Annual Report

and Statement of Accounts

2000

CONTENTS

STATEMENT OF PURPOSE AND CORPORATE PHILOSOPHY

LETTER OF TRANSMITTAL

ORGANISATION CHART AND BOARD OF DIRECTORS

INTRODUCTION

I. THE GUYANA ECONOMY - 2000

1. Summary

2. Production, Aggregate Expenditure, Employment and Inflation

3. International Trade and Balance of Payments

4. Foreign Exchange Market Developments

5. Public Finance

6. Public Debt

7. Financial Sector Developments

II. INTERNATIONAL ECONOMIC AND MONETARY DEVELOPMENTS

III. FUNCTIONS, POLICY IMPLEMENTATION AND BANK ACTIVITIES - 2000

1. Functions

2. Policy Implementation

3. Bank Activities

IV. BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND REPORT OF THE EXTERNAL AUDITORS

STATISTICAL ANNEXE

APPENDIX I: List of Commercial Banks

APPENDIX II: List of Licensed Foreign Currency Dealers

BANK OF GUYANA

STATEMENT OF PURPOSE

The role of the Bank of Guyana is to act as the Central Bank for Guyana. Its primary purpose is to formulate and implement monetary policy so as to achieve and maintain price stability. The other major purpose is to foster a sound, progressive and an efficient financial system. In the discharge of its functions, the Bank strives to:

• promote a sustained and non-inflationary growth of the economy;
• maintain the integrity and value of the Guyana dollar; and
• secure the credibility of the financial system, including payments arrangement, through supervision and oversight.

CORPORATE PHILOSOPHY

The Bank's corporate philosophy in relation to its customers, staff and people of Guyana is to adopt a consultative and a constructive approach, seek market based solutions, generate greater awareness and understanding of issues directly related to the Bank's functions, maintain transparency and public accountability and provide highest quality output possible.

LETTER OF TRANSMITTAL

March 31, 2001

Hon. Saisnarine Kowlessar, M.P.

Minister within the Office of the President responsible for Finance

Ministry of Finance

Main Street

GEORGETOWN

Dear Minister,

As required under Section 58 of the Bank of Guyana Act 1998, No.19 of 1998, I have the honour to submit to you the Bank's Report on its operations in 2000, together with the Balance Sheet and Profit and Loss Account as certified by the external auditors appointed in accordance with Section 60 of the Act. A review of economic developments in Guyana in 2000 is incorporated in the report.

The original of the auditors' report and certificate is also attached.

Yours sincerely,

Signed

D.S. Singh

Governor (Ag.)

INTRODUCTION

The thirty-sixth Annual Report of the Bank is presented in accordance with Section 58 of the Bank of Guyana Act. Developments in the domestic economy are described in Part I, which is complemented by annexed statistical tables. The international economic environment is overviewed in Part II. The functions, policies and activities of the Bank that were undertaken against the economic background outlined in Parts I and II are summarised in Part III. The Bank's financial statements are presented in Part IV.

I

THE GUYANA ECONOMY - 2000

• SUMMARY

The Guyana economy in 2000 experienced a setback in its consolidation of the modest economic performance recorded over the previous year. Economic growth was -0.8 per cent after recording a growth of 3 per cent a year earlier. The slowdown was attributed to a decline in real output from the major sectors of agriculture, forestry and manufacturing. Real output growth from mining, gold and bauxite sectors, as well as from the services sectors, were positive but insufficient to offset the decline in the major sectors. This performance was translated into slower income growth.

Stabilisation efforts, through prudent fiscal and monetary policies, managed to contain inflation and exchange rate depreciation. The relatively lower rate of inflation at 5.9 per cent and the 2 per cent depreciation of the exchange rate in 2000, reflected the efforts in absorbing the impact of high oil prices, wage pressures and tariff increases in the communication and electricity sectors.

Foreign exchange turnover through the cambio market was lower by 4 per cent in 2000. Despite net purchases by the cambio market, the Guyana dollar depreciated by 2 per cent. The depreciation occurred largely during the first half of the year reflecting demand pressures as a result of the deterioration of the current account of the balance of payments during the review period. Intervention by the Central Bank during the second half of the year provided some level of exchange rate stability and a narrowing of the spread.

On the external front, the overall balance of payments strengthened in response to improvements in the capital account due to a modest rise in private capital flows and higher disbursements. However, the current account deficit widened on account of a deterioration in the terms of trade. Export earnings declined due to the Euro depreciation while imports increased on account of the higher oil prices.

The financial performance of the public sector, on a cash basis, deteriorated with high budgeted expenditure during the review period. The central government overall deficit increased as current and capital expenditures were relatively higher when compared with revenue. Similarly, the overall surplus of the non-financial enterprises narrowed due to a sharp increase in current expenditure and lower export receipts from GUYSUCO.

