly below
those o f most other countries in Latin America and the Caribbean (Table 5.1). Guyana ranked 92d out of
175 nations on the UNDP’s index of human development in 2001 (HDR 2003), trailing all Caribbean
states with the exception of Haiti, Dominican Republic and Grenada. Guyana does not rank better on the
UNDP gender-related index (GDI), coming 74th out o f 144 countries. These summary indices suggest a
low and in some cases declining level o f social development.
Table 5.1: Selected Social Indicators: Guyana and Comparators, 2001
Guyana
I
Poverty incidence (% below poverty line, 1999)
Urban population (% of total population)
L i f e expectancy at birth (years)
Infant mortality (per 1,000 live births)
Child malnutrition (% of children under 5)
Illiteracy (% of population 15+)
I
35
38
63
54
12
1
Latin America
and the
Caribbean
75
70
30
9
12
Lower-Middle
Income
Countries
42
69
32
11
15
Source: World Bank, Social Indicators Data Base, 2003.
5.3
Indicators. Life expectancy at birth has fluctuated over the last decade, but by 2001 i t had fallen
below i t s 1990 level to 63 years, well below that o f regional Caribbean neighbors and the Latin American
and Caribbean average l i f e expectancy o f 70 years.79 Although infant mortality has declined from 64 per
1,000 in 1990, the 2000 level o f 54 far exceeds average rates in Latin America and lower-middle income
countries. Maternal mortality i s also alarmingly high at 168 per 100,000 live births, roughly consistent
with sub-Saharan African averages. Malaria remains one o f the principal causes of morbidity, with nearly
42,000 reported cases in 2000. Tuberculosis i s on the rise, and HIV/AIDS has become a pandemic
disease, with an estimated adult incidence o f three to seven percent, the highest in the Caribbean after
Haiti.*’
5.4
Guyana has plentiful and good quality raw water resources.81 Approximately 92 percent o f the
population now has access to water, better than many countries in Latin America and on par with higherincome countries. Major improvements in water infrastructure b y the Government with outside financial
assistance have occurred in the past few years. However, reliability o f treated water services remains
poor. Water i s often available for only a few hours a day, particularly in areas outside Georgetown, and
35
an inconsistent water distribution system combined with insufficient maintenance o f drainage facilities
continues to contribute to a significant incidence of water-born illnesses.82
5.5
As with health, the education system experienced marked deterioration during the 1980s, but has
improved since. Primary school enrollment rates are high and secondary enrollment i s respectable, while
grade repetition rates at the primary levels are low and have been declining, standing at about 2.4 percent
in 2000.83 Despite reasonable enrollment, chronic student and teacher absenteeism contribute to a low
level of performance. National performance on the Caribbean Examinations Council (CXC) scores are
significantly below the Caribbean average, although there has been improvement in secondary school
entrance examination (SSEE) since the early 1 9 9 0 ~These
. ~ ~ results suggest a generally poor quality of
schooling, consistent with the apparent decline in literacy across the country. The official literacy rate i s
98.6 percent for adults 15 and older, however functional literacy i s likely to be as low as 55 percent. I t i s
estimated that nearly a third o f children graduating from primary schools do not have basic literacy
skills.85 The problem i s much worse among out-of-school youth, o f which, according to the Ministry o f
Education, up to 90 percent operate below acceptable levels o f functional literacy.
5.6
Pro-Poor Growth spending. As shown in Figure 5.1, the central government’s pro-poor growth
spending4.e. spending on education, health, housing and water, and other poverty alleviation
programs-has substantially increased since 1997, both in real and relative terms. I t grew by an annual
average rate o f 5.9 percent in real terms between 1997 and 2002, faster than GDP growth (0.7 percent)
and total spending (3.2 percent). As a share o f GDP, i t increased from around 15 percent in 1997 to 20
percent in 2002. Both education and health increased sharply in relation to GDP during the period under
review, with the share o f education more than doubling and the share o f health increasing by 50 percent.
In both sectors, the increase i s accounted for by non-wage spending (books, school supplies, drug
supplies). The authorities have met their H P C targeted objectives for all o f the main social spending
categories since 2000.
Figure 5.1: Pro-Poor Growth Spending
Average Share of GDP for Social Sectors (1997-2002)
Average Annual Growth Rates (“A) p.a. for Social
Education
HeaHh
~
Total Spendlng
~ ~ o u s mand
g Water
Health
Poverty Alleviation
Programs
-5
I
0
5
10
15
=
I
I
5
0
Average Share of Total Public Spending for Social
Sectors (1997-2002)
I
10
15
Social Spending as a % of Total Spending and GDP
47
0
n
20
43
18
16
p 39
-
37
I
35
~
14
12
1997
36
24
22
45
g 41
Housing and
Water
,
1998
1999
2000
2001
2002
2003
48
5.7
Public social sector spending in Guyana compares favorably with other countries in the region as
shown in Table 5.2. Except in the case o f social security and welfare where the figure i s comparable to
other Caribbean countries, but far below the average for the rest o f Latin America (notwithstanding the
large variations between countries). Spending on housing and water are o f a s i m i l a r magnitude to social
security and welfare and consistent with other countries in the Caribbean region.
5.8
The number o f teachers and health workers-key performance indicators under the EHIPC
initiative-show improvement over the period 2000-2002 (Table 5.3.) The number o f teachers (primary
and secondary) increased by 5-6 percent per annum over the same period, the ratio o f trained teachers b y
5-10 percentage points, and the students drop out rates declined b y 3 percent. With respect to the health
sector, the number of workers remained almost unchanged during 2000-2002. The number o f new trained
teachers averaged 5 19 per annum over the 2000-2002 period, 200 more than the annual average over the
1996-99 period.
Table 5.2: Social Sector Expenditures: Guyana and Region, 2000
Indicators (%of GDP)
Public health expenditure
Public education expenditure
Social Security and Welfare
Housing and water
Total
Guyana
Latin America and the
Caribbean a
3.4
7.5
2.0
2.1
15.0
2.8
6.8
5.5
0.8
15.9
2000 or most recent year available.
Includes housing expenditure only.
Sources: IMF Government Finance Statistics Yearbook, 2001 ; Ministry o f Finance
Estimates of the Public Sector, 2001.
a
Table 5.3: Guyana: Selected Education and Health Indicators, 1999-2003
Primary teachers (number)
(of which trained, Yo)
4808
57%
2412
64%
Secondary teachers (number)
(of which trained, Yo)
Total no. of new trained teachers
Student Drop outs (primary)
Student Drop outs (secondary)
IHealth care workers (number)
2209
2500
2100
2326
576
2005
2275
2198
3475
3502
1992
n.a.
n.a.
3460
source: Government of Guyana
Cross-Sectorial Challenges
5.9
Implementation gridlock. The failure to make substantial progress on policy implementation
stems largely from political gridlock and m i s t r u s t o f c i v i l society which impacts on the provision of
social services. Often public services are perceived to have a strong political dimension benefiting certain
population groups more than others. While the solutions to the political problems are multidimensional
and cannot be treated adequately in depth here, there are a number o f incremental steps that could both
help to improve service delivery and alleviate the political tensions. F r o m a service delivery perspective,
i t i s important to continue the process o f devolving the social sector decision making and increasing the
37
autonomy o f local authority. A much better understanding o f the role o f central and local governments,
NGOs and civil society in the delivery o f social services i s needed. In addition, attention should be given
to de-politicizing the social sectors to the extent possible. This can be achieved in part by developing
budget allocation rules and regulating the quality and quantity of services in a transparent, well-conceived
manner, and regularly monitoring the application o f the established policies and programs. Increasing the
involvement o f civil society and NGOs in the provision o f services and monitoring performance w i l l also
help to gain the support o f society and increase local capacities. Government cannot do i t all alone, and it
i s necessary to forge stronger partnerships with the Guyanese society at large.
5.10 Institutional capacity. The planned devolution o f central government decision making and
management i s encouraging, with line ministries moving away from service provisions toward
policymaking and oversight functions. The Ministry o f Health i s adopting a system o f regional Health
Management Committees (HMCs) to coordinate local service delivery and has already corporatized the
Georgetown Public Hospital. National water and sanitation services have been merged into a single
privately managed company where previously separate parastatals provided services for Georgetown and
the rest o f the country. Cost recovery measures are underway along with planned service expansion.
5.1 1 But devolution, decentralization and privatization are not panaceas for inefficiency and lack o f
capacity. At the local levels, the capacity to effectively administer programs needs to be strengthened.
RDCs, NDCs, and HMCs need to improve their financial management, gain technical expertise in
managing services, and ensure community participation in the follow-up and evaluation o f local service
delivery and management. Experience elsewhere in Latin America suggests that community participation
i s essential to achieve efficient service provision in a decentralized environmenLg6 Central line ministries
in the social sectors by and large continue to operate in a state of continual fire-fighting. This i s partly the
result o f incomplete devolution o f decision making, and partly limited capacity. They do not have the
s k i l l mix necessary to carry out the new policy and oversight functions. Monitoring, evaluation, and
policy analysis capabilities must be developed.
5.12
Emigration and low public sector wages. The retention o f qualified personnel i s a chronic
problem in all sectors. The vacancies are largely a consequence o f l o w public sector pay and emigration.
I t i s estimated that between 20,000 and 50,000 Guyanese migrate annually for the United States, the
United Kingdom and Canada (see Box 5.1). Many o f these are trained medical personnel and teachers.
Brain drain combined with l o w wages has contributed to a vacancy rate (before the abolition b y the
Public Service Ministry o f all vacancies) o f up to 40 percent o f the posts in the Ministry o f Health, and
nearly half o f primary school teachers and 43 percent o f general secondary teachers were classified as
untrained in 1999/2000.87 Similarly, 30 percent o f human services staff positions within the Ministry o f
Labor and Human Security jobs are vacant. Unfilled vacancies have clearly compromised the ability o f
line ministries to operate effectively. The shortage o f qualified medical personnel and teachers are felt
most acutely in the rural interior regions where poverty i s highest. More than 70 percent o f the specialist
medical personnel are expatriates, many from Cuba, India and China through technical cooperation
programs.
5.13
The problem o f staff retention i s well-recognized in Guyana and receives attention in the PRSP.
There are a number o f initiatives underway to address the problem in different sectors. The Basic
Education Access and Management Support (BEAMS) project w i l l provide in-service training
opportunities and w i l l develop teacher accommodations in remote areas. The recently approved EFA-FTI
proposal w i l l devote nearly US$5 million to training teachers in the hinterland areas using a distance
learning approach, constructing houses for teachers and providing a hardship allowance. A goal o f the
project i s to improve the retention rate o f teachers in the hinterland b y 20 percent b y 2015. These are
consistent with the Education Strategic Plan for 2003-2007 which envisages to build houses for teachers
and improve the school working environment through infrastructure improvements. The National Health
38
Plan envisages a strategy o f facilities consolidation combined with training programs and revised reward
and promotion systems to increase and retain skilled health staff.
5.14
Given the critical nature o f the problem, additional innovative approaches to staff retention
should be considered. The need for downsizing Government and reducing the public sector wage bill has
been noted in Chapter 3. With well-designed streamlining o f staff positions across Government, i t may
be possible to significantly increase the salaries o f remaining personnel to address the difficulty posed b y
noncompetitive wages. Consideration should be given to the recruitment and training of medical and
education personnel from within local communities, particularly in remote regions; the creative use o f
assignment rotations; hardship stipends; and deferred education and investment benefits, building on
ongoing initiatives. The emigration problem i s not restricted to Guyana and i s a phenomenon throughout
the Caribbean. Regional consultations and approaches may be considered as well. Ultimately, however,
stemming the tide o f human capital w i l l come from improvements in the general economic and political
conditions in Guyana. Emigration plays an important factor in many aspects o f the economy and yet not
much i s known about it. I t i s therefore suggested that an in-depth study be conducted to learn more about
the profile o f emigrants and the impact o f emigration on the economy, with the view o f designing
mechanisms to improve the net impact o f emigration on the economy.
Budgeting and resource allocations. As noted above, social sector spending in Guyana i s
5.15
increasing, yet the problem o f l o w quality services and limited access in hinterland regions persists, with
little improvement in aggregate social indicators over time. The proposed 2003 government budget
would be the largest in the history o f Guyana, with further increases in the health and education budgets
over 2002. While there i s some evidence o f historic underspending in these sectors, it i s important to
ensure that new resources are spent effectively.
39
5.16
Budgets are determined and allocated largely from a historical perspective, rather than through a
process o f performance monitoring and assessment. There i s limited ability to allocate new resources to
priority areas. The allocations o f sectoral resources should be reviewed on an ongoing basis as part o f the
planning and budgeting process. For example, the public health sector spends more than a quarter of its
expenditures on drugs and medical supplies and about a third on staff compensation.88 This allocation
suggests that health expenditure i s focused more on hospital and specialized care rather than on primary
health care, health promotion, and education. The draft National Health Plan 2003-2007 has put
increased emphasis on primary care activities, which should be monitored. In education, the share of
expenditures spent on primary education in the late 1990's was in the range o f 27-30 percent,
considerably below the norm o f 40-50 percent in many developing countries.89 T h i s imbalance w i l l be
partially addressed by the EFA-FTI proposal. In general, there are no mechanisms in place to routinely
monitor program performance and spending decisions, and to translate findings back into the budgeting
process. Developing and implementing such a system should be a priority across sectors.
5.17
There has been good progress in improving budgeting practices and moving to a program-based
system in both the Ministry of Health (MOH) and the Ministry o f Education (MOE) through the Guyana
Economic Management Program (GEMP). Both ministries are using a program budget process rather
than recurrent line-item budgeting, thus improving the ability to track program costs. Unfortunately, the
rest o f the Government s t i l l uses the old system, creating inefficiencies in reconciling the systems. In
addition, old fiduciary practices are s t i l l largely followed, whereby the Ministry o f Finance withholds a
portion of the budgets o f line ministries, forcing them to request cash releases periodically throughout the
year and hindering smooth program implementation and future planning.
5.18
The operational roles of central ministries and local actors i s unclear in certain areas. This i s to
be expected in the early stages of reform, but the relationships should be formalized as soon as possible.
