First Programmatic Financial and Fiscal Stability Development Policy Credit

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The Programmatic Development Policy Credit (PDPC) series supports Guyana’s reform efforts to reinforce sound financial sector development and to strengthen fiscal management. The proposed operation is the first in a series of two operations. The series builds on three pillars of policy reforms. The first pillar supports the Bank of Guyana’s (BOG’s) ability to manage financial stress including establishing a deposit insurance scheme. The second pillar supports both regulatory reform for the insurance sector as well as domestic and international payment transactions. The third pillar supports stronger fiscal management through a sovereign wealth fund (SWF) for intergenerational savings, better debt management, and improved public investment management. The first credit will be in the amount of SDR 24.4 million (US$35 million equivalent). The PDPC forms part of a developing engagement with the Co-operative Republic of Guyana spanning financial sector, fiscal, and oil and gas sector management. Complemented by the increased financial envelope due to the IDA18 Replenishment, this policy dialogue led to the development of the PDPC series as well as a now planned FY19 Systematic Country Diagnostic (SCD) and Country Partnership Framework (CPF). The first operation in the series supports the Government of the Co-operative Republic of Guyana’s (GCRG’s) strong financial sector reform efforts while recognizing through triggers the GCRG’s efforts to accelerate fiscal reform. The newfound wealth will increase demands on fiscal policy, long-term savings, and domestic investments. Fiscal policy will need to be designed to manage the additional sources of volatility in both economic activity and fiscal revenues. Although natural resource extraction has long been a feature of the Guyanese economy, the increase in discovered wealth raises the question of intergenerational savings and the extent to which revenues from extracted resources should be set aside for future generations. To the extent the wealth is not invested abroad, it must be invested wisely in the Co-operative Republic of Guyana. For the private sector that requires an efficient financial sector that allocates the resources to the most economical investments, and for public investment it requires an efficient public investment management system. The GCRG’s commitment to prudent debt management needs to be supported by a modernization and streamlining of the legislative and institutional framework. With the increase in wealth and progressive market access of the country, The Co-operative Republic of Guyana will need to develop a unified and modernized legal framework for debt management and implement a comprehensive medium-term debt strategy to ensure that borrowing is aligned with macroeconomic policy objectives and undertaken at acceptable levels of risk and cost.