The thrust of monetary policy was determined primarily by domestic considerations regarding exchange rate, domestic price stability and growth. The overriding objective had been to absorb excess liquidity through competitive bidding of treasury bills and hence, to control monetary growth to counter exchange rate and wage pressures and allow for increased credit to the private sector. Broad money growth was marginally lower at 10.9 per cent and was partly due to cautious lending policy which resulted in a deceleration in credit to the private sector. The average discount rate on 91-day treasury bills declined from 11.07 per cent to 8.83 per cent, effectively narrowing the spread between the weighted average lending and savings deposit rates. The non-bank financial institutions (NBFIs) continued to mobilise savings by offering competitive interest rates.

Guyana reached its decision point under the Enhanced HIPC Initiative in November 2000. Relief under this arrangement is expected to yield approximately US$329 million in NPV terms, in addition to the US$256 million in NPV terms received under the original HIPC Initiative. The completion point is anticipated to be reached in approximately fifteen months. The flow of relief during the year contributed to a net 1 per cent decline in the stock of outstanding public and publicly guaranteed external debt to US$1,187.7 million. In spite of this, actual debt service increased by 26.4 per cent to US$88.8 million due to debt service payments on both the internal and external debt as a result of higher redemptions of domestic debt instruments and arrangements made in satisfaction of the original HIPC Initiative. In contrast, the stock of government's domestic bonded debt increased by 15.4 per cent due to the issue of treasury bills to sterilise excess liquidity in the banking system for the maintenance of price and exchange rate stability. Domestic debt service payments increased by 43.5 per cent as a result of higher redemption of domestic debt instruments. Domestic debt as a per cent of GDP increased to 36.8 per cent from 33.7 per cent at end-1999.

The outlook for Guyana in the year 2001 appears promising. Modest economic growth is expected from favourable performance in some of the major productive and the non-traditional sectors which will increase export growth. Fiscal and monetary policies will continue to be focused on inflation and exchange rate stability as well as fostering a macroeconomic environment conductive to growth and development.

• PRODUCTION, AGGREGATE EXPENDITURE, EMPLOYMENT AND INFLATION

Real output growth was -0.8 per cent for year 2000. This outturn was attributed to a decline in agricultural and forestry output. The former was caused by reduced planting and harvesting in the two major industries - sugar and rice - while the latter was due to difficulties in transporting logs on account of adverse weather conditions. The output of the manufacturing sector also declined because of reduced processing of sugar and rice. In contrast, the mining and services sectoral outturns were positive offsetting the contraction recorded in 1999. Inflation was contained at 5.9 per cent as a result of prudent fiscal and monetary policies.

PRODUCTION

Agriculture and Forestry

The agricultural and forestry sector recorded a 10.2 per cent decline in value added mainly on account of the adverse weather during the first half of year 2000. Land preparation for the rice crops was delayed while the harvesting period for sugar cane was shortened. In contrast, higher international prices for fish & shrimps and a recovery in livestock production checked the slippage in the main agricultural industries.

Sugar

Sugar output during year 2000 was 273,703 tonnes, 14.8 per cent lower than the level for the corresponding period last year. This was attributed to unfavorable climatic conditions that shortened the harvesting period. There was also a decline in both cane and sugar yields. Cane yield per hectare declined from 72.5 tonnes during 1999 to 67.4 tonnes this year while sugar yield per tonne of cane fell from 0.09 tonnes to 0.08 tonnes. Sugar supplied to the market was higher than production due to inventory at the beginning of the year. Exports rose by 0.8 per cent to 277,446 tonnes while domestic consumption fell by 0.2 per cent to 24,000 tonnes as demand by beverage manufacturers slipped this year. Consequently, the closing inventory of 20,939 tonnes was 50 per cent lower than the 1999 level.

Rice

Total rice output was 291,841 tonnes, 20.1 per cent below last year's level. The outturn this year was influenced mainly by heavy rainfall that resulted in a lower acreage sown and harvested for the first crop. Sustained weak international prices also contributed to lower production.

The distribution of output remained relatively unchanged as exports decreased by 17.4 per cent to 207,638 tonnes compared with 251,509 tonnes in 1999. Domestic sales, however, increased by 4.4 per cent to reach 47,000 tonnes in response to higher demand by the livestock sector.

Table I

Livestock and Fishing

Livestock production expanded as value added by this sector was 4.6 per cent higher than 1999. This sector's performance was accounted for by the increase in egg output, cattle and other livestock which offset the fall in poultry production.

Fish catch rose by 7.8 per cent compared with the corresponding 1999 level partially in response to the rise in international prices. Total value added growth of the fishing sub-sector rose by 14.1 per cent compared with the 5.3 per cent recorded during 1999.