For example, management authority in health i s fragmented between the MOH, MOF, Ministry o f Local
Government, and the RDCs. Inconsistency in the operation o f sectors can be difficult for local levels o f
Government. RDCs typically administer procurement for hospitals and clinics, but procurement
pertaining to communicable diseases (e.g., vaccines) i s handled from the central ministry. In the
education sector, RDCs are not involved in procurement at all. Formal regulations and linkages are
needed to govem interactions between the center and regions. This w i l l become more critical as central
ministries further devolve responsibilities for services management.
5.19
Establishing regulations and quality control can also help to increase the involvement o f the
private sector in service provision. The private sector has expanded rapidly in health care. In 1999, for
example, it was estimated that nearly half o f all health visits were to private facilities?' Yet the quality o f
these services i s not monitored, and their use i s not factored into sectoral planning.
5.20
Privatization and restructuring. As the restructuring o f key industries such as bauxite and sugar
proceed, there w i l l be negative short term consequences for the social sectors. Parastatals have in the past
provided a range o f services to employers and their families, including health care, education, and
sanitation and water access. Restructuring i s eliminating these company services, forcing families t o tum
to public systems. In addition, the planned retrenchment o f workers w i l l have limited means to pay for
public or private services, creating a potential crisis in access to care for these families and increased
demand for social safety nets and labor market interventions. One estimate places the number o f
retrenched GUYSUCO workers at about 6,000 over the next few years (assuming the closure o f the
Demerara m i l l s ) and another 850 at LINMINE, potentially affecting some 37,000 people through family
association^.^^ Finally, the semi-privatization o f basic infrastructure services such as water and
electricity, notwithstanding the long term efficiency and coverage benefits, i s resulting in short term price
shocks coupled with threats of termination for delinquent accounts. Average electricity tariffs are
expected to increase by 15 percent in 2003, while water rates may increase between 20 and 50 percent
40
depending on use. Taken together, these effects are placing an increased burden on the health, education,
and social welfare systems.
5.21
A critical short-term need i s to improve and possibly expand social safety net programs in order
to facilitate access to services by the poor and vulnerable. A main area of concern i s to keep children and
families in school and receiving primary health care to prevent deterioration o f welfare and human
capital. Currently, there i s only a limited exam fee subsidy, a school feeding program operated by the
Ministry o f Education, and subsidized school uniforms from the Ministry o f Labor, Human Services and
Social Security. A more comprehensive targeted voucher program i s under consideration, as i s a water
subsidy for the poor.92 Experience from the rest of Latin America on the use o f conditional cash transfers
in education and health and targeted subsidies may be valuable for Guyana.
A second need i s to increase training and employment opportunities for dislocated workers. The
5.22
two principal poverty programs, the Social Impact Amelioration Program ( S I M A P ) and the Basic Needs
Trust Fund (BNTF) have been geared primarily to supporting health, education, water and sanitation
infrastructure through communities and NGOs, with a limited project-specific local labor component.
The Linden Economic Advancement Program (LEAP), a large initiative funded b y the European Union,
w i l l focus directly on enhancing job opportunities by offering vocational training and microcredit
resources to displaced workers in the Linden area. There are other initiatives, including the Skills
Training and Employment Program (STEP) for unemployed youth operated b y the Ministry o f Education,
but more systematic consideration o f training opportunities coupled with access to small business and
microcredit for older workers should be undertaken with the participation and consultation o f the private
sector.
Indigenous people. Box 5.2 discusses in some details the profile and challenges facing the
5.23
indigenous people who account for about 8 percent o f the population. The Amerindians are especially
vulnerable, with 80 percent below the poverty line. Although Amerindian communities are integrated to
some degree into the cash economy, the majority s t i l l engage largely in subsistence activities and thus
depend on natural resources (agriculture, forestry, mining) which are under environmental threat. The
Government has implemented some programs aimed at reducing poverty among the Amerindian
communities through improving access to employment opportunities and enhancing the delivery o f basic
services. I t has also undertaken a program o f institutional reforms to address the issues o f economic and
social development among the Amerindians, including the establishment o f the Ministry o f Amerindian
Affairs. But, the Government has yet to elaborate a comprehensive strategy for fully addressing
Amerindian concerns: access to land, environment degradation, and economic empowerment.
Sector-specific challenges
5.24
Health. A major priority in the sector i s the consolidation o f management and service delivery
reform efforts discussed above. Some underutilized facilities w i l l be closed, others consolidated, and
some hospitals converted to outpatient polyclinics. Adequately upgrading, maintaining and staffing these
facilities, with attention to hinterland areas, w i l l be crucial. In addition, critical vertical programs need
strengthened implementation efforts. The UN estimates that between 1999 and 2001 H I V / A I D S was the
number one cause o f death in Guyana in terms o f years o f potential life lost, and i t i s already the fourth
leading cause of death nationwide. An HIV/AIDS National Strategic Plan has been developed in
consultation with international donors, encompassing education, counseling, and adoption o f treatment
guidelines and some access to antiretroviral drug therapy. Communicable and vector-borne diseases with
rising prevalence, such as malaria and TB, require similar attention. There i s a pending application to the
Global Fund for HIV/AIDS and TB for US$16 million to fund initial activities. I t i s recommended that
these efforts be accelerated. Consideration should be given to the systematic inclusion o f NGOs and
private sector groups in public education campaigns. Maternal and child health interventions should be a
41
further priority, reducing the need for more costly treatments at a later stage. These National Priority
Programs must not be lost to the objective o f organizational reform.
Education. The education sector has been a priority for the past several years for both
Government and donors. As a consequence, there are a number o f large donor-supported programs at
various stages o f implementation, in addition to assistance from smaller bilateral agencies and UN
o r g a n i ~ a t i o n s .Coordination
~~
occurs informally to a degree through the Donor Thematic Group on
education chaired by the MOE, and through multi-donor initiatives such as EFA; however more
systematic coordination that sequences and links interventions could benefit Guyana. There are several
strategic issues to be addressed in the sector, from cumculum reform to improving tertiary education
through STEP to strengthening the capacity o f MOE. However, most initiatives can be summarized as
efforts to remove the various constraints that affect the supply of, and demand for, quality education.
5.25
42
Priorities include: teacher training and retention, facilities management and availability o f books and
school supplies, and accessibility and affordability o f school attendance for families. A targeted
education subsidy i s being considered.
5.26
Social protection. With the ongoing industrial restructuring and the aging o f the population from
natural causes and migration, social protection takes on an important dimension. In general, existing
programs are inadequate in terms o f targeting and benefits. For example, over 70 percent o f the poor are
Amerindians, yet they receive less than 10 percent of social assistance benefits on a~erage.~’Many small
safety net programs exist providing only meager benefits. The system would benefit from a
rationalization exercise focusing on consolidation o f programs and improved benefits. Better integration
and coordination o f programs across ministries should also be a priority. Rationalization and capacity
building has begun with the assistance o f a World Bank technical assistance program to the Ministry o f
Labor, Human Services and Social Security through the Public Sector Technical Assistance Credit. See
box 5.3 for a detailed discussion o f social safety net programs.
5.27
Water, sanitation and housing. Priorities in the water and sanitation sectors should be first on
infrastructure rehabilitation and maintenance, and rationalization o f existing facilities; and second on
expanding water and sanitation access to rural cominunities. Prior to 2000, poor infrastructure had
contributed to costly inefficiencies and chronic water-borne diseases. The Guyana Water Company
estimated that more than three-quarters o f all water provided was lost from damaged mains and improper
connection^.^^ Despite Guyana’s high quality source water, in many cases by the time i t reached the
consumer i t had become contaminated through damaged pipes and low pressure. The 30-year-old sewage
system in the Georgetown area was in a near state o f collapse, with communities outside Georgetown
largely dependent on pit latrines and septic tanks without effective sanitation services.
5.28
Since 2000, with assistance from the IDB, the EU and the CDB, good progress has been made in
the rehabilitation o f the water infrastructure and in the improvement o f the water quality in Georgetown
and the lower costal area. Also, progress on rationalizing facilities and cost recovery has been made with
the adoption b y Government of a reform strategy for the water sector, the establishment o f the single
water company (Guyana Water Inc.) through the merger o f the two existing water companies, and the
passage of the water bill that establishes quality standards and a mechanism to manage water resources.
The start-up o f a management contract to a private operator in January 2003 i s expected to increase access
to and quality o f the water services, as well as sector cost recovery - it i s too early at this stage to assess
the performance o f the private operator. The operator has reviewed and presented i t s “capital
improvement program” (US$ 15 million per year over a ten-year period) which would require donor
support. The dilemma facing Guyana i s that improving infrastructure access i s key to greater social and
economic inclusion and yet, given the vast distances and the l o w population density, the improvement
would be costly and would require both operating subsidies (until sustainability i s reached over a period
of several years) and targeted subsidies to ensure access and affordability to the poorest facing steep tariff
increases.
5.29
The housing difficulties can be largely attributed to outmoded laws and procedures which hinder
development. Squatter settlements are prominent in Georgetown-about
20 percent o f the city’s
population are classified as squatters, the majority o f whom live in communities with unfit dwellings.”
Addressing these problems w i l l require a combination o f legal and procedural reform for land
development and regularizing squatter communities. There are currently efforts in place, supported by
IDB technical assistance, to address the issues facing the housing sector. Furthermore, since 1999,
government has embarked on a countrywide program to regularize the squatters (subdividing land,
building infrastructure, and granting titles). To date 99 areas out o f 140 (covering 90,000 people) have
been regularized. The IDB i s supporting a US$30 million low-income settlement project, the EU has
43
recently approved a small project to upgrade infrastructure in squatter areas, and a revolving credit fund
has been created to help low-income families build houses.
Conclusions
5.30
Many o f the challenges to human development and service provision have been long recognized
b y Government and stakeholders. Key issues have been identified in national strategy documents and
health and education plans. Each o f the Government line ministries has responded in meaningful ways to
the challenges, reflected in a variety o f ongoing reforms supplemented with extensive donor-supported
initiatives. This chapter has examined some o f the remaining key challenges facing the social sectors,
44
most o f which are inter-related. Many can be addressed through improving sectoral planning and
implementation o f programs. The main conclusions are:
Implementation gridlock i s the greatest barrier to improved human development outcomes;
Planning, monitoring, and budgeting processes need to be strengthened at the central line
ministries;
Functional roles need to be formalized for local Government and service agencies, and
management capacity strengthened;
C i v i l society, the private sector, and NGOs should play a more prominent role in the
administration and monitoring of the social sectors within a devolved policy environment;
Retention o f qualified staff must be addressed at all levels;
Although some progress has been made in addressing the needs o f the indigenous people, the
Government has yet to elaborate a comprehensive strategy for fully addressing their concerns,
notably access to land, environment degradation, and economic empowerment; and
The burden on public social programs i s likely to grow with restructuring of traditional
industries, necessitating greater reliance on short-term social protection interventions.
45
6.
MEDIUM
TERMOUTLOOK-PRODUCTIVITY
DIVERSIFICATION
GAIN AND EXPORT
6.1
This chapter discusses growth prospects o f both the traditional sectors-sugar, rice and miningand the non-traditional sectors. I t argues for a major restructuring o f the traditional sectors and for a bold
move into a new direction in support o f economic diversification. T w o medium-term scenarios are
discussed here for illustrative purposes: a base case scenario (reform) and a low case scenario. I t i s clear
that Guyana's best option i s to move aggressively in improving the political climate and the security
situation in the country and implementing reforms if growth i s to be resumed and sustained.
Revitalizing Agriculture-Shifting
Towards M o r e Competitive Activities
6.2
Agriculture i s concentrated on the coastal plains where farming i s protected from the intrusion of
saline water by mangroves, dikes, sluices and concrete walls, known collectively as sea defenses. Sugar
and rice are the main agricultural activities on the coast, and cattle production i s the main agricultural
activity in the intermediate and Rupununi savannahs. Many other crops (i.e. fruits, vegetables, spices,
small ruminants and tree crops) are produced under extensive cultivation for the domestic market. In
2002, agriculture (including fisheries and forestry) accounted for 33 percent o f GDP, 46 percent o f
merchandise exports, and was the main source o f employment for the 70 percent o f the population living
in the rural areas"'. Weak support services, deterioration o f the drainage and irrigation facilities, high
cost farm-to-market infrastructure and insecure land tenure are amongst the key impediments to
agricultural growth.
6.3
Sugar Sector. The sugar industry accounts for 16 percent o f GDP, a fifth o f the cultivated land,
23 percent o f foreign exchange earnings, and 6 percent o f the labor force. For nearly fifteen years, efforts
have been made to restructure the sugar sector and to prepare the Guyana Sugar Company for
privatization."* Appointment o f a private manager in 1992 brought costs down and led to an increase in
the level o f field and factory effi~iency.''~ B y 2000, Guyana was producing sugar more competitively
than the other Caribbean producer^."^ Thanks to preferential market arrangements and GUYSUCO's
private management, sugar
-production more than doubled during this period, rising from 130,000 tons in
i 9 9 0 to 331,000 tons in 2002.
Yields increased to current average
Figure 6.1: Sugar cane: Average yield 1999-2001 ("a)
o f 61 MT's per hectare, some 87
Guadeloupe
percent above the average for the
Martinique
Caribbean as a whole (Figure 6.1).
GUYANA
Although
three-quarters
of
Jamaica
Guyana's sugar production was
Barbados
exported to the EU at prices more
Haiti
than triple the world market prices,
St Kitts & Nevis
about 20 percent o f production
Trinidad and Tobago
Grenada
was high-cost and had to be crossPuerlo
Rico
In total, the
s~bsidized.''~
Dominican
Republic
industry's cross subsidization
Caribbean
amounts to about 2 percent o f
Cuba
GDP annually.
6.4
The sugar sector faces
the
tremendous
challenges:
challenge to preferential quotas in
i t s main European markets, low
St Vincent & Grenadines
Bahamas
Dominica
0
10
Source: Source FAO, Agrostat (2002)
46
20
30
40
50
60
70
80
and declining world prices for sugar, and antiquated factories which impede the achievement o f lower
cost production. The long term trend in world market prices i s projected at U S $ 9 cents/lb in real 2000 US
dollar terms by 2015, half the current level of production cost in Guyana. Depending largely on the EU's
review o f the sugar regime and on the effect of challenges posed to the EU sugar at the WTO, Guyana's
sugar export prices could fall much sharper and sooner.'06 Given substantial pricing uncertainty, the main
focus o f sugar sector restructuring i s to reduce, over time, the cost o f production to international levels.
