Private sector satisfied with talks to ease foreign exchange bottlenecks

Last Updated on Tuesday, 12 September 2023, 12:11 by Denis Chabrol

The private sector on Tuesday appeared satisfied with steps that would be taken to ease an apparent shortage of foreign exchange at  commercial banks, even as the Chairman of the Private Sector Commission (PSC), Komal Singh indicated that he was satisfied with the outcome of Monday’s talks.

“The meeting yesterday (Monday) was a very fruitful meeting from a private sector standpoint,” he told Demerara Waves Online News but declined to provide details ahead of a joint statement by the government, private sector and the commercial banking sector. Due to the increased demand for foreign exchange due to an upsurge in business activity in Guyana, he said businesses now needed to plan more instead of operating in a “just-in-time” mode.

Multiple sources on Tuesday also said commercial banks were asked to consider trimming their investments in overseas financial instruments as part of efforts to ease the foreign exchange pressure on the local market.

Though government has maintained that there is no shortage of mainly United States (US) dollars, the selling rate is as much as GY$216 for US$1.00, and businesses have been waiting for several days before they can obtain forex to wire overseas for the purchase of goods and services.

Persons familiar with Monday’s meeting of representatives of the Bank of Guyana, Finance Ministry, commercial banks and the private sector said one of the major sticking points was the mere submission of invoices to commercial banks by businesses to facilitate the transfer of funds.

While a Bank of Guyana circular requires all bank cambios to submit invoices against which foreign currency is sold to the Commissioner General, Guyana Revenue Authority for the attention of The Head of the Customs Department, the importers do not have to submit any direct proof that the imports actually arrived in Guyana.

Sources indicate that Guyana’s major foreign exchange trader in the banking system is Trinidad and Tobago government-owned Republic Bank which is facilitating Trinidadian businesses to purchase goods through the Guyanese market and sell them in Trinidad and Tobago where the corporation tax is located. “That is a big part of the problem,” he said.

Unlike Guyanese businesses, foreign businesses were reportedly receiving “quick” approvals for foreign currency accounts.

Notably, Monday’s meeting was held the same day that the International Monetary Fund (IMF) recommended changes to Guyana’s foreign exchange rate mechanism. “In the medium term, staff recommends a review of the exchange rate framework to ensure that it best serves the economy,” the IMF said in its 2023 Article IV Mission concluding statement. No details were provided.

The IMF also said Guyana’s real exchange rate is expected to appreciate, and inflation to increase, as the economy closes its development gap.

An IMF staff team, led by Ms. Alina Carare, held discussions during August 28 – September 11 for the 2023 Article IV Consultation. The team met with Vice-President Bharrat Jagdeo, Finance Minister Dr. Ashni Singh, Minister of Parliamentary Affairs and Governance Gail Teixeira, Central Bank Governor Gobind Ganga, other senior officials, representatives from the private sector, banks, labor unions, and other stakeholders.

Noting that Guyana’s outlook for medium term growth is better than before, the IMF at the same time cautioned that construction growth and strong public investment may support higher than expected short-term non-oil growth but could also lead to inflationary pressures and the appreciation of the real exchange rate beyond the level implied by a balanced expansion of the economy, overheating, and the crowding out of credit to the private sector.

The IMF said given the medium-term risks of inflationary pressures and real exchange rate appreciation beyond the level implied by a balanced expansion of the economy, staff recommend a continued focus on maintaining macroeconomic stability through an appropriate policy mix. The IMF welcomed the policies to sustain growth into the longer term while maintaining debt sustainability and a balanced growth path. The mission recommended continuing close monitoring of macroeconomic and financial indicators, tightening monetary policy stance and using macroprudential tools as needed. They, for example, can be loan-to-value ratio or debt-to-income requirements.

According to the IMF, real Gross Domestic Product (GDP) growth is projected to be an average of 20 percent per year from 2024-2028 “without creating macroeconomic imbalances.” Guyana’s “commitment to fiscal discipline is welcome and allows for a balanced growth path,” the IMF said.

President Irfaan Ali said Guyana’s economy grew by 59.5 percent during the first half of 2023, and the non-oil economy expanded by 12.3 percent.  For its part, the IMF said sustained real non-oil GDP growth of 5.5 percent is projected, as the government continues its ambitious plans to address developmental needs.