Forestry

Forestry output declined by 15.9 per cent to 418,948 cubic metres during the review period due to the adverse weather during the first half of the year. Both greenheart and other forestry products output were lower. Greenheart logs production amounted to 82,435 cubic metres, 13.6 per cent less than the 1999 level. Other log species also fell by 13.8 per cent to 202,446 cubic metres as well as the output by BARAMA which declined by 20.6 per cent. Plywood output fell by 3 per cent to 89,155 cubic metres while dressed lumber declined by 13.9 per cent to 24,624.5 cubic metres.

Mining

The value added of the mining sector expanded by 5.9 per cent compared with the contraction of 8.4 per cent registered in 1999. This performance reflected increased output of bauxite, diamond and gold caused by higher export prices.

Bauxite

Gross output of the bauxite industry was 2,689,451 tonnes, 14 per cent above the previous year. This performance resulted from increased production of Metallurgical Grade bauxite (MAZ) and Chemical Grade (CGB) by 14.7 per cent and 18.3 per cent respectively, while Refractory Grade (RASC) bauxite decreased by 1.9 per cent to 105,716 tonnes.

Table II

¹⁾ Includes Road Grade Bauxite and Tailings

Gold and Diamond

Gold declarations during year 2000 amounted to 434,349 ounces, 4.8 per cent higher than last year. Of this amount, OMAI's output was 329,192 ounces or 8.3 per cent higher than the level attained in 1999 as a result of the extraction of higher yielding ore. In contrast, small and medium scale miners' declarations declined by 4.9 per cent to 105,288 ounces as ongoing financial difficulties and increased oil prices depressed returns in this segment of supply.

Diamond declarations continued to rise with an outturn of 83,912 metric carats or 80 per cent above the previous year's level. The growth in declarations arose from the recovery of international prices, the introduction of newer mining technology and the expansion in the number of concessions approved.

Manufacturing

Growth in value added in the manufacturing sector excluding sugar and paddy processing declined by 11.9 per cent compared with the 6.8 per cent expansion registered during 1999. All of the major industries within this sector recorded lower output due to the rise in competition from imports and sluggish external demand. The consumer durable goods industry registered the largest drop in output followed by the consumer non-durable goods industry. The former was affected by adverse competition and an inappropriate financial structure. Consumer non-durables output, especially in the beverage industry, slipped as imports effectively competed on price and convenience to consumers. Output of intermediate goods was adversely affected by the rising cost of production associated with fuel and inappropriate financial management.

Table III

Construction and Engineering

Construction and engineering sectors registered a 6.5 per cent real growth in year 2000 compared with a decline of 10 per cent in the previous year. This performance was due to the increased outlays on the public sector investment programme and higher expenditure on private residential construction induced by the land title regularisation programme and easier credit terms on housing mortgages.

Services

All of the services sectors recovered, recording an overall growth of 6.7 per cent compared with a drop of 0.8 per cent in 1999. Government, transport & communications and financial services recorded increases of 10 per cent, 7 per cent and 2.7 per cent respectively in response to higher factor payments, sales and intermediation spreads respectively. Distribution and rental of dwellings recorded rises of 5.2 per cent and 5 per cent respectively as sales recovered and rent adjusted to higher utility costs during the year.

AGGREGATE EXPENDITURE

Overall Expenditure

Aggregate expenditure grew by 14.5 per cent in year 2000, faster than the 8 per cent growth recorded during 1999. This outturn reflected a sharp increase in consumption expenditure due to higher cost of imports, including fuel. Consequently, consumption accounted for a larger share of total expenditure. During the year, consumption increased from 63.8 per cent of expenditure in 1999 to 66.8 per cent in year 2000. Conversely, investment expenditure slipped from 36.2 per cent to 33.2 per cent over the similar period. Higher domestic expenditure coupled with the deceleration in value added resulted in a wider resource gap, (i.e. the difference between aggregate expenditure and domestic production valued at current market price).

Consumption Expenditure

Total consumption expenditure increased by 19.9 per cent to G$100.8 billion or 77.4 per cent of GDP, reflecting an increase in Government payments and public consumption. Private consumption expenditure rose by 19.7 per cent during 2000, but accounted for 42.9 per cent of aggregate expenditure, an expansion of 4.5 per cent. The expansion, as a share of aggregate expenditure, reflected in part, the increased cost of intermediate goods and income of public servants relative to other income earners. In contrast, public sector consumption increased in nominal terms by 20.2 per cent due in large part to the impact of higher prices.

Investment Expenditure

Investment expenditure in nominal terms rose by 5.2 per cent to G$50.1 billion in year 2000, reflecting an acceleration in the public sector investment programme. Public sector investment increased by 21.8 per cent to G$19.7 billion, representing 39.3 per cent of capital formation. In contrast, private sector investment declined by 3.4 per cent to G$30.4 billion, with a significant share accruing from foreign investors.