6.5
GUYSUCO's plans for the restructuring o f the sugar industry include: (i)development o f a new
and modem factory at Skeldon while increasing production in Berbice; (ii)
closure of the loss-making
factories in the Demarara region;'07 (iii)a reduction in labor costs-through attrition and voluntary
retrenchments-which have grown over the last decade from 41 percent to 56 percent of total recurrent
costs; (iv) a shift in management contracting and wage policy from a production to a profitability basis;
and (v) elimination o f the sugar levy on windfall profits. Efforts are being made to add value to domestic
sugar production by increasing co-generation of electricity, launching new lines of packaged sugar,
building a refinery at Skeldon to make white sugar for export, and expanding distillery capacity and
exports o f processed spirits. Additional measures to boost field-level productivity, that are being
supported under the Agriculture Improvement Program, include an increase in the conversion o f state to
freehold lands, introduction o f more drought and pest-resistant crops, promotion o f in-filling and better
land management techniques, and mechanization o f selected field operations.'08 The restructuring o f the
sector i s expected to increase efficiency and lower production to a financially optimum level. With the
new Skeldon plant coming on line, Guyana's production capacity w i l l rise to 450,000 tons per annum by
2006.'09
6.6
The capital investment required to build a new factory at Skeldon and to renovate existing
factories, i s estimated at U S $ l l O million, equivalent to nearly 14 percent o f 2002 GDP. This excludes a
possible US$20 million in additional financing for a refinery at Skeldon, if that i s pursued. In a market
economy, the Government can hardly afford to be the main source o f finance for the commercial sectors.
Over time, the financing burden for the sugar sector should be shifted from the public to the private
sector. Improvements in the regulatory structure w i l l be needed to inspire more private sector investment
in sugarcane. Replacing the sugar levy on GUYSUCO's profits with dividends and corporate tax, striking
a medium-term wage-setting agreement linked explicitly to productivity, and modifying the existing
GUYSUCO management contract to provide positive incentives for increasing GUYSUCO's profitability
are amongst the measures that would make the industry more attractive to private finance.
6.7
T o reduce field costs, more sugar should be purchased from private growers, rather than being
produced b y GUYSUCO. Under present arrangements, GUYSUCO has little incentive to buy from
private growers or to supply them with technical services. A new cane payment formula should be put in
place that provides incentives to farmers to deliver high-quality cane and to processors to buy from
private growers and supply them with technical services. This implies that the 70:30 percent revenuesharing arrangement should be reduced to a 62:38 percent split and that cane payments to farmers be
explicitly linked to factory recovery rates.' lo Restructuring the sugarcane sector i s likely to increase
unemployment when the existing older plants in the Demerara area are closed. The actual amount o f
unemployment i s unknown, but could amount to over 8,000 persons in the medium-term. Since any sugar
plant closings would only occur after the Skeldon plant i s operational, this provides the Government with
two to three years to prepare suitable severance and job training assistance."'
6.8
In the long-run, there i s little reason why the Government should continue to own, operate or
manage GUYSUCO, or indeed any other commercial company. Experience worldwide demonstrates
unambiguously that private ownership o f commercial business has an important and positive influence on
productivity, profitability and investment choice, especially in a quickly-evolving and highly-competitive
export-oriented sector. As access to preferential markets fades, there i s the risk that Government's
47
attempts to rescue the sector could hinder the redeployment o f resources into activities with which
Guyana may well be far better off. Moreover, in the 1990s, sugar production and productivity soared,
while rural poverty stagnated.lI2 In the long-run, if sugarcane development i s to be an engine of rural
development and poverty reduction, cane producers w i l l need to share in both production r i s k s and
returns. Other countries, most notably Thailand and Malaysia, have transformed state-owned plantations
into smallholder-cooperatives (in Malaysia, FELDA) and smallholder-owned limited liability companies.
In these cases, the impact on rural poverty reduction has been nothing short of remarkable.
6.9
Rice Sector. Rice traditionally accounted for a fifth o f agricultural income and about 8 percent o f
Guyana’s GDP. After prices and trade were de-controlled in the early 1990s, productivity and
production increased (Figure 6.2).Il3 Similar to sugar, Guyana has had recourse to preferential market
access for rice in the EU, where prices have ranged from two to three times the world market level. Rice
production reached a historical low of 288,000 tons in 2002 due to drought and weak prices. Earnings in
the rice sector have been on a declining trend since 1998 because o f declining international market prices.
Delayed payments by millers and decreasing availability o f credit to cover production costs has disrupted
planting schedules and has contributed to greater difficulties in irrigation, drainage and dam
maintenan~e.”~Over the long-term the most serious issue w i l l be the loss o f preferential entry into the
European Union in 2007. Guyana’s cost o f
rice production i s in the order o f US$340US$400 per MT, compared to production
costs in the range o f US$80 to US$lOO per
MT in China, Vietnam, Thailand and
Burma, the leading
global exporters.
Given that rice production i s highly labor
intensive and wages in Guyana are four to
five times that in the low-cost Asian states,
the long-term competitiveness o f this
industry i s questionable. The main
immediate challenges facing the rice subsector include the need to strengthen
research
and
extension
services,
rehabilitate drainage
and irrigation
infrastructure, resolve mounting credit
arrears, and improve the quality o f exports.
2
6.10
High-Value Crops. With an end to preferential market access approaching, diversification into
crops that can be produced more competitively for export i s warranted. Guyana produces a wide variety
of fruits, vegetable and other crops, many o f which, if grown with modern technology, have better global
market prospects than rice. Ensuring that research and extension policy focuses on providing a range o f
technology options to rice farmers can help to facilitate a shift into more competitive crops. Assisting
private agro-industry associations to develop the marketing information and marketing services necessary
to penetrate new agro-export markets and maintain reliable product quality can help to expand economic
opportunities and diversify the export base. This i s also an area where fuller analysis of technical options
appears warranted.
6.1 1 Forestry. The total land area o f Guyana i s about 215,000 km2,o f which more than 75 percent i s
forested. Almost all i s state owned, with nearly half o f the forested lands allocated for commercial
forestry purposes. The share of forestry in GDP has increased from 2.6 percent in 1996 to 4.5 percent in
2002. Taken together with milling and other forms o f processing, the forestry sector accounts for nearly
10 percent o f GDP. Some 500,000 cubic meters o f wood i s produced each year, and forestry accounts for
US$40 million in annual exports. L o w forest use fees, short concession periods, provision o f one-year
48
cutting permits, a lack of industry experience in sustainable management and inadequate land use
planning are amongst the main impediments to sustainable forestry development. The bulk o f the saw
m i l l s have vintage equipment, and traditional producers are being displaced from the local lumber market
by a large number of roving, chainsaw millers. These informal producers have even lower timber
recoveries, no fixed capital costs, pay little or no forest fees and taxes, and often poach their timber from
formal operations.
6.12
Progress has been made in fostering sustainable forestry development through the introduction o f
a tree tagging system, boosting Forestry State Commission monitoring and surveillance, and by
transforming the forestry commission into a self-financed and professionally managed and operated
organization. Government intends to introduce a code o f practice for processing, which w i l l discourage
unregistered m i l l s and w i l l inspire modernization investment in wood processing. New sustainable
cultivation certification procedures w i l l be introduced by the FSC to ensure that exports meet strict world
market criteria. Implementation o f the code o f practice for wood processing and the establishment o f a
wood certification facility should boost timber quality, and in so doing, w i l l raise export supply and
improve incentives for value-added manufacture. On the supply side, increased utilization o f existing
concessions, the release o f popular bullet wood from the protected species l i s t and continued expansion
in new concessions auger well for a substantial increase in sustainable forest production over the mediumterm. Indeed, a doubling o f log production and exports in the next decade appears well within reach
provided appropriate environmental measures are put in place. In this regard, the forestry law needs to be
amended to ensure adequate environmental protection, and a code of practice for processing forest
products needs to be adopted.
Sustainable Mining Development
6.13
Mining in Guyana takes place in the country’s interior, where the majority o f the population
consists o f Amerindian tribes. Many o f the miners who work for the small- to medium-scale operations
come from the coastal parts o f Guyana and spend only a short time in the area before returning to their
homes on the coast. Because mining takes place close to rivers, mining byproducts frequently end up in
the river. In 1995, Guyana witnessed one o f the world’s worst mining disasters, when three billion liters
of cyanide effluent spilled into the country’s largest river, the Essequibo. Guyana’s mines have
traditionally dumped effluent into local rivers, creating sedimentation and mercury contamination
problems in adversely affected river basins. M i n i n g operations often encroach on ancestral native lands
and while they may provide social amenities (Le. a clinic or school), these tend not to be well maintained
once the mine runs out. Informed and equitable dialogue should lead to mining-contract terms that
protect the natural environment and improve the livelihoods o f indigenous landholders. Guyana has a
substantial, least explored and developed mining potential. At present, mining activities are concentrated
on bauxite, gold and diamond. Some 10-15 percent o f the labor force are directly or indirectly involved in
mining. Gold and diamond mining has been growing rapidly, bauxite production i s declining and has
been a burden on the b ~ d g e t . ” ~L o w recovery rates, the paucity o f geological data and high costs of
river-based shipping are among the factors impeding the development o f the sector.
Bauxite sector. Guyana’ bauxite deposits yield high-quality bauxite used for the refractory,
6.14
abrasive and chemical markets. In the 1960s, Guyana supplied nearly three-quarters o f the global demand
for these products. Since then, Guyana has lost market share as new competitors, in particular Brazil and
China, entered the refractory market with a lower priced and superior quality product. Soft global market
conditions have led to a steady decline in international market prices and, as a result, Guyana’s bauxite
industry has been recording financial losses for the better part o f the past two decades. In 1980, the
bauxite sector accounted for 34 percent o f GDP and provided over 50 percent o f the value of Guyana’s
merchandise exports. The bauxite sector currently accounts for only 5 percent o f GDP and 2000 jobs, and
costs the budget 1.7 percent o f GDP in subsidies-a level which i s not fiscally sustainable.
49
6.15
With the aim of securing the industry, attracting private investment and re-establishing Guyana’s
reputation for reliable supply, the Government has attempted to privatize the mines since the early 1990s
but this has met with little success. In 1991, the Government signed a private management contract to run
the operations o f Linmine which resulted in the downsizing o f employment in half. Since 1992 the
Government has been providing subsidies to maintain the operations o f the mines and i t s workforce in the
face o f declining productivity and increased competition from the Far East. In 2001, Alcoa proposed the
merger o f Aroaima (ABC) and Bermine. When this did not happen, Alcoa turned over i t s equity shares
for US$1 to the Government later that year. In September 2002, Aroaima and Bermine were merged
operationally in order to match equipment, blend routines and reduce the cost o f river dredging. Together,
the two mines account for 1.2 million MTs o f total production. The combined Aroaima and Bermine
company faces substantial challenges: it i s operating at less than half o f total capacity with heavy
government subsidies and their two principal buyers have announced that they w i l l reduce purchases to a
third o f current levels by 2004.
6.16
Efforts to restructure the distressed bauxite mines continued in 2002. Towards this end,
Government has laid o f f a net of 1060 workers and has agreed to provide severance payments in a lump
sum for any displaced workers.“6 Cambior has expressed interest in buying Linmine in 2003.’17 This
w i l l hinge on identifying suitable arrangements for securing a reliable power supply for the mine,
reducing employment and sourcing adequate financing to modernize Linmine’ s equipment. If Linmine i s
privatized, i t s production could rise from a fifty-year l o w o f 61,000 tons in 2002 to 200,000 tons o f
refraction quality bauxite by 2006. With restructuring and identification of alternative markets for ABCBermine MAZ, Guyana’s total production of metallurgic and non-metallurgic bauxite could increase from
i t s current level o f 1.6 million metric tons to just over 2 million metric tons by 2006.”8
6.17
Gold and Diamond Sectors. Guyana began to export gold in 1993 with the opening o f the Omai
open-pit on the banks o f the Rio Essequibo. The mine i s operated by Cambior, a Canadian mining
company and produces around 10 tons annually. B y the mid-l990s, gold was Guyana’s second largest
generator o f export earnings, after sugar. There i s a relatively high level o f informal gold mining activity
in the country. Including Omai, total declared gold production was 13.6 tons in 2002. But the prospects
for gold production are mixed. Omai, which accounts for 75 percent o f the gold currently produced, w i l l
run out o f reserves in 2005.
6.18
Extensive prospecting for diamonds by foreign companies in the 1990s has produced impressive
growth. Diamond production has increased from 30,000 to 40,000 carats in the mid-1990s to a peak of
248,000 in 2002. Most o f what i s now produced are alluvial, industrial grade diamonds. Increasing
output w i l l either require chemical treatment to raise recovery rates (which poses environmental risks) or
new investment in larger-scale mines.
6.19
If the Government continues with i t s present policies, structures, and institutions, b y 2010, gold
output will likely decline by at least 60 to 70 percent and diamond production w i l l flatten out. However,
if the Government introduces reforms that inspire greater private investment in sustainable mining, gold
production could climb back to as much as 10 tons per annum b y 2010 and diamond production could rise
b y 30 to 40 percent in the next five years.
Improving Natural Resources Management
6.20
Given Guyana’s natural resources’ endowments (agriculture, forestry, mining and water) and the
central role o f their exploitation for the country’s economic development, any sustainable development
strategy w i l l require a broader environmental framework that combines environmental, economic, and
social concerns. Such a framework should include policies and institutions regulating user rights and
obligations in exploiting the country’s natural resources and protecting areas for conservation. This w i l l
50
include, inter alia, the specific policy actions that have been highlighted at the sector level throughout this
chapter. The “greening” o f international markets for commodities such as timber and minerals puts
pressure on governments to define clear environmental management practices and standards, as part o f a
favorable business environment for international investments.
