Guyana: Risk Assessment
Country Risk Rating
|D||A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
Slowdown in activity due to lower commodity prices and reduced mining output
Guyana's economic activity slowed in 2015, impacted by the fall in commodity prices. Growth is mainly linked to performances in the agricultural sector (rice, sugar, shrimp) and the extractive industries (gold and bauxite). Gold remains the key growth driver despite lower output resulting from the exhaustion of the mines and a reduction in activity by companies in the sector. The exploitation of new mines, financed by foreign capital, began in 2015 and this should help growth recover slightly in 2016. Renewed tensions with Venezuela over the issue of territorial sovereignty claimed by the latter triggered a decline in demand for Guyanese rice, 40% of which is exported to Venezuela. This decision has weakened activity and could hinder the arrival of new investment. The agricultural sector is further exposed to meteorological risks. Inflation remained low in 2015 due, in particular, to low energy and commodity prices. It is expected to rise in 2016, on the back of an increase in the minimum wage and higher welfare payments, which in turn will help support domestic demand.
Public and external accounts still in deficit
The public deficit remains significant but is expected to improve slightly in 2016 as a result of the austerity plan announced by the new government aimed at stabilizing public debt levels. The policy remains tricky because of poverty levels and critical infrastructure and basic services needs, especially regarding healthcare. The government has, therefore, provided for an increase in public sector wages and for continued investment in infrastructures. The president is, moreover, expected to continue the previous government's economic policy, which consists in the long-term application of the Low Carbon Development Strategy, involving cutting carbon emissions and reducing deforestation in exchange for development aid.
With regard to external trade, the current account deficit is expected to widen in 2016, with exports hampered by low commodity prices. However, a significant offshore oil discovery by Exxon Mobil in 2015 could help reduce fuel imports in future. Dependence on foreign services will keep the balance of services deficit high. FDIs continue to play an important role in the mining sector, but have hardly grown in the other sectors because of the weakness of the local market, a climate of uncertainty and a poor business environment. In this context, the Guyanese dollar could come under downward pressure in 2016, especially since the foreign exchange reserves of the central bank, which intervenes on specific occasions in the currency market in order to limit the currency's volatility, only provides a thin safety cushion.
A political context marked by internal ethnic divisions and territorial conflicts
After nearly 20 years in power, the People’s Progressive Party/Civic gave way to the multi-ethnic coalition led by A Partnership for National Unity and Alliance for Change parties in the May 2015 general election. The parliament accordingly appointed David Granger to lead the government. After a tense period of political cohabitation since 2011, the majority obtained in the National Assembly by the coalition government offers the prospect of better political management. It will remain hampered, however, by the persistent ethnic divisions (Indo-/Afro-Guyanese groups) in Guyanese politics.
The governing coalition is already dealing with a difficult geopolitical situation marked by rising tensions with neighboring Venezuela over a territorial dispute. Despite an international decision fixing the current borders, Venezuela unilaterally decided to claim sovereignty over almost two thirds of Guyana's territory and maritime borders by publishing an official decree. This was issued one week after the announcement of the discovery of oil reserves off the coast of Guyana, in the area contested by Venezuela. The president reacted by calling for international arbitration by the UN. Although the risk of armed conflict can be ruled out, trade between the two countries is likely to be affected, with Venezuela threatening to end the agreement to import Guyanese rice in exchange for oil at preferential prices under the PetroCaribe initiative. Relations with Brazil continue to strengthen with the conclusion of a Memorandum of Understanding concerning cooperation between the two countries on transport and energy. In addition, membership of CARICOM (Caribbean Community and Common Market) guarantees Guyana growing regional integration and cooperation.