Table IV

EMPLOYMENT AND INFLATION

Employment

Labour market relations improved significantly following the Arbitration Tribunal wage award for 2000. Notwithstanding, the higher level of work-stoppages as shown in Table V, fewer institutions were disrupted and less man-days were lost during the year. The number of man-days lost declined to 56,176 from 287,405 in 1999. There was however, an increase in work stoppages although the average duration of interruptions in all economic sectors were lower. The number of work stoppages rose to 268 from 244 the previous year and was associated with a significant decline in man-days lost to 56,176 man-days from 287,405 man-days. Disruptions were recorded at eight institutions in the mining, services and agricultural sectors compared with 13 institutions during 1999.

Employment data is available only for the public sector. The number of persons employed within the public sector fell by 3 per cent in year 2000 to 34,815 in response to the continuing process of public sector reform. The decline was accounted for by the 2.1 per cent contraction in employment by the rest of the public sector to 23,367 persons primarily on account of the privatisation of Guyana Stores Limited. Similarly, the total number of persons employed by the Central government during 2000 was 6 per cent lower than the previous year.

Table V

¹⁾ Excludes figures for January and February

Source: Ministry of Health and Labour

Earnings

Earnings by most industries in the agricultural and manufacturing sectors were lower in response to the slowdown in economic activities during the review period. However, gross margins in the service industries rose from the demand generated from the higher salaries paid to public servants. In addition, interest paid to holders of government securities and bank deposits increased in response to the higher Government bonded debt as well as time and savings deposits respectively.

Inflation

Inflation, as measured by the change in the consumer price index, was contained at 5.9 per cent in the face of inflationary pressure from higher wages and oil prices. This outturn was due to efforts to restrain demand through prudent monetary policy, fiscal initiatives in changing the consumption taxes on fuel and the relative stability of the nominal exchange rate. The inflation rate of 5.9 per cent was reflected in the higher prices of food, housing, personal care services and education which grew by 4.3 per cent, 13 per cent, 43.8 per cent and 16.4 per cent respectively (see Table VI).

The monthly average rate of inflation declined from 0.7 per cent during 1999 to 0.5 per cent during year 2000. This monthly average was exceeded during January, February, June, July, August and December while March, April, May, September and October registered price changes lower than the benchmark. The rise in prices above the average reflected largely the trends of vegetable prices and the cost of fuel and utilities.

Table VI

• INTERNATIONAL TRADE AND BALANCE OF PAYMENTS

The overall balance of payments recorded a turnaround from a deficit of US$4.4 million in 1999 to a surplus of US$17.1 million in the year 2000. A significant improvement was recorded in the capital account which more than offset the deterioration in the current account. An increase in private capital inflows and higher bilateral and multilateral disbursements were responsible for expanding the capital account surplus while a higher merchandise trade deficit accounted for the widening in the current account deficit.

Current Account

The current account deficit expanded to US$113.4 million from US$75.2 million in 1999. This outcome was attributed to a widening of the merchandise trade deficit.

Merchandise Trade

The merchandise trade deficit deteriorated to US$80.2 million from US$25.2 million in 1999. This deterioration reflected increased growth in imports relative to exports which resulted largely from a deterioration in the terms of trade.

Table VII

Exports

Total exports amounted to US$505.2 million, 3.8 per cent below the 1999 level. The decrease occurred as a result of lower export receipts from the major sectors of sugar, rice and bauxite. Increased receipts were recorded for gold, timber and the non-traditional sectors but were insufficient to offset the decline in the other major sectors. The shares of the traditional export commodities in total export varied during the review period with sugar and gold accounting for the largest shares. Gold share increased to 23.8 from 20.7 per cent while sugar decreased to 23.5 per cent from 25.9 per cent in 1999. The contribution of timber improved to 8 per cent from 7.1 per cent in 1999. Bauxite recorded a marginal increase from 14.1 per cent to 15.1 per cent while rice declined substantially from 13.5 per cent to 10.2 per cent. The contribution of the non-traditional sectors accounted for 18.6 per cent of total export receipts compared with 14 per cent in 1999.

Sugar

Sugar export earnings amounted to US$118.8 million, 12.8 per cent lower than the value recorded in 1999. This was attributed to a decline in export prices as export volumes increased to 277,446 tonnes from 275,267 tonnes in 1999. The average export price decreased to US$428.2 per tonne from US$494.8 per tonne. The resulting decline in the average price reflected the depreciation of the Euro against the US dollar by 14.1 per cent during the year.

During the review period, sugar continued to be exported primarily to the EU, Portugal, CARICOM and the USA but with some shifts in their shares. The share of exports under the Sugar Protocol of the Lomé Convention to the EU was 64.6 per cent, 1.4 percentage points below the previous year's level. Exports to Europe via the Special Preferential Agreement (SPA) decreased by 1.8 percentage points to 11.2 per cent. CARICOM's share was higher by 2 percentage points at 15.2 per cent while the United States' share remained constant at 9 per cent.