6.21
The Government i s committed to addressing environmental issues, as spelled out in i t s recent
National Environmental Action Plan, but there i s a need for a more focused and consistent approach to
these issues. Concrete steps are being taken on the conservation and sustainable use o f protected areas,
through the GEF Guyana Protected Area System (NPAS) project which i s being prepared under the
leadership o f the World Bank and support from the German government. The project would assist in
establishing the legal, regulatory and technical framework for national protected areas system in Guyana,
taking into consideration indigenous land claims and resource use issues.
Diversification for Future Growth
6.22
Manufacturing, tourism and other high-value services remain at a nascent stage o f development in
Guyana. Taken in combination, these sub-sectors account for less than 10 percent o f GDP and total
employment. Even in the traditional sectors-sugar milling, mining and forest product developmentmanufacturing provides little value addition to abundant raw materials. Primary products and linked
services, s t i l l dominate economic activity. Countries in Central America and the Caribbean that have
grown the fastest over the past two decades have diversified economic activity, away from primary goods
towards manufacturing and high-value services. In each instance, structural change was led by foreign
investment that contributed to a rapid expansion o f exports. For example, in El Salvador, a nation with
internal security problems and a legacy o f state-led development, the share o f agriculture in GDP declined
from 38 percent in 1980 to 10 percent in 2000, while manufacturing and services expanded from 57
percent to 83 percent. Growth averaged nearly 6 percent per annum during these two decades. In
contrast, the share o f agriculture in Guyana’s GDP increased from 23 percent in 1980 to 31 percent in
2000 while the share of manufacturing declined from 12 percent of GDP to 8 percent o f GDP.
6.23
Numerous studies show that foreign direct investment plays a key role in fostering economic
diversification and integrating countries into the global marketplace. Moreover, developing nations that
have utilized global economic integration to foster structural change and sustained rapid economic growth
have had the best track record in reducing poverty.”’ Foreign direct investment brings links to developed
country markets, transfers technology and know-how in new products and improves management and
productivity. These benefits spill over into the rest o f the economy as domestic f i r m s and workers acquire
the same capability. Moreover, as exports grow, other supporting services such as banking,
communications, hotels and ancillary services become more efficient. Net foreign investment in Guyana
has averaged just US$50 million per annum, almost all into mining.
6.24
Establishing a pathway to inclusive political development, internal security and macroeconomic
stability, while making steady progress in structural reform to provide an enabling environment (as
described in chapter 4), w i l l be essential to motivate private sector investment. Beyond this, Government
could demonstrate its commitment to increasing and broadening the foreign direct investment base by
exploring the feasibility o f
0
Establishing export processing zones or free trade zones: these can serve to facilitate
diversification and export growth. More importantly, they can expedite reforms in an enclave
setting that can catalyze country-wide reform. Experience elsewhere, however, shows that
countries having such arrangements are increasingly under pressure to remove many of the
advantages that can be construed as trade subsidies;
51
0
0
Establishing an informatics park: Guyana has the geographic potential to compete with and
complement other developing countries that have established call center and back-office
processing services. If Guyana’s telecommunications services improve, an informatics park
could serve as a base for investors in this sector;12’ and
Fostering international connectivity: highways o f about 200 miles in the south-west, 200 miles
in the north-west and a deep water harbor in Georgetown would link Brazil via Lethem and
Venezuela’s L a Horqueta respectively, to an Atlantic port. Alternative access to the Atlantic
through their own territories would require traversing difficult terrain and i s more than double
the distance. Given the current controversies about these huge investment projects, in-depth
analyses are needed.
6.25
Such collective goods are expensive and some measure o f public-private partnership w i l l be
needed to reduce costs and ensure that strategic assets are delivered and managed efficiently. None w i l l
pay off, however, unless and until Guyana’s political divisiveness, lawlessness and policy constraints to
private sector development are addressed. If policy reforms progress and special measures are
implemented to increase and diversify foreign direct investment, the payoff could be substantial. Starting
from a very low base, and assuming that i t would take two to three years to restore political and
macroeconomic stability, a double-digit growth target in manufacturing and high-value services between
2005 and 2015 i s feasible and i s within the range experienced b y other diversifying small economies,
such as Mauritius.”’ If this growth target i s achieved, the share o f non-traditional manufacturing and
high-value services could easily double from about 5-6 percent o f 2002 GDP to 10-12 percent o f GDP b y
2010. More importantly, a foundation for diversifying the economic base would be established, while the
demonstration effects and forward and backward linkages arising from foreign investment would shift the
economy as a whole to a far higher growth and poverty reduction trajectory.
Prospects and R i s k s
6.26
Low case scenario. Forecasting Guyana’s medium-term economic outlook i s difficult because it
hinges on i t s leaders’ willingness to overcome political divisiveness, lawlessness and policy constraints
that keep Guyana operating far below i t s economic potential, and trap so many in abject poverty. A l o w
case scenario assumes that current political instability and internal insecurity continues and, although the
sugar and bauxite sectors are restructured,’22 public policy remains largely unchanged. This implies:
private investment would continue to fall below replacement levels, depleting assets; and the high rate of
emigration would increase and skill shortages would mount. Mounting urban under-and un-employment
would add to instability, crime and lawlessness. In such an environment, donor budget support might not
be forthcoming and could potentially fall b y some 4-5 percent o f GDP.
6.27
Faced with a revenue loss and flagging private investment, the government deficit would widen
to a precarious 15-18 percent o f GDP, draining resources out o f a fragile banking system and causing
domestic debt to rise at an unsustainable pace. Lacking sufficient foreign finance, construction o f the new
sugar mill at Skeldon would be delayed; the bauxite industry would likely collapse and there would be
little to replace the Omai gold mine when i t s reserves are exhausted in 2005. In addition, if preference
margins in sugar erode, Guyana’s exports could drop in half (from US$490 million in 2002 to at best
US$300 million in 2005-2007). That decline would immediately hamper the nation’s ability to import,
leading to shortages o f capital goods, spare parts, fuel and consumer goods. Expansionary deficit
spending could only stem the decline for a few years before exchange rate devaluation, rising inflation
and a mounting domestic debt would bring the economy to a standstill. B y 2005-2007, per capita
incomes could fall back to the pre-ERP levels, thus erasing all the gains made in the 1990s and
substantially increasing the proportion o f the population below the poverty line.
52
6.28
Base case scenario. That depressing scenario can be avoided, if the process o f constitutional and
political reform i s sustained leading to inclusive political and social development and a commitment to
rule o f law, as agreed in May 2003. In that case, the slide into lawlessness and criminal violence could be
reversed. Simultaneously, improved macroeconomic performance and progress in implementing
structural policies would signal the Government’s intention to support private-sector led, export-driven
growth and poverty reduction. Medium-term macroeconomic stability would be reinforced b y sharply
reducing public consumption, restructuring the sugar and mining sectors, halting transfers to loss-making
state enterprises, and focusing public investment on high-priority public goods.
6.29
Restructuring in the sugar sector would proceed, with wages and management-company
remuneration linked explicitly to industry profits. Uneconomic segments o f the sugar industry would be
hived off, restructured or closed. Private investors would be secured for the bauxite industry and given
the authority to introduce measures needed to restore profitability. Restrictions on foreign investment in
forestry and mining would be removed and better practice codes enacted to reward environmentally
sustainable practices. Discretionary fiscal and tax practices would be halted; an investment code that
provides for equal treatment o f all investors would be promulgated; tax reform would broaden the base
while bringing rates down; competition would be introduced in telecommunications; prudential
regulations and supervision would be improved for financial markets, the electricity sector restructured,
and more rational tariff-setting arrangements introduced to restore service quality.
6.30
T o provide a special boost to foreign investment, special promotional measures, private-public
partnerships in areas such as export processing zones or informatics parks could be developed and a longterm commitment made to establishing infrastructure connectivity with Brazil and Venezuela. As private
investment increases, the public sector would be downsized and professionalized, with pay linked to
performance measured according to well-defined program outcomes; a more modem budgeting and debt
management system would be introduced and the foundation o f a commercial legal framework would be
built on the basis o f an effective first-tier system o f dispute resolution. Returns to public spending in
education and healthcare would increase by focusing government outlays on essential primary health care,
sanitation and schooling, and allowing the private sector, community groups and NGOs to manage and
deliver much o f the other social services.
6.31
What may happen to the economy in such an optimistic scenario? Table 6.1 provides projections,
for illustrative purposes only, o f key macroeconomic indicators over the next five years. Debt relief and
external budget support would be forthcoming. This support would help finance near-term public goods
and the construction of the new Skeldon sugar factory. Once credibility i s established, new domestic and
foreign investment would return. In 2004-2005, the economy i s bound to experience only a modest
recovery, given the immediate impact o f the restructuring in the mining sector and the closure o f the
Omai gold mine. But thereafter, economic activity should recover faster. B y the end o f the decade,
private investment could reach 12 percent o f GDP and FDI could increase to just under US$lOO million
per annum. B y the second half o f the decade, the average rate o f economic growth could recover to 3 to 4
percent, and per capita incomes could reach over US$1100 b y 2010. Poverty incidence, after rising due
to the restructuring of the public service and the sugarcane sector, and following the closure o f the Omai
mine in the 2005, would fall at a steady rate thereafter. B y the end o f the decade, the poverty headcount
could fall to around 30 percent o f the population. As discussed in the previous chapter, the social safety
net would need to be strengthened to mitigate against the social cost arising during the next few years.
53
Table 6.1: Guyana, Medium Term Prospects
(percentage change unless indicated
2003
I
Real GDP at factor cost
Nominal GDP (US$ million)
Public Investment (% o f GDP)
Private Investment (% o f GDP)
Consumer Price Index, average
Nonfinancial Public Sector Balance (% of GDP, before grants)
Nonfinancial Public Sector Balance (% of GDP, after grants)
Current Account Balance (% of GDP, excl. official transfers)
Gross Reserves (in months of imports)
Extemal Public Sector Debt (% of GDP) *
-0.2
749
15.7
6.6
5.8
-16.6
-10.8
-17.4
3.0
155
2004
2.0
797
23.0
7.0
4.6
-17.8
-1 1.6
-18.9
3.7
163
2005
0.8
825
16.2
8.8
3.5
-13.9
-7.4
-17.2
4.4
169
2006
1.8
843
14.1
9.8
3.0
-1 1.5
-6.0
-15.9
4.0
171
2007
2.9
876
13.8
10.2
3.0
-10.1
-5.2
-14.9
4.0
173
I
6.32
Under this scenario, the medium-term payoff may not sound too much-3-4 percent per annum
growth rate and poverty headcount at 30 percent b y the end of the decade, given the extent o f the reforms
to be implemented. But this i s unavoidable as many policy and institutional changes w i l l take time to
yield results and the short-term outlook i s modest under the best circumstances. The big payoff is,
however, expected to happen in the next decade as Guyana’s competitiveness increases and economic
diversification reaches i t s full potential.
54
ENDNOTES
Chapter 1
See Leo A. Despres, “Ethnicity and Resource Competition in Guyanese Society” i n Despres, ed., Ethnicity and Resource
Competition in Plural Societies, Mouton, The Hague 1975.
Also Leo Despres, Cultural Pluralism and Nationalist Politics in Guyana, Rand McNally, Chicago.
Jai Narine Singh, Guyana: Democracy Betrayed a Political History 1948:1993. Kingston Publishers, Jamaica, 1996.
Edwin Ali, The Rise of the Phoenix in Guyana’s Turbulent Politics, Georgetown, 1997.
See “No End in Sight to Govemment Opposition Deadlock” Stabroek News, April 01,2002.
Moses Nagamootoo, Guyana Leadership, Mimeo, 2003.
See The Initiative, Hopes, Aspirations, Political Attitudes and Party Choices in Contemporary Guyana. Survey Conducted by
St. Augustine Research Associates, University of the West Indies, Trinidad 2000;
Deryck Brown, “Ethnic Politics and Public Sector Management in Trinidad and Guyana” Public Administration and
Development Vol. 19: 367-179.
Rupert Roopnarine, Some Intemal Dynamics of Insecurity: The Case of Guyana Mimeo;
Dennis Watson and Christine Craig, Guyana the Crossroads, North South Center, University Miami, 1996.
See also Selwyn Ryan, Democratic Govemance and the Social Condition in the Caribbean UNDP, New York;
”Power Sharing i n the Caribbean: The Search for Equity and Security” Caribbean Dialogue, Vol. 8, Nos. 1&2, January-June,
2002;
Ivelaw Griffith, “1997 Political Change, Democracy and Human Rights i n Guyana.” Third World Quarterly, Vol. 18.
Selwyn Ryan, Winner Takes All: The Westminster Experience in the Caribbean. Institute of Social and Economic Research,
UWI., St. Augustine, 2000.
The Philadelphia model i s the American model, in which the popularly elected President has full executive powers. I n the
Westminster formula, the Prime Minister (in theory) i s not elected by the people but i s called upon by a Monarch or an appointed
Head of State to form a govemment after the election results are known. The first-past-the-post system i s the system in use in the
United Kingdom, the Anglophone Caribbean and most of the Commonwealth wherein the candidate who gets a majority or a
plurality, i.e. passes the winning post first, i s declared the winner in the particular constituency.
Arend Lijphart, Democracy in Plural Societies: A Comparative Exploration, Yale, 1997;
“Consociational Democracy” World Politics, Vol. 21 (January 1984) 207-225;
Electoral Systems and Party Systems: A Study of 27 Democracies 1945-1970, Oxford 1994.
David de Cairies, “Can Majority Rule Work?’ Trinidad and Tobago Review, December 1998.
lo
Peoples National Congress Shared Govemance Mimeo, 2002;
Peoples Progressive Party/Civic Towards Greater Inclusive Govemance in Guyana, State House. Georgetown 2002,
Tyrone Fergusson, Structural Adjustment and Good Govemance: The Case of Guyana Public Affairs Consulting Enterprise
Georgetown.
See the extended debate on the merits of power sharing in Guyana conducted in the Stabroek News between David Hinds,
Freddie Kisson, Prem Misir, Clarence Ellis, Eric Phillips et. a1 throughout 2002.