Rice

The value of rice exports amounted to US$51.8 million, 27.1 per cent below the value for the corresponding period in 1999. This was due to a combination of decreased export volumes and a drastic fall in the average export price. Export volumes decreased by 17.4 per cent to 207,638 tonnes as a result of production shortfalls. The average price per tonne declined by 11.8 per cent to US$249.5 per tonne from US$282.7 per tonne in 1999 on account of the depreciation of the Euro vis-a-vis the US dollar. During the review period rice was exported primarily to the EU and CARICOM countries. The share of exports to the EU accounted for 50.2 per cent, an increase of 2.2 percentage points over last year while CARICOM's share was higher by 9.1 percentage points at 36 per cent.

Bauxite

Bauxite export earnings amounted to US$76.3 million, 1.2 per cent below the total recorded in 1999. This reflected lower export prices as export volume increased modestly to 2,532,924 tonnes from 2,389,003 tonnes in 1999. The main types of bauxite exported were Metallurgical Grade bauxite and Calcined bauxite which contributed 83.9 per cent and 16 per cent respectively to total bauxite export earnings. In value terms, Metallurgical Grade bauxite accounted for US$64.2 million compared with US$59.5 million in 1999, while Calcined bauxite decreased to US$12.3 million from US$13.5 million in 1999. Aroaima's share of total exports in terms of volume and value accounted for 71.6 per cent and 65.9 per cent respectively.

Table VIII

Gold

Gold exports amounted to US$120.3 million, 10.7 per cent higher than the value recorded in 1999. This outturn was associated with higher export volumes which rose by 9.3 per cent to 428,009 ounces, along with an increase in the average export price by 1.3 per cent to US$281.1 per ounce from US$277.5 per ounce. Omai Gold Mines Limited's share of total gold exports in value terms decreased from 79 per cent in 1999 to 73.3 per cent in year 2000, while the Guyana Gold Board exports in value terms increased by 26 per cent on account of higher declarations.

Timber

Timber exports amounted to US$40.9 million, 9.7 per cent above the value in 1999. This reflected both higher export volumes and prices. Export volumes increased by 8.9 per cent to 184,428 cubic metres from 169,407 cubic metres in 1999. Export prices trended upwards as a result of increased demand for plywood in the United States, Asia and the Caribbean. Barama's exports accounted for 47 per cent of total timber exported compared with 46 per cent in 1999. In value terms, Barama's exports accounted for 57.5 per cent of total export earnings.

Table IX

* This category includes exports of wild life, personal effects, freezers, cookers, refrigerators, handicrafts and copra.

Other Exports

The value of all other exports increased to US$97.1 million from US$94.6 million in 1999. Most of the major items in this category registered varied earnings over the previous year's export earnings as shown in Table IX. The most significant increases resulting from fish & shrimps and diamonds. Wood products and re-exports recorded sharp decreases in earnings.

Imports

Merchandise imports amounted to US$585.4 million, 6.4 per cent above the corresponding 1999 level, reflecting higher imports of intermediate goods. Consumption goods imports decreased by 6 per cent on account of lower imports of food for final consumption and motor cars. Intermediate goods imports increased by 20.8 per cent and reflected a 36.7 per cent increase in fuel and lubricants and 44.6 per cent increase in parts and accessories over the 1999 level. Capital goods decreased by 2.9 per cent due to a decline of industrial and mining machinery by 19.1 per cent and 48.1 per cent respectively compared with the previous period.

Table X

Services and Unrequited Transfers

Guyana was a net importer of services to the value of US$78.2 million compared with US$89 million recorded in 1999. Compensation to employees increased to US$4 million from US$3.6 million in 1999. Net factor payments decreased to US$44.3 million from US$57.9 million in 1999. Public sector interest payments on the external debt declined to US$30.5 million from US$38.9 million in 1999 while private sector interest payments decreased to US$17.3 million from US$19.2 million in 1999. Factor services' inflows, comprising mainly income on equity and foreign treasury bills, and interest on deposit accounts, were marginally higher at US$12.8 million compared with US$11.2 million in 1999 on account of income on equity.

Net non-factor service payments amounted to US$33.9 million compared with US$31.1 million in 1999. Travel & tourism and communication services represented the main forms of net service inflows of US$6.2 million and US$7 million respectively compared with US$30.8 million and US$2.6 million respectively in 1999. In terms of net outflows, freight and merchandise insurance claims represented the main item in this category with US$32.8 million compared with US$28.8 million in 1999.