Leslie Ramsammy. The PPP/C’s Commitment to Shared or Inclusive Govemance. aw\~:.v_i~~~~n:ti;irihbe:tni701
iiics.com. December
18,2002.
l2However, there were complaints from the WPA, other minor parliamentary parties, and key groups in civil society that they
were excluded from the process which resulted in the communiquk. The WPA i s also dissatisfied with the manner in which i t s
involvement i n the sectoral communities was resolved. The PNCR was accused of pursuing a “winner take all” position in
respect of the allocation of posts assigned to the Opposition, notwithstandingi t s overall position in respect of power sharing.
l3
By the end of September 2003 the High Representatives of the Govemment and the Opposition were able to report to the
Stakeholder Group that all 7 of the new Standing Committees (Parliamentary Management; Appointive Committee;
Constitutional Reform Committee; Natural Resources Sectoral Committee; Economic Services Sectoral Committee; Foreign
Relations Sectoral Committee) had been appointed. Appointments to several of the Constitutional Commissions had been made,
though there was more work still to do to finalize some of the composition of these Commissions.
l4
Guyana Human Rights Association, Ambivalent About Violence: A Report on Fatal Shootings by the Police in Guyana, 19802001.
l5
According to data compiled by the Guyana Human Rights Bureau, the number of persons shot to death by the Police between
1980 and 2001 number 239. Of these, 187 (78%) were of Afro-Guyanese origin, 29 (12%) were of Indo-Guyanese origin, 2 (1%)
were Amerindians, 7 (3) were of mixed race and a further 14 (6%) of unknown origins. During the 1993 - 2001 period, there
were 113 fatal shootings 99 (88%) of which were Afro-Guyanese, 8 (7%) were Indo-Guyanesewhile the remainder were of other
racial or unknown origins. The Police are also being executed by persons who regard them as being their tormentors and
oppressors. Since February 2002,23 have been shot. East Coast villages such as Buxton and Annandale have become prime sites
of increased criminal activity, but the problem i s national in scope. There were 142 murders recorded in 2002, almost double the
number committed in 2001 when 79 persons were reportedly killed. Forty-seven persons were killed between January and April
2003.
l6Buxton, one of the better known villages to be founded by freedmen following emancipation, has in recent years become one
of the key centers of political militancy.
*
55
l7
The Caribbean Drug Trend Report issued by the United Nations Office on Drugs and Crime (UNODC) revealed that some
$3.68b from the illicit drug industry passed through the Caribbean inn 2002. Cocaine transshipped through the Caribbean to the
US market rose from 29 per cent in 1980 to 48 per cent in 2001. See also, Report of the CARICOM Regional Task Force on
Crime and Security, Port of Spain, 2000.
Chapter 2
’’
Economic indicators should be interpreted with caution because of Guyana’s large informal economy, smuggling and the role
of remittances provided outside the banking system. The general trends in economic and social performance over time can be
assessed with a reasonable degree of accuracy although annual estimates are subject to some uncertainty.
During the 1980s, secondary school enrollments fell by 40 percent, a telling indicator of the collapse of social services.
2o The need to deepen market-orientedreform, and i n particular to strengthen the institutional foundations of a market economy,
was anticipated by Govemment. A National Development Strategy (NDS), prepared by some 23 technical working groups was
launched in January 1997. The NDS provided a comprehensive set of recommendations aimed at fostering rapid growth and
broad-basedsocio-economic development through a range of macroeconomic management, structural and sector reforms. Within
the framework established by the NDS, Guyana’s Interim Poverty Reduction Strategy (1999) was formulated, and after intensive
consultation and refinement, a PRSP was completed i n 2002.
21 Guyana Civil Aviation Authority, the Maritime Authority, Georgetown Hospital, the Lands and Surveys Commission, and the
Auditor Generals Office.
22 I n the case of telecommunications, this has raised costs, inhibited development of wireless technology and slowed-down the
introduction of internet services.
23 Just three firms pay 80 percent of all corporate tax.
24 These are a number of the reasons that the World Bank (2002) Guyana: Country Financial Accountability Assessment assigns
Guyana a high country risk rating.
25 The Guyana Office for Investment (Go-Invest) reports that $126.6 million was invested in 96 foreign and domestic projects i n
2002, primarily in the areas of mining, textiles, tourism and light manufacturing. Go-Invest also estimates that this investment
will create some 3,000 new jobs.
26 Loayza et. al. report that Guyana’s trend per capita growth rate was 3.76 percent per annum i n the 1990s, compared to an
average of 1.76 percent per annum for Latin America and the Caribbean as a whole. See Norman Loayza, Pablo Fajnzylber and
Cesar Calderon, 2002, Economic Growth in Latin America and the Caribbean, World Bank.
27 A three-fold increase in cocaine seizures by the policy between 1994-1996 and 1997 to 2001 i s evidence of an increase i n drug
trafficking activity. T h i s took place during a period in which cocaine seizures were relatively stable for the Caribbean as a
whole. Regional trends presented by the United Nations Office on Drugs and Crime (Caribbean Drug Trends 2001-2002,
Bridgetown Barbados, 2003) show that cocaine seizures in Guyana begun to converge to levels reported in Suriname, a major
trans-shipment point for illegal drugs to Europe, during the latter part of the 1990s.
28 See Ebrima Faal, 2003, Currency Demand, the Underground Economy and Tax Evasion: the Case of Guyana, IMF Working
Paper WPlO317, Washington D.C.
29 Schneider, F. and Enste, D.H. 2000, “Shadow Economies: Size, Causes and Consequences”, Journal of Economic Literature,
VOI.38, pp.77-114.
30 Rice producers and processors, who together account for K$10.2 billion out of K$47.8 billion in private loans and credit
outstanding to the banking system account for the majority of the arrears. Thanks to high levels of provisioning and surplus
liquidity in the banking system, there i s l i t t l e risk that large arrears will trigger systemic banking failure.
3’ Manuel Orozco, 2002, Remitting Back Home and Supporting the Homeland: The Guyanese Community in the US.: Final
Report for the USAID Guyana Economic Opportunities Project, October 2002.
32 Options for sterilizing the macroeconomic impact of large unrequited foreign exchange inflows are limited i n Guyana’s case.
Efforts to build large foreign exchange reserves may not be possible given a high level of public debt, reliance on continued aid
inflows and weaknesses in financial governance. The inflation of large aid inflows and remittances on macro-competitiveness
merits further investigation.
33 Tanzi shows that that high levels of public spending in low income countries, and in particular current outlays, tends to hamper
growth, contaminates the banking system and constitutes a source of macroeconomic vulnerability. See Vito Tanzi, 1997, The
Changing Role of the State in the Economy: A Historical Perspective, IMF Working Papers, IMP119971114, Washington D.C.
34 See Govemment of Guyana, 2002, Guyana Poverty Reduction Strategy Paper, p. 51.
35 These include three Paris Club reschedulings during 1991-95, Naples terms in 1996 and Lyon terms in 1999
36 Debt relief under the original HIPC initiative was provided on Lyons terms (80 percent net present value reduction of eligible
debt) and amounted to US$256 million in net present value (NPV) terms and started to become available i n May 1999. I n 2000,
a second phase of debt-reduction,under the enhanced HIPC, provided additional relief of $329 million in net present value terms.
Linked to debt relief were a number of reforms, including: (i) completion of a PRSP; (ii) maintenance of stable macroeconomic
conditions in line with performance targets set under the IMF’s PRGF; (iii) improving governance by reforming public
procurement legislation and tracking HIPC resources in the budget; (iv) improving social sectors and structural performance by
increasing the number of teachers and health care workers, developing a plan for the 2002 population census; further reforming
56
the c i v i l service; restructuring and modernizing GUYSUCO, completing the sale of GNCB i n March 2003, tabling a new
InvestmentLaw in parliament and beginning the implementationof the IDB-financed SIMAP-111.
37 Guyana had satisfied the conditions for reaching the completion point under the original HIPC Initiative in May 1999. The
conditions for reaching the floating completion point under the enhanced HIPC Initiative will require substantial progress to meet
fiscal targets. Guyana i s presently in arrears in i t s non-Paris Club debt. Progress in resolving non-Paris Club arrears will need to
be demonstrated if Guyana i s to access IMF finance after the E-HIPC completion point has been reached.
38 Under the IDB Technical CooperationDesign of the Public Sector Modernization Program (PSMP TC), which was approved
i n January 2000, staff audits of core government ministries, most regional administrations and a number of semi-autonomous
agencies were carried out from May-June, 2002. Job descriptions and performance appraisal activities were not undertaken,
owing to a joint IDB-COG decision in June 2001 to reformulate the PSMP TC, with a view to improving the sequencing of
activities and removing potential duplication with the activities of other donors. I t was instead agreed that the program should
focus upon overview studies of the public service function and vertical institutional capacity assessments of the government
ministries.
39 See World Bank (1994), page 3. Attempts to quantify levels of poverty i n Guyana in the 1970s and 1980s have been carried
out by Boyd, Ramprakash and the Pan-American Health Organization using income data for 1980 and nutrition survey carried
out in 1971
40 The strong link between growth and poverty reduction in Guyana i s similar to that o f many other developing countries. Based
on cross-country analysis, Dollar finds that when average incomes rise, the average incomes of the poor rise proportionately.
T h i s holds across regions, periods, income levels and growth rates (David Dollar, Growth is Goodfor the Poor, World Bank,
April 2001).
41 T h e minimum wage increased by 615 percent from 1992 through 2001, or from G$2,801 (1992) to $20,045 (2001). I n US
dollar terms, minimum wages rose from US$24.00 to $105.77 per month between 1992 and 2001.
42 The 1999 Living Conditions Survey indicates that the proportion of poor households headed by women i s similar to that of non
poor households. T h i s pattem was also observed in the earlier 1992 survey results. As such, the PRSP did not establish specific
targets related to gender equality. In terms of broader public policy, the Government has undertaken to establish a special
parliamentarycommittee to examine the status of women in Guyanese society.
43 T h i s i s an approximate estimate. Net financial inflows are treated, in the first round, as an autonomous transfer of resources to
the domestic economy. Half of the foreign exchange inflows are assumed to leak out of the economy, in second round effects,
through an increase in import demand (Le. the marginal propensity to import i s assumed to be 0.5, consistent with 1990s
experience). T h e first and second round effect i s an increase in the supply of foreign exchange of some 22%-28% of GDP. This,
in conjunction with an inelastic demand for foreign exchange (assumed of 0.6), drives the nominal exchange rate up by
approximately 13%-17% over what i t would be in the absence of such transfers.
44 The 2002 Aid Redbook l i s t s 227 ongoing development assistance projects for 2002.
45 See High Level GovernmentlDonor Co-ordination Committee Meeting, 10 February 2003, Summary of the meeting held on 10
February 2003 at the UN Conference Room. Georgetown.
46 See Collier and Dollar, 2001, Development Effectiveness: What have we learned, World Bank.
47 External support under this initiative will also be used to train new teachers, pay teachers’ salaries, build new schools, help
education systems respond to HIVIAIDS, augment teaching materials, provide teacher housing i n the hinterlands, improve school
feeding programs and put in place better education management and performance monitoring systems. (Government of Guyana,
2002, Education for All---Fast Track Initiative Country Proposal/Credible Plan, September 30, 2002.)
48 A recent inter-agency technical team of the UN Executive Committee for Peace and Security visited Guyana in December
2002. Their mission reported that: “The economic decline, insecurity, and fear described above are affecting the very fabric of
Guyanese society. There i s a growing conviction among many Afro-Guyanese of an Indo-Guyanesepolitical plot to keep them
permanently disempowered; conversely, many Indo-Guyanese perceive Afro-Guyanese political organizations as deliberately
fostering criminality in order to create conditions for the overthrow of the elected Government.”
Chapter 3
Estimated at a quarter o f the budget. See: World Bank, HIPC Expenditure Tracking Exercise.
E.g. in the health and education ministries.
In the Accountant General’s Department, only 115 out of 260 positions are filled. The department does not have a single
Certified Public Accountant or equivalent. The position of Accountant General has been vacant for three years.
52 T h e report on the Public Accounts of Guyana for 2001 was issued 1 day late. The report for 2002 i s expected to be on time.
53 The survey, which states that public sector jobs remain attractive, may be referring to unskilled labor. I t i s the technical and
managerial positions that are hard to fill, as government pay and benefits do not match those i n the private sector, while for
unskilled labor the public sector i s s t i l l attractive as they have no options).
54 A series of studies have been completed with wider consultation, including 22 ministerial organizational diagnostic reports,
and four overview reports on governance processes, structures, capacity and organizational performance measurement
49
50
57
The Govemance Network, (2003). Public Sector Modemization Design Plan. See Volume I,p.17 “the present state of all of the
horizontal planning and management systems of the Govemment significantly impedes its ability to mobilize human and
financial resources, plan for their utilization, manage their delivery, and assess their performance.”)
56 Some of these are underway. For example, the PRSC i s supporting govemment actions to implement the necessary reforms
and provide the institutional strengthening needed for their effective implementation in the following areas: (1) improvement of
the oversight of Public Financial Management; (2) curtailment of the discretionary powers o f Public officials; (3) strengthening
the disclosure of public officials personal assets; (4) ensuring the independence of the office of the Auditor General.
57 For the impact on private investment, see “Guyana: A Diagnostic Study of the Foreign Investment Environment,” by FIAS.
July, 2002.
58 Steven Weller and Richard J. Moore, “The Carter Center Report of the Feasibility Study on the Uses of Altemative Dispute
Resolution (ADR) to Address Problems of Backlog and Delay in the Courts of Guyana.” Carter Center, September, 2000. Also,
both the Chancellor of the Judiciary and the Head of the Bar Association made statements regarding the lack of sufficient
qualification of judges.
59 See Steven Weller and Richard J. Moore, op. cit.
6o Vacancies exist for Magistrates: 7 out of 21 positions; for the High Court: 4 out of 12; and for the Court of Appeal: 2 out o f 6.
See Weller and Moore, op.cit.
62 By Steven Weller and Richard J. Moore, op.cit.
63 Prisons are overcrowded and conditions deplorable. Data for 2001 show that in the Georgetown prison, which holds 60% of
all prisoners in the country, over 40% were awaiting trial. Within the total prison population in Guyana, 30% of those awaiting
trial had been in prison for more than three years. Credit for time served i s not generally given. See “Interim Report by the
Criminal Law Review Committee,” April 2, 2002.
64 See also the already mentioned FIAS and Carter Center studies,
65 Kaufmann, Daniel and Aart Kraay, “Govemance and Growth: Causality which way - a survey of the world, in brief.” World
Bank research paper. February, 2003.
55
Chapter 4
66 For a more detailed discussion of the investment legal framework see Arden and Price Consulting, (2003) “Guyana National
Diagnostic Study” Support for InvestmentFrameworks in the Caribbean Community. According to this report, the estimated time
i t takes to execute some of the steps required to establish and operate a business in Guyana can take up to a year in the case of
investment incentives and land lease (see Table E2)
67 Regulatory quality includes measures of the incidence of market-unfriendly policies such as price controls or inadequate bank
supervision, as well as perceptions of the burdens imposed by excessive regulation i n areas such as foreign trade and business
development.
68 Rule of law includes several indicators which measure the extent to which agents have confidence in and abide by the rules of
society. These include perceptions of, the incidence of crime, the effectiveness and predictability of the judiciary, and the
enforceability of contracts.
69 In the first half of 2002, Government reported 9 policemen killed and 17 injured; 3 security guards killed and 7 injured; 5
businessmen killed and 75 injured; 689 armed robberies; 73 car hijackings; and a total of 4,826 indictable reported crimes. Over
the past two years, as scores have been kidnapped, robbed, or killed, many have closed up their homes and businesses and
emigrated, or have chosen to downsize or curtail their business activities. Few want to be visible for fear of attracting the notice
of bandits. Some have made plans to shift operations from Georgetown to the Berbice, which they believe might be a more
secure environment, though crime has increased there as well.
70 Op. Cit. FIAS, 2002
7 1 For example, actual taxes charged on imports depend on the importer and purported product use. These non-scheduled
remissions amounted to 106 percent of customs revenue and 68 percent of total exemptions in 2001 (World Bank, 2002c)
72 For example, the three largest private sector groups account for 80 percent of corporate taxes.
7 3 When GRA was first established, it was unable to dismiss corrupt officers as envisaged under i t s operating legislation and as a
result, GRA’s director resigned in 2002.
74 According to Arden and Price Consulting, (2003), “the major problem mentioned by the business/private sector associations
was land ownership, as well as the transfer of propertylownership. Application for land concession i s difficult, with 18 steps or
processes between application and acknowledgement of land availability. I t may take one year or more to receive a land title.”
Page 16
75 See Bishop, Andrew R., (2003) “Land Policy, Land Administration and Management”, Commissioner of Lands and Surveys.
Page 14.
76 See Harold Lemel, Patterns of Tenure Insecurity i n Guyana. University of Wisconsin. Working paper No 43. March 2001
77 One of the principal problems in expediting land reforms seems to be the “rent seeking” that the status quo may be preserving.
According to one source, there are about 280,000 acres of government declared land and another 340,000 acres of undeclared
land. Govemment leases are currently averaging G$l,OOO/acre, most of which i s not collected because i t would be uneconomical
to do so, while informal surveys suggest that some of this land i s sublet to farmers at rates o f G$30,000/acre. Because of the
58
titling and monitoring weaknesses, the sublet income i s not traceable and not taxable. No sensitivity analysis has been undertaken
about the gains and losses that would result from land privatization or having leases reflect market values, but clearly the
potential revenue gains to government are substantial.
78 “Land Policy, Land Administration and Management”, Andrew. R. Bishop, Commissioner of Lands and Surveys, March 2003.
Chapter 5
L i f e expectancy in 2000: Suriname (72.9), Venezuela (72.9) and Trinidad and Tobago (73.8). Guyana also has a high infant
mortality rate (56 per thousand live births in 1999) compared, for example, to 24 per thousand live births in Costa Rica. Source:
UNDP.
8o Caribbean Epidemiology Center, 2000. UNAIDS reports that HIV infection has spread beyond the vulnerable groups to the
general population (UN, 1999, Common Country Assessment for the Cooperative Republic of Guyana, Georgetown). The AIDS
pandemic appears to be related to a number of factors, including the authorities belief that i t would be confined to the minority
ethnic group; a lack of popular awareness and limited access to retroviral drugs and other treatment.
81 The World Water Council ranks Guyana’s water quality fifth best among 147 countries according to i t s Water Poverty Index.
The urban water supply system has deteriorated due to vandalism, lack of maintenance and fuel shortages. I n Georgetown, the
GS&WC estimates that 70 percent of the piped water i s lost due to broken and damaged mains, and inappropriate connections
(UN, 1999, Common Country Assessment for the Cooperative Republic of Guyana, Georgetown).
82 UNICEF, 1999 and Guyana Poverty Reduction Strategy Paper, 2001.
83 For example, the average repetition rate for grades 1-6 i s relatively low at 2.4 percent. In Georgetown, Regions 3 and 6, the
repetition rate i s less than one percent, compared to Regions 1 and 9 (hinterland regions) where the average ranges from 11 to 15
percent. Drop-out rates from primary school ranged from 3 percent in the coastal region to 8 percent i n the hinterlands during
1996-1999 (Govemment of Guyana, 2002, Education for All---Fast Track Initiative Country ProposaWCredible Plan, September
30,2002.)
84 Guyana’s CXC scores were the worst in the Caribbean i n 1995, and in 1998 the pass rates i n grades 1 to 3 was 23 percent
lower than in 1994. See UNDP Guyana Human Development Report 1996 and UN Common Country Assessment 1999.
85 Ministry of Education. 2000 “A Functional Literacy Survey of Out-of-School Youth Ages Fourteen to Twenty Five.”
University o f Guyana.
86 ECLAC, The Fiscal Covenant, 1998.
87 United Nations Common Country Assessment 1999.
UN Common Country Assessment, 1999.
National Development Strategy for Guyana, draft August 1999.
O
’ Guyana Public Expenditure Review 2002, from 1999 Household Income and Expenditure Survey.
” See World Bank (2002h) Annex 111. T h e figure stated there for potential job losses in GUYSUGO i s 8,000.
I n December 2002, the IDB approved a Basic Nutrition Programme which will provide for: (i) child feeding practices, which
includes nutrition training, dissemination, and a food coupon scheme, (ii) anemia reduction, which includes purchase and
distribution of micronutrients to young children and pregnant women; and (iii) institutional strengtheningand impact evaluation.
93 The Arawak language group i s the largest, including members of the Arawak tribe, who are predominantly coastal, and the
Wapishana, who live in the southem Rupununi savannas. The Carib speakers are the most diverse, including Caribs in the
coastal lowland forests, the Akawaio in the lowland and upland forests of the Mazaruni River, the Patamona and Arekuna of the
upland savannas and forests, the Makushi of the northem Rupununi savannas, and the Wai Wai in the Amazonian forests
bordering Brazil. The Warao are the sole tribe of the third language and occupy coastal swamp areas.
94
While 76 areas have been legally gazetted, with boundaries described, under the Amerindian Act, only about half have
accepted demarcation of their current lands. The remaining communities have not yet agreed to demarcation o f their boundaries
as they have some issue with the size and/or location of their described lands.
95 T h e high poverty rates are attributable to a complex mix of issues including the difficult terrain, dispersed settlement patterns,
the high cost of administering projects in the interior, the dearth of certain skills among Amerindians and i n the wider population,
and the lack of an effective mechanism for channeling indigenous concerns to policy makers.
96 Guyana - Capacity Building in Amerindian Affairs; to assist in strategy formulation; preparation of a communications and
outreach strategy and skills development; legislative review; technical assistance to the land demarcation process; and capacity
building and training in skills related to public administration.
” The IDB Basic Education Access and Management Support (BEAMS) project; the Secondary School Reform Project
supported by the World Bank; the Guyana Education Access Project (GEM) from DFID; the Primary Education Improvement
Project (PEIP) supported by IDB; the Education For All - Fast Track Initiative (EFA-FTI) supported by several multilateral and
bilateral agencies; and the Guyana Basic Education Teacher Training Program (GBET) from CIDA.
98 World Bank, “Social Safety Nets in Guyana: Review and Issues for Reform,” 2002.
” UN Common Country Assessment 1999.
I n 1995, i t was estimated that 108,000 persons were living in squatter or unrecognized settlements (UN, 1999, Common
Country Assessment for the Cooperative Republic of Guyana, Georgetown). Govemment housing programs have provided
improved dwellings or urban sites-and-service plots to some 30,000 persons in the 1995-2002period.
79
’*
59
Chapter 6
lo’
Information on agrarian structure i s badly out of date. The Rural Farm Household Survey (1978) concluded that 75 percent of
farm households could be classified as ‘small’ (that is, less than 15 acres in size), and that small farms control some 23 percent of
the available land. While large farms (those over 15 acres) account for only 25 percent of farm households, they control 77
percent of the land.
lo’
The I D A Sugar Industry Restructuring and PrivatizationProject (Credit Number 2545-GUA) was intended to pave the way for
the eventual privatization of the Guyana Sugar Company. With a change of administration in 1992, Govemment decided not to
pursue privatization but to contract-out management. Thanks to buoyant export prices and favorable exchange rate movements,
the Guyana Sugar Company was able to finance equipment required for modemization purposes i n the early 1990s from retained
profits, rather than drawing on extemal assistance (World Bank. Republic of Guyana: Sugar Industry Restructuring and
Privatization Project, Credit 2545-GUA, Implementation Completion Report, June 6, 1997. )
Employment fell from 28,000 in 1991 to the current level o f 18,500. Most of this shift in the work force has taken place
through attrition and small-scale rationalization at the estate and factory level. Attrition i s expected to continue at a rate of 23 percent a year.
lo4
See LMC International, September 2000. Analysis of the Guyana Sugar Industry Strategic Plan-Main Report, page 65.
“Guyana’s field costs are considerably better than those in most other Caribbean ACP sugar producing industries. .. I n 1999/00,
Guyana was very close to the world factory cost average, and Berbice was processing sugar at a cost o f 14 percent below the
world average.”
In 2002, Guyana exported 184,000 tons of sugar to the EU, at an EU protocol price of $474 per ton and a EU SPS Sugar price
of 448 per ton. Another 12,000 tons was exported to the US at a tariff-rate quota price of $397 per ton, and 55,000 tons was
exported to CARICOM markets at prices some 40 percent above world market prices. No sugar was exported at the prevailing
world market price of $132 per ton (F.O.B. Guyana).
lo6
Australia, Brazil and Thailand challenged the EU subsidy on EU sugar exports at the WTO in September 2002. T h i s i s
expected to be heard by a WTO Dispute Resolution Board by the end of 2003. The three countries have requested an immediate
end to the EU’s preferential sugar quotas.
‘07 The cost of production of sugar at the Demerara estate i s 20 percent higher than at the most efficient, Berbice estate. I t used to
be 50 percent higher.
log
These are amongst the measures included in the Government’s Agriculture Improvement Program (AIP).
IO9 In an efficiency-maximizing case, production would decline from i t s current level of 331,000 tons to 250,000 tons in 2006 and
then recover to 300,000 tons by 2015. See Millennium Institute, November 2002. Guyana-Impacts of Structural Reform i n
Bauxite and Sugar Economic Prospects and Poverty Reduction: Analysis with the T21-Guyana Model.
‘lo
See LMC, 2002, The Potential to Increase Cane Production from Private Growers.
I n the case of the Linmine mines, the Govemment has agreed that all redundant workers would receive severance payments
o f up to two years of salaries and a training grant equal to 10 percent of the severance payment. I t i s likely that Government will
offer similar benefits to any lay-offs i n the sugar sector, although this will have to be negotiatedwith the individual unions.
I n 1999, some 44 percent of the sugarcane workers reported incomes in the bottom two quintiles of the income distribution
and 24 percent reported income in the bottom quintile.
’I3Guyana’s rice yields averaged 4.1 MT per hectare between 1999 and 2001, about the same level as Vietnam’s, the world’s
largest exporter. China, the world’s largest rice producer, had rice yields averaging 6.2 MMTs per hectare during the same
period (FAO-Agrostat). Rice production i s labor-intensive, and with daily wages in Guyana some three times the level
prevailing in Southeast Asia and rural China, global competitiveness will be difficult to achieve.
‘I4GLSC and HTS Development Ltd., November 2002, Land Markets i n Guyana: Trends, Structure and Issues, reports that
returns to producing rice in 2002 are estimated at just G$1,600 ($8) per acre and that prices of rice-land have fallen by 4050 percent over the last four years.
‘I5 I n addition, the discovery of 42 API oil in the Takatu Basin has rekindled interest in oil exploration. Four companies are
exploring for petroleum in Guyana: Exxon-Mobil Repsol, Century Guyana Ltd. and CGX.
‘16 Approximately half of those retrenched workers have been temporarily employed in a gold strip-mining operation.
’I7 Cambior’s (Omai Gold Mines Limited) privatization plan involves a capital investment of approximately US$30 million for
80 percent of the shares. Under Cambior’s restructuring plan, the rail haul would be ended, a new wash plant would be installed
and the power supply and dust removal would be improved. Projected sales from the mine are US$15.3 during the first full year
of operations, increasing to about US$29 million by the third year.
See Robeson Benson, 2003, Restoring Guyana as a Reliable Source of High Quality Bauxite for Metallurgical and NonMetallurgical Applications, Guyana Geology and Mines Commission, Presented at the gth International Bauxite and Alumina
Seminar, March 2-4, 2003.
‘I9 Stanley Fisher, 2003, Globalization and i t s Challenges, Ely Lecture, presented at the American Economic Association
meetings in Washington, DC on January 3 2003. Fisher reports that: ” Globally, the decline in poverty has been fastest where
economic growth has been fastest - in developing Asia - and slowest where growth performance has been worst - in Africa. I n
two related studies, Dollar and Kraay (2001a and 2001b) conclude, based on data from 92 countries, that on average the income
of the lowest fifth of the income distribution rises one-for-one with aggregate income, and that this same relationship holds for
60
growth that i s induced by trade liberalization. Another way of thinking about this i s that changes i n income distribution are
relatively small, and thus that growth i s likely to dominate in i t s effects on poverty.”