Table XI

Total current transfers amounted to US$45 million compared with US$39 million in 1999. Other unrequited transfers and remittances received by foreign embassies accounted for the main inflows of net current transfers at US$37.2 million and US$3.4 million respectively compared with US$36.7 million and US$9.8 million in 1999. Migrants' transfers was the main form of net current outflows at US$0.5 million compared with US$3.1 million for the corresponding period in 1999.

Capital Account

The capital account surplus amounted to US$126.6 million, US$57 million above the 1999 level. The Central government and the non-financial public enterprises recorded a net inflow of US$45 million compared with US$23.9 million for the same period in 1999. Disbursements from multilateral and bilateral sources amounted to US$66.1 million, an increase of 39.4 per cent from the previous year's total. Amortisation payments at US$21.1 million were lower by 10.2 per cent.

Net private sector long-term capital inflows increased to US$67.1 million from US$46 million in 1999. The forestry and mining sub-sectors were the main beneficiaries of these inflows. Net short-term private capital inflows were US$2 million compared with net outflows of US$25.8 million in 1999.

Capital transfers decreased to US$11 million from US$15.5 million in 1999.

Overall Balance and Financing

The overall balance of payments improved to a surplus of US$17.1 million from a deficit of US$4.4 million in 1999. The Bank of Guyana's net foreign assets increased by US$52.5 million while debt relief from the HIPC Initiative was US$30.8 million. Gross international reserves increased to US$295.8 million, equivalent to 4.5 months of imports of goods and non-factor services.

• FOREIGN EXCHANGE MARKET DEVELOPMENTS

The foreign exchange cambio market during the year 2000 was characterised by a lower level of cambio trading and a marginal depreciation of the Guyana dollar against the US dollar. The former was due to a reduction of export earnings and non-oil imports while the latter was attributed to the Central Bank's intervention during the last quarter of the year when there were demand pressures on account of speculation in the foreign exchange market.

Foreign Exchange Rates and Volumes

The Guyana dollar vis-a-vis the United States dollar depreciated by 2 per cent during 2000 compared with 7.7 per cent in the previous year. This depreciation occurred mainly during the last quarter of the year and reflected the deterioration of the current account of the balance of payments and speculation in the market. The exchange rate was relatively stable over the first three quarters as a result of net inflows of foreign exchange into the market. The total recorded foreign exchange transactions (Bank of Guyana and cambios' transactions) amounted to US$1.7 billion, 5.8 per cent higher than in 1999. However, the cambio market, which accounted for US$822.4 million, witnessed a 4.2 per cent decline when compared with the 1999 level of US$856.6 million.

The Exchange Rate

During the first three quarters of the year 2000, the exchange rate was relatively stable. The first and second quarters recorded a 0.38 per cent depreciation of the Guyana dollar against the United States dollar while there was a 0.19 per cent appreciation in the third quarter. This was attributed largely to a net supply of foreign exchange to the cambio markets as demand pressure eased relative to 1999. During the fourth quarter, the exchange rate lost what it gained in the third quarter with a 1.8 per cent depreciation caused by demand pressure from market speculation. In November, Bank of Guyana intervened in the market to ease the demand pressure. The Guyana dollar closed the year at a mid exchange rate of G$185.54.

Bank of Guyana transactions exchange rate, which was determined by the unweighted average of the telegraphic transfer rates of the three largest dealers in the market, reflected similar movements as in the cambio market. At the beginning of the year the exchange rate was G$180.5 per US dollar and closed the year at G$184.75 per US dollar, representing a depreciation of 2.3 per cent.

The reported cambio market spread between purchases and sales rates, expressed as a percentage of the weighted mid-rate decreased to 1.9 per cent from 2 per cent at end-December 1999. During the review period, the spread hovered around 1.7 per cent with several deviations around this benchmark. This rate indicated the dealer's cost recovery margins which were lower and expectations of short-run changes in the future exchange rate.

The average spread between the purchases and sales exchange rates of bank cambios remained relatively stable throughout the year at G$3.3 as compared with G$2.9 in 1999. Conversely, the spread for the licensed non-bank cambio was lower at G$1 for 2000 compared with G$2.2 in 1999. The divergence of the bank cambio rate from the non-bank cambio rate reflected the variable nature of competition between these two sub-sectors of the market and the changes in different components of demand.

Overall Market Volumes

The volume of all foreign currency transactions in 2000 totaled US$1,749.6 million, 5.8 per cent higher than the level in 1999. The total cambio transactions amounted to US$822.4 million or 47 per cent of the total foreign currency transactions, compared with 51.8 per cent in the previous year. Transactions conducted by the Bank of Guyana accounted for US$351.8 million or 20.1 per cent of the total foreign currency transactions compared with 15.2 per cent in 1999.