I 2 O India has done remarkably well in information technology services with exports amounting to $3 billion in 2000 and growing
at 50 percent per annum. I t s success in call centers and bock-office processing services i s partly based on staff speaking English
and providing 24/7 capability i n call centers or back-office operations for the US and UK markets. See India: Country
Assistance Strategy Paper, World Bank 2001.
Mauritius presents an example of a remote, ethnically divided country that has promoted foreign direct investment to diversify
their economic base and foster export-led growth. Mauritius’s economy was also dominated by sugar until i t began to diversify
in the 1980s, first into tourism and then into garment manufacturing, electronics and internationalbanking. I t s income per capita
increased from $260 in 1970 to $3800 in 2000; the contribution of manufacturing increased from 15 percent of GDP in 1970 to
24 percent i n 2000 and exports increased from $491 million i n 1980 to $2.8 billion i n 2000. See World Bank, Mauritius: Country
Assistance Strategy Paper, 2002.
122 A simulation model has been built to assess the effects of restructuring the sugar and bauxite industries on economic
performance and poverty reduction.
61
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65
-
Guyana Annex Table 1: K e y Economic Indicators
Indicator
1997
1998
1999
2000
2001
2002
National accounts (as % of GDP)
100
31
100
30
35
29
40
29
41
100
31
29
41
83
29
15
13
85
23
12
12
92
23
14
9
94
22
14
8
93
20
13
7
99
109
96
108
97
105
96
111
93
109
93
106
Gross domestic savings
21
17
15
16
13
13
8
7
6
4
7
Gross national savings'
749
718
696
712
711
717
890
860
870
910
900
880
3.0
3.0
3.0
-1.4
-1.4
-1.4
3.4
3.4
2.3
-1.1
-1.1
1.1
2.4
4.3
4.0
-2.0
6.5
0.4
2.7
5.2
5.7
-1.8
-3.5
-5.4
65 1
5 04
728
495
-77
684
505
789
5 27
-104
662
490
777
526
-114
672
495
766
507
-94
Gross domestic producta
Agriculture
Industry
Services
Total Consumption
Gross domestic fixed investment
Government investment
Private investment
Exports (GNFS)b
Imports (GNFS)
Memorandum items
Gross domestic product
(US$ million at current prices)
GNP per capita (US$, Atlas method)
100
35
34
100
35
31
100
35
30
31
35
79
30
18
12
Real annual growth rates (%, calculated from 1988 prices)
6.2
-1.7
Gross domestic product at market prices
Gross Domestic Income
6.2
-1.7
Gross domestic product at factor cost
6.2
-1.7
Real annual per capita growth rates (%, calculated from 1988 prices)
Gross domestic product at market prices
5.8
-2.2
Total consumption
10.4
2.5
Private consumption
9.3
2.4
5
Balance of Payments (US$ millions)
Exports (GNFS)b
Merchandise FOB
740
592
Imports (GNFS)~
Merchandise FOB
Resource balance
Net current transfers
Current account balance
813
578
-73
689
547
775
54 1
-86
-109
-112
-95
-109
-129
-107
52
38
18
20
16
44
13
10
4
37
3
17
48
-111
14
-125
167
-9
67
43
40
3
61
-62
56
43
45
-2
46
-16
44
12
7
5
56
-5
-9.8
-12.0
-1 1.1
.14.6
-16.1
-13.1
13.8
13.8
13.8
12.7
-1.6
-1.6
-1.6
4.2
-5.8
-5.8
-5.8
-13.2
3.9
3.9
3.9
-1.0
-5.6
-5.6
-5.6
0.2
-1.3
-1.3
-1.3
-2.2
Net private foreign direct investment
Long-term loans (net)
Official
Private
Other capital (net, incl. errors & ommissions)
Change in reservesd
Memorandum items
Resource balance (% of GDP)
Real annual growth rates ( YR88 prices)
Merchandise exports (FOB)
Primary
Manufactures
Merchandise imports (CIF)
66
-
Guyana Annex Table 1: Key Economic Indicators
(Continued)
Indicator
1997
1998
Public finance (as % o f GDP at market prices)e
Current revenues (incl. Grants)
37.6
Current expenditures
27.0
Capital expenditure
15.6
-5.0
Overall fiscal deficit (-) (after grants)
Foreign financing
0.4
Monetary indicators
M2/GDP
Growth of M2 (%)
Private sector credit growth /
total credit growth (%)
Price indices( YR88 =loo)
Merchandise export price index
Merchandise import price index
Merchandise terms o f trade index
Real exchange rate (US$/LCU)f
Consumer price index (% change)
Consumer prices (end o f period)
Consumer prices (average)
GDP deflator (% change)
1999
2000
2001
2002
32.2
26.5
12.6
-6.9
1.9
33.4
26.6
9.1
-2.3
5.2
39.5
34.8
12.2
-7.5
5.3
39.1
35.2
12.4
-8.5
6.0
40.5
35.1
11.4
-6.0
2.7
60.3
11.7
-65.3
63.6
6.8
-367.2
62.3
12.1
-119.4
65.7
10.9
-103.2
69.7
8.9
31.7
71.3
5.5
-4.8
96.7
108.2
89.3
117.4
90.7
97.3
93.2
102.7
88.7
102.6
86.5
104.8
85.6
110.2
77.6
112.9
88.0
109.7
80.2
108.2
90.1
108.3
83.2
97.9
3.6
4.2
3.6
1.4
4.6
4.7
4.6
3.0
7.5
8.7
7.5
11.2
6.1
5.8
6.1
6.6
2.7
1.5
2.7
-0.8
5.3
6.1
5.3
4.4
a. GDP at factor cost
b. "GNFS" denotes "goods and nonfactor services."
c. Includes net unrequited transfers excluding official capital grants.
d. Includes use o f IMF resources.
e. Consolidated central government.
f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.
67
-
Guyana Annex Table 2: National Accounts
P a r t A: Current Price Data
(in millions of local currency units)
1997
1998
1999
2000
2001
2002
Gross domestic product at market prices
Net indirecitaxes
GDP at factor cost
Agriculture
Indushy. o f which
Manufacturing
Services
106679
16935
89744
31813
30276
10265
27655
108002
17531
90471
31309
27853
8501
31309
123665
18570
105095
36405
31503
10576
37 187
130012
21926
108086
33602
31383
8813
43101
133403
21185
112218
34006
32455
9263
45757
137748
19986
117762
36298
33661
10410
47803
Resource balance
Exports (GNFS) "
Imports (GNFS)
-10382
105402
115784
-12944
103678
116622
-9948
119379
129327
-18988
124882
143870
-21456
124234
145690
-17789
128152
145941
Total expenditure
117061
120947
133614
I49000
154859
155537
Consumption expenditures
Government
F'rivate
84689
18709
65980
89801
19913
69888
104683
23467
81216
119565
32077
87488
125644
33236
92408
127987
35619
92368
Gross domestic investment
Total government investment"
Total private investment.
32372
19271
13101
31146
16666
14480
28931
14285
14646
29435
17950
11485
29215
18275
10940
27550
17414
10136
Total fixed investment
Total changes in stocks
32372
0
31146
0
28931
0
29435
0
29215
0
27550
0
Domestic savings
+ Net,factor income
+ Net current transfers "
= National savings
21990
-10846
5696
16840
18201
-10493
6622
14330
18982
-10060
6926
15849
10447
-9515
8582
9514
7759
-10983
8254
5031
9761
-10149
7680
7292
97509
113605
120497
122420
127599
a.
b.
c.
d.
"GNFS" denotes "goods and nonfactor services."
Gross domestic fixed capital formation only.
Derived as a residual; includes increase in stocks.
Total net unrequited aansfers excluding official capital grants
68
-
Guyana Annex Table 2: National Accounts (continued)
P a r t B: Shares of Gross Domestic Product
(percentages calculated using current price data)
Base-case (most likely) projection
1997
1998
1999
2000
2001
2002
Gross domestic product
Net indirect taxes
Agriculture value added
Indusny value added, of which
Manufacturing
Services value added
100.0
15.9
29.8
28.4
9.6
25.9
100.0
16.2
29.0
25.8
7.9
29.0
100.0
15.0
29.4
25.5
8.6
30.1
100.0
16.9
25.8
24.1
6.8
33.2
100.0
15.9
25.5
24.3
6.9
34.3
100.0
14.5
26.4
24.4
7.6
34.1
Resource balance (X-M)
Exports (GNFS)
Imports (GNFS)
-9.7
98.8
108.5
-12.0
96.0
108.0
-8.0
96.5
104.6
-14.6
96.1
110.7
-16.1
93.1
109.2
-12.9
93.0
105.9
Total expenditure
Govemment consumption
Private consumption
Govemment investment
Private investment
109.7
17.5
61.8
18.1
12.3
112.0
18.4
64.7
15.4
13.4
108.0
19.0
65.7
11.6
11.8
114.6
24.7
67.3
13.8
8.8
116.1
24.9
69.3
13.7
8.2
112.9
25.9
67.1
12.6
7.4
20.6
15.8
16.9
13.3
15.3
12.8
8.0
7.3
5.8
3.8
7.1
5.3
1732.2
111.0
749.2
142.4
897.7
1784.1
116.1
717.6
150.5
882.9
1984.0
124.8
696.3
177.6
9202
2114.9
132.4
712.0
182.6
910.0
2098.0
135.9
711.1
187.6
925.6
2190.0
141.8
717.4
192.0
917.4
~~
Gross domestic savings
Gross national savings
Memorandum items
GDP deflator
Consumer price index
Total GDP (million current USS)
Conversion factor used (LCUNS$)
Per capita gross national product
(Atlas method: in 2UOU US%)
a. "GNFS" denotes "goods and nonfactor services.''
69
-
Guyana Annex Table 2: National Accounts (continued)
P a r t C: Constant Price Data
(in millions local currency, constant 1988 prices)
Base-case (most likelv) projection
1997
1998
1999
2000
2001
2002
GDP at market prices
GDP at factor cost
Agriculture
Industry, of which
Manufacturing
Services
6159
5360
1576
1709
63 1
2075
6053
5270
1474
1693
577
2103
6233
5426
1672
1667
652
2087
6147
5353
1520
1640
562
2193
6359
5475
1572
1689
576
2214
6290
5538
1654
1661
61 1
2222
Resource balance
Exports (GNFS)
Imports (GNFS)
-599
6085
6684
-726
5811
6537
-501
6017
6519
-898
5905
6803
-1023
5922
6944
-812
5852
6664
Total expenditure
6758
6779
6735
7045
7381
7102
Consumption
Government
Private
4889
1080
3809
5033
1116
3917
5276
1183
4094
5653
1517
4137
5989
1584
4405
5824
1626
4197
Gross domestic investment
Total government investment
Total private invesment
1869
1113
756
1746
934
812
1458
720
738
1392
849
543
1393
871
521
1278
795
483
Total fixed investment
Total changes in stocks
1869
0
1746
0
1458
0
1392
0
1393
0
1278
0
Terms-of-uade (TT) effect
Gross domestic income
Domestic saving (TT adjusted)
0
6159
1269
0
6053
1020
0
6233
957
0
6147
494
0
6359
370
0
6290
466
Net factor income
tiNP at market pnces
-626
5532
-588
5465
-507
5726
-450
SbV7
-523
5835
-463
5826
~
a. "GNFS" denotes "goods and nonfactor services."
70
-
Guyana Annex Table 2: National Accounts (continued)
Part D: Annual Growth Rate
(calculated from data in constant 1988 prices)
1997
1998
1999
zoo0
zoo1
2002
GDP at market prices
Agriculture
Indushy, of which
Manufacturing
Services
6.2
4.0
9.6
2.4
5.3
-1.7
-6.5
-0.9
-8.6
1.3
3.0
13.4
-1.5
13.0
-0.8
-1.4
-9.1
-1.6
-13.8
51
3.4
3.4
3.0
2.5
1.o
-1.1
5.2
-1.6
6.1
0.4
Exports (GNFS)
Imports (GNFS)
2.3
6.1
-4.5
-2.2
3.5
-0.3
-1.9
4.4
0.3
2.1
-1.2
-4.0
Total expenditure
Consumption
Investment
9.9
10.8
7.5
0.3
2.9
-6.6
- 16.5
-0.7
4.8
4.6
7.1
-4.6
4.8
5.9
0.1
-3.8
-2.8
-8.2
Gross domestic income
Gross domestic saving
6.2
-8.4
-1.7
-19.6
3.0
-6.2
-1.4
-48.4
3.4
-25.1
-1.1
26.0
Per capita growth rates
Per capita GDP (mp) "
Per capita GNP (mp)
Per capita total consumption
Per capita pnvate consumption
5.8
3.1
10.4
-2.2
-1.7
2.5
2.4
2.4
4.2
4.3
-2.0
-1.1
6.5
0.4
2.7
1.7
5.2
5.7
-1.8
-0.9
-3.5
-5.4
Y.3
a. "GNFS" denotes "goods and nonfactor services."
b. "mp" denotes "market prices"
71
4.u
Guyana - Annex Table 3: Exports and Imports
1997
1998
1999
2000
2001
2002
Total merchandise exports (FOB)
Principal primary products
Rice
sugar
Bauxite
Gold
Manufactured goods
Other goods "
592.4
443.8
84.2
133.3
89.4
136.9
110.8
37.7
547.0
404.8
73.3
129.0
78.5
124.0
96.9
45.3
503.7
393.2
71.1
136.2
77.2
108.7
65.3
45.2
505.0
365.0
51.8
118.7
71.2
123.3
82.5
57.5
490.1
347.3
50.1
109.2
61.0
127.1
77.4
65.4
495.2
334.3
46.1
118.7
35.2
134.4
84.0
76.9
Total merchandise imports (CIF)
Food
Other consumer goods
POL" and other energy
Intermediategoods n.e.i.'
Primary goods
Manufactured goods
Capital goods
640.8
70.5
111.0
100.0
174.5
600.7
81.3
112.4
72.0
172.4
549.9
73.4
101.5
88.5
151.0
585.2
69.0
95.4
121.0
168.2
583.9
69.3
98.7
131.5
169.1
563.4
66.2
93.2
125.9
165.0
184.8
162.6
135.5
131.6
115.3
113.0
Total merchandise exports (FOB)
Rice
sugar
Bauxite
Gold
Manufactured goods
Other exports
612.9
33.4
184.1
197.6
43.5
85.5
68.8
603.0
32.8
181.1
194.4
42.8
84.2
67.7
567.9
30.9
170.6
183.1
40.3
79.3
63.8
590.3
32.2
177.3
190.3
41.9
82.4
66.3
557.1
30.3
167.3
179.6
39.5
77.8
62.5
549.7
29.9
165.1
177.2
39.0
76.7
61.7
Total merchandise imports (CIF)
Food
Other consumer goods
POL and other energy
Intermediategoods n.e.i.
Primary goods
Manufactured goods
Capital goods
592.3
27.5
43.2
134.3
112.6
617.5
28.6
45.1
140.0
117.4
536.1
24.8
39.1
121.6
101.9
530.9
24.6
38.7
120.4
100.9
532.0
24.7
38.8
120.6
101.1
520.3
24.1
38.0
118.0
98.9
274.7
286.4
248.7
246.2
246.8
241.3
13.8
12.7
-1.6
4.2
-5.8
-13.2
3.9
-1.0
-5.6
0.2
-1.3
-2.2
96.7
108.2
89.3
90.7
97.3
93.2
88.7
102.6
86.5
85.6
110.2
17.6
88.0
109.7
80.2
90.1
108.3
83.2
A. Value i n current prices (US$ millions)
B. Value in constant YR88 prices (US$ millions)
Memorandumitems
Export volume growth rate
Import volume growth rate
C. Price Indices (YR88 = 100)
Merchandise export
Merchandise import
Merchandise terms of trade
D. Non-Factor Services (YR88=100)
Exports ot NFS" - volume index
Exports of NFS - price index
Imports of N F S - volume index
Imports of NFS - price index
a. includes primary products not specifically identified.
b. "POL" denotes "crude oil and derivates."
c. "n.e.i." denotes "not elsewhere included."
d. "NFS" denotes "nonfactor services."
72
-
Guyana Annex Table 4: Balance of Payments
(US$ millions at current prices)
1997
1998
1999
2000
2001
2002
Total exports of GNFSa
Merchandise (FOB)
Nonfactor services
740.1
592.0
148.1
688.8
547.0
141.8
650.7
503.7
147.0
684.3
505.0
179.3
662.1
490.1
172.0
67 1.8
495.2
176.6
Total Imports of GNFS
Merchandise (FOB)
Nonfactor services
813.3
577.8
235.5
774.8
540.9
233.9
728.1
495.0
233.1
788.6
526.9
26 1.7
776.6
525.8
250.8
765.6
507.0
258.6
Resource balance
-73.2
-86.0
-71.4
-104.3
-1 14.5
-93.8
Net factor income
Factor receipts
Factor payments
Interest (scheduled)
Total interest paid '
Net adjustments to scheduled interest
Other factor payments
-76.2
-72.3
3.9
0.0
-69.7
-66.5
3.2
0.0
-56.6
-53.0
3.6
0.0
-52. I
-46.1
6.0
0.0
-58.5
-52.5
6.0
0.0
-52.9
-46.9
6.0
0.0
3.9
3.2
3.6
6.0
6.0
6.0
40.0
44.0
39.0
47.0
44.0
40.0
32.0
35.2
31.2
37.6
35.2
32.0
-109.4
-111.7
-95.0
-109.4
-129.0
,106.7
Official capital grants
24.0
13.0
149.0
13.0
31.0
35.0
Private investment (net)
Direct foreign investment
Portfolio investments
64.0
52.0
12.0
52.0
44.0
8.0
21.0
48.0
-27.0
78.7
67.1
11.6
45.1
56.0
-10.9
35.4
43.6
-8.2
Net LT' borrowing
Disbursements'
Repayments (scheduled)
Total principal repaidD
Net adjustments to scheduled repayments
Net other L T inflows
37.6
64.9
29.1
13.3
57.5
45.2
-111.1
50.6
736.0
42.8
64.3
24.0
43.2
63.3
22.0
12.2
42.2
26.0
I.8
1.o
574.3
2.5
1.9
-1.5
0.0
30.4
0.0
18.9
0.0
-13.5
2.5
-15.7
5.6
8.3
8.2
3.3
17.4
-8.6
-6 1.7
-15.8
-5.0
Memorandum items
Total gross reserves. o f which
Total reserves minus gold
Gold (at year-end London price)
Total gross reserves (in months' imports G&S')
315.3
315.3
0.0
4.6
276.4
276.4
0.0
4.3
267.0
267.0
0.0
4.4
296.7
296.7
0.0
4.5
284.8
284.8
0.0
4.3
280.0
280.0
0.0
4.2
Exchange rates
Annual average (LCU/US$)'
At end year (LCWUSS)
Index real average exchange rate (YR88
142.4
144.0
117.4
150.5
165.3
102.7
177.6
180.5
104.8
182.6
184.8
112.9
187.6
189.5
108.2
192.0
191.3
97.9
-14.6
-15.6
-13.6
-15.4
-18.1
-14.9
Net private current transfers
Current receipts. of which
Workers' remittances
Current payments
Net official current transfers
Current account balance
-4.;
Adjustments to scheduled debt service
Debt service not paid
Reduction in arrears/prepayments (-)
Other capital flows
Net short-term capital
Net capital flows n.e.i."
Errors and omissions
Change in net international reserves
(-indicates increase in assets)
Current Account Balance as % GDP
=loo)
d. "n.e.i." denotes "not elsewhere included."
e. "G & S" denotes "goods and services."
f. "LCU" denotes "local currency units."
g. The index of the real exchange rate reflects US$/LCU. so an increase i s an appreciation at the real exchange rate.
73
Guyana - Annex Table 5: External Debt Stocks and Flows
(US$millions at current prices)
~~
1997
1998
1999
2000
2001
2002
Public & publicly guaranteed
Official multilateral creditors, of which
IDA
IBRD
Official bilateral creditors
Private creditors, of which
Bonds
1370.3
665.6
218.1
19.4
623.4
81.3
0.0
1229.2
699.7
234.5
15.9
452.0
77.5
0.0
1186.3
581.4
183.5
12.3
562.4
42.5
0.0
1180.1
597.6
179.6
8.3
537.7
44.8
0.0
1170.2
630.4
177.9
5.2
489.5
50.3
0.0
1214.4
677.2
195.6
3.0
485.9
51.3
0.0
Private creditors nonguaranteed
Total L T D O D
0.0
1370.3
0.0
1229.2
4.5
190.8
4.1
1184.2
3.6
1173.8
3.2
1217.6
107.9
157.1
132.6
154.2
147.2
140.2
129.6
117.4
128.6
97.6
145.0
96.2
1635.3
116.1
91.9
1516.0
94.8
86.2
178.2
71.6
82.0
1431.2
73.4
77.8
1400.0
78.1
92.5
1458.8
81.8
100.6
Total debt service (US$ millions at current price
Interest ( L T + ST t IMF)
Principal ( L T + IMF)
132.1
55.7
76.4
136.3
62.8
73.5
95.2
39.2
56.0
71.0
29.7
41.3
44.1
19.5
24.6
154.5
109.6
44.9
Total D O D and TDS
D O D I exports (XGS) ratio
D O D I GDP ratio
TDS I exports (XGS) ratio
233.7
218.3
18.9
230.6
211.3
20.7
235.1
212.3
15.1
211.8
201.0
10.5
217.1
196.9
6.8
222.1
203.3
23.5
External debt (DOD)
ST debt
Use o f I M F credit
Total D O D (LTtST+IMF), of which:
Principal arrears
Interest arrears
Debt and debt burden indicators
-
Historical data from Debt Reporting System (DRS); other data projected by country operations division staff.
"LT" denotes "long-term," "ST" denotes "short-term."
"DOD" denotes "debt outsanding and disbursed"
"TDS" denotes "total debt service."
"XGS" denotes "exports of goods and services," which comprises exports of goods. nonfactor services, factor receipts, and workers' remittances
74
Guyana - Annex Table 6: Public Finance (Central Government)
(at current prices and exchange rates)
1997
1998
1999
2000
2001
2002
Total current revenues
Direct taxes
Indirect taxes
On domestic goods and services
On international trade
Nontax receipts
(of which current grants)
40097
12193
19345
14962
4383
8558
34786
11854
19221
14740
4481
3712
41353
13617
20028
15438
4590
7707
51396
16023
22175
17165
5010
13198
52121
16721
21052
16262
4790
14348
55814
I9043
21757
17123
4634
15014
Total Current Expenditures
Interest on external debt
Interest on domestic debt
Transfers to private sector
Transfers to other NFPS'
Subsidies
Consumption
Wages and salaries
Other consumption
28809
6485
3615
0
0
427 1
14438
8298
6140
28590
5649
3028
0
0
4437
15476
9166
6311
32922
5900
3556
0
0
5430
18036
11821
6215
4528 1
6902
5103
0
0
10769
22508
14318
8190
46907
6842
4832
0
0
11565
23668
14833
8835
48379
6566
4287
0
0
11537
25989
16271
9718
Budgetary Savings
Capital Revenues
Total Capital Expenditures
Capital transfers
Budgetary fixed investment
11288
0
16635
1934
14700
6196
0
13656
0
13656
843 1
0
11222
369
10853
6114
0
15824
0
15824
5213
0
16511
0
16511
7434
31
15677
0
15677
Overall balance (- = deficit)
-5347
-7460
-2791
-9710
-11297
-8212
5347
0
386
7460
0
1999
279 I
0
6437
9710
0
6857
1 I297
0
7978
8212
0
3734
1096
3865
-1552
7013
-4614
968
5882
-3029
1544
1775
2523
1955
Current revenues
Current expenditures
Budgetary savings
37.6
27.0
10.6
32.2
26 5
5.7
33.4
26.6
6.8
39.5
34.8
4.7
39.1
35.2
3.9
40.5
35.1
5.4
Capital revenues
Capital expenditures
Overall Balance (- = deficit)
Official capital grants
Net external borrowing
Monetary system credit
Other domestic financing
0.0
15.6
-5.0
0.0
0.4
10
3.6
0.0
12 6
-6.9
0.0
1.9
-1.4
6.5
0.0
9.1
-2.3
0.0
5.2
-3.7
0.8
0.0
12.2
-7.5
0.0
5.3
4.5
-2.3
0.0
12.4
-8.5
0.0
6.0
1.2
1.3
0.0
11.4
-6.0
0.0
2.7
1.8
1.4
195005.6
1370.3
15722.7
14598.6
225326.9
211.2
228609.9
1229.1
14170.6
19978.4
262758.9
243.3
218567.5
1186.4
9556.6
20491.2
248615.3
201.0
220203.5
1180.1
15438.1
15199.3
250840.9
192.9
226149.3
1170.1
16982.1
15387.3
258518.7
193.8
231445.1
1214.4
19505.1
17257.3
268207.5
194.7
11.4
14.0
22.7
5.3
11.0
13.6
21.1
5.5
11.0
12.5
19n
5.2
12.3
13.2
12.5
12.2
17.6
4.9
13.8
12.4
18.5
4.8
Sources of financing (+)
Official capital grants
Net external borrowing
Net disbursements (cash)
Adjustments to scheduled principal repayments (-)
Adjustments to scheduled debt service (+)
Net monetary system
Net other domestic borrowing
Shares of GDP (%)
Government Debt (DOD /c at the end of the year, in (millions LCUs. unless noted))
External debt
External debt (in US$ millions)
Debt to monetary system
Other domestic debt
Total government debt
Total government debt as percent of GDP
Tax burden indicators (%)
Direct taxes / GDP
Indirect taxes on domestic G&S" / GDP
Indirect taxes on domestic G&S i private consumption
Taxes on internationaltrade / merchandise imports
c. "DOD" denotes "debt outstanding and disbursed."
b. "G&S" denotes "goods and services.''
75
'9.6
3.L
Annex Table 7: Guyana, Investment Climate
Year
Guyana
Private Investment Environment
Private Sector GDFIlGross Domestic Fixed Investment (%)
Domestic Credit to Private Sector (stock, % GDP)
Real Lending Rate
2002
2002
2002
36.8
43.0
Openness
Trade (imports+exports)/GDP (%)
FDI inflows (net, % GDP)
WTO member?
2002
2002
1995
199.0
Infrastructure
Paved Roads (% of total)
Registered Motor Vehicles (per 1000 persons)
Cost o f Calls to US (US$ per 3 min.)
Electricity consumption (kwh per capita)
2000
2000
2003
2002
26.3
661.8
Wages and Productivity
Minimum Wage (US$ per day)
2002
5
-2.2
6.0
Yes
6.9
2.8
Source: World Bank LDB, MF, Guyana Ministry o f Public Works, Statistics Bureau, GT&T
Annex Table 8: Guyana, Vulnerability Indicators
1999
Banking Sector Indicators
Foreign currency to total deposits (9%)
Non-performing loans of commercial banks (% of total) I/2/
2000
2001
200:
37.6
35.7
42.1
38.2
44.2
37.2
Reserve Cover Indicators
Reserve cover of imports (months of imports)
Reserves to short term debt
ReservesM2
4.4
1.9
0.7
4.5
2.3
0.6
4.3
2.2
0.6
4.2
1.9
0.5
Prices
Annual change in terms of trade (%)
Annual change in REER (%)
Annual change in average exchange rate (%)
-8.4
2.0
18.3
-9.0
7.8
6.1
3.6
-4.2
2.7
3.4
-9.5
5.3
External
Current account balance (% of GDP, excl. official transfers)
External Debt (% of GDP)
-14.0
177.6
-15.3
167.8
-18.1
171.1
-14.8
171.4
Fiscal sustainability indicators
Nonfinancial Public Sector Balance (% o f GDP, before grants)
Nonfinancial Public Sector Balance (% of GDP, after grants)
Primary balance (% of GDP, before grants)
-6.1
-1.7
1.7
-14.0
-6.3
-4.8
-15.2
-7.0
-6.3
-14.0
-5.8
-6.1
Source: World Bank LDB, IMF
I/Loans with payments overdue for more than three months
21 Covers all commercial banks. Figures for 2002 are preliminary
76