Cambio transactions amounted to US$822.4 million in 2000, 4 per cent lower than in 1999. Commercial banks' transactions continued to dominate the cambio market, accounting for 98.2 per cent as compared with 88.7 per cent in 1999. Aggregate purchases of US$417.2 million were higher by 3 per cent when compared with aggregate sales of US$405.2 million. Consequently, net purchases were US$12.1 million compared with US$16.4 million in the previous year.

The US dollar continued to dominate the cambio market transactions during 2000, accounting for 93.3 per cent of the turnover, increasing slightly from the 92 per cent last year. The Pound Sterling accounted for 4.1 per cent of the turnover, increasing slightly from 4 per cent for the same period last year. However, the Canadian dollar's share accounted for 2.5 per cent, decreasing marginally from approximately 2.7 per cent for the same period last year. Caricom currencies' share was 1 per cent compared with 0.6 per cent in 1999.

The total number of approved foreign currency accounts (including exporters' retention accounts) was six hundred and sixteen (616), 4.1 per cent higher than for the corresponding period in the previous year. Twenty-four (24) new accounts were opened during the review period. The value of debits and credits through these accounts were US$290.4 million and US$285 million respectively, 8.3 per cent and 2.8 per cent higher than in the previous year. The balances outstanding on these accounts totaled US$9.3 million at end-2000.

Caricom Currencies

The value of Caricom currencies traded on the cambio market during 2000 was equivalent to US$16.1 million compared with US$10.3 million in 1999. Transactions in the Caricom currencies continued to be dominated by the Barbados and Eastern Caribbean currencies which together accounted for 97.5 per cent of the total transactions.

The exchange rates for the fixed regime countries of Barbados, Belize and the Eastern Caribbean remained fixed during the year. The floating exchange regime countries of Jamaica and Trinidad & Tobago maintained relatively stable exchange rates while Suriname experienced a significant depreciation of its Guilder.

• PUBLIC FINANCE

The financial performance of the public sector, computed on a cash basis, was characterised by a larger overall deficit. This was attributed to a wider central government budgeted deficit on account of current and capital expenditures that could not have been offset by the significant increase in revenue. The financial outturn of the non-financial public enterprises also worsened reflecting higher current expenditure and lower current revenue resulting from a decline in export earning from GUYSUCO.

CENTRAL GOVERNMENT

The central government's fiscal position deteriorated during year 2000, to record an overall deficit of G$11,807.6 million from G$7,004.9 million in 1999. This performance was attributed to the larger current and capital expenditure budgeted for the year which was partly offset by higher revenues.

Current Account

The current account balance moved from a surplus of G$4,970.7 million to a deficit of G$1,490.9 million in year 2000. Relatively higher non-interest current expenditure compared with revenue resulted in a 12.6 per cent decline in the current primary balance. The significant expansion in interest expenditure caused the current balance to record a deficit for the first time after eight years.

Revenue

Current revenue (excluding the reimbursable rice levy) spiraled upwards by 13 per cent to G$41,356 million which represented 7.9 per cent more than the budget for the year. This development was due largely to the strengthening of tax administration and higher revenue collection on increased salaries and value of imports.

The Internal Revenue Department's collection was G$18,852.4 million, 18.1 per cent above the corresponding 1999 level and 9.5 per cent above the budget for year 2000. The increase in receipts resulted from a greater effort to collect arrears from delinquent taxpayers and higher salaries which was paid to public servants as part of the 1999 Arbitration Tribunal award. Corporation and personal income taxes recorded sizable increases of 10.7 per cent and 25 per cent to amount to G$8,266.4 million and G$7,060.1 million respectively. Together they accounted for 81.3 per cent of the total Internal Revenue Department's collection for the year.

Table XII

The Customs and Trade Administration collected G$19,223 million, 21.1 per cent higher than the previous year's level and 9.3 per cent more than the budget, reflecting the higher value of fuel and adjustments in the exchange rate used to compute the tax on imports. Consumption tax of G$14,956.6 million which rose by 27.8 per cent, continued to be the dominant revenue-earning category, accounting for 77.8 per cent of the total tax collected. Import duty increased to G$3,943 million from G$3,703.8 million in 1999.

Expenditure

Total current expenditure amounted to G$42,846.9 million, 35.5 per cent above the 1999 level. This resulted from a significant increase in both non-interest and interest expenditure. Total current non-interest expenditure for the year grew by 26.3 per cent or G$6,340.2 million to reach G$30,465.3 million. This was G$564 million higher than the budget for the year.

Employment costs which accounted for 47 per cent and 33.4 per cent of non-interest and total current expenditure respectively rose by 21.1 per cent to G$14,317.7 million. A substantial portion of this expenditure occurred during the first half of the year in keeping with the 26.7 per cent wages and salaries increase to public servants by the Arbitration Tribunal in 1999. Other expenditure which accounted for 53 per cent of non-interest current expenditure rose by 31.2 per cent to G$16,147.6 million, reflecting in part, increased spending on pensions.

Total interest payments which amounted to 28.9 per cent of total current expenditures, grew by 65.3 per cent to G$12,381.6 million. Domestic interest payments amounted to G$5,102.9 million, 43.5 per cent above the 1999 level and were attributed to the issuance of a larger volume of treasury bills and higher interest payments on the longer-term securities. Actual external interest payments were G$7,309.6 million, 85.9 per cent greater than the previous year. This was due to arrangements made in satisfaction of the original HIPC Initiative.

Capital Account

The capital account deficit contracted to G$10,316.8 million from G$11,975.6 million in 1999 despite a sharp increase in capital expenditure during the year. This was due to capital receipts which rose from G$390.9 million in 1999 to G$6,707.4 million in 2000, reflecting higher external grants and debt relief extended under the HIPC Initiative. Capital expenditure at G$17,024.2 million reflected projects undertaken by the Public Sector Investment Programme (PSIP) to refurbish and construct new infrastructure in health, education, water & sanitation, housing and general economic infrastructure.

Overall Deficit and Financing

There was an increase in the overall deficit from G$7,004.9 million in 1999 to G$11,807.7 million in 2000. This balance was accommodated mainly through net external financing of G$8,614.2 million, of which inflows were G$12,192.7 million and repayments were G$3,578.5 million. In addition, G$3,116.3 million was funded by non-project balance of payments grants.

NON-FINANCIAL PUBLIC ENTERPRISES

The overall surplus of Non-Financial Public Enterprises (NFPEs), including the National Insurance Scheme (NIS), declined during the review period, reflecting higher current expenditure and lower current revenue. The financial performances of Guyana Oil Company (Guyoil) and BERMINE improved while that of GUYSUCO and LINMINE deteriorated.

Current Account

The operating surplus of the NFPEs amounted to G$4,064.2 million, 45.7 per cent lower than the 1999 level. This was due to higher current expenditure and lower revenue. Despite a steep decline in transfers to the government in the form of dividends, taxes and levies, the cash surplus was G$2,965.9 million, 42.9 per cent below the corresponding 1999 level of G$5,196.2 million.

Table XIII

¹⁾ Adjusted figures exclude GPL, GA2000 and GSL.

Revenue

The total cash receipts of the NFPEs amounted to G$43,644.6 million, 2.7 per cent below the 1999 level. This performance resulted mainly from an 18.7 per cent decrease in export sales on account of a 10.4 per cent decline in export receipts from Guysuco due to the weakening of the Euro against the US dollar.

LINMINE and BERMINE recorded increases of 4.6 per cent and 20.7 per cent respectively, over the 1999 levels of G$3,531.4 million and G$2,071.6 million, respectively. Local cash receipts amounted to G$9,341.6 million, 18.7 per cent higher than the 1999 level. The principal contributor to local sales growth was Guyoil with an increase in sales of G$486.9 million on account of higher fuel prices. Cash receipts from debtors increased by 43.3 per cent to G$7,271.8 million with Guyoil being the major contributor.

Expenditure

NFPEs' total current expenditure was G$39,580.4 million, 5.9 per cent or G$2,189.1 million higher than in 1999, reflecting a 17.5 per cent increase in expenditure on materials & supplies, higher payments to creditors of 17.5 per cent and a 0.4 per cent rise in personal emoluments. In addition, there were lower outlays for repairs & maintenance and interest. Repairs & maintenance at G$119.7 million was lower by 68.1 per cent. Interest payments declined from G$60.8 million to G$60 million.

Capital Account

Capital expenditure of the NFPEs totaled G$2,113 million, 43.7 per cent less than in the previous year. This was due largely to a decline in investments by Guysuco and BERMINE. Guysuco's capital outlay declined by 41.1 per cent to G$1,679.2 million while BERMINE's capital programme dropped by 13.8 per cent to G$209.7 million. In contrast, GNSC and Guyoil recorded increased capital outlays of 115.3 per cent and 18 per cent, respectively to reach G$109.6 million and G$62.8 million respectively.

Overall Balance and Financing

The overall cash balance of the NFPEs declined to G$852.9 million from G$1,445.7 million in 1999 due to higher current expenditure and a reduction in current revenue. The cash surplus contributed to the increase in bank deposits by G$2,022.2 million and the net repaying of external debt of G$24.3 million. Inflows from the domestic non-bank institutions amounted to G$1,330.9 million while NFPEs' holdings of government securities declined by G$520 million.

• PUBLIC DEBT

The stock of government's domestic bonded debt grew by 15.4 per cent while its external debt declined by 1 per cent during year 2000. The former increased mainly as a result of the issuance of higher volumes of treasury bills to sterilise excess liquidity while the latter contracted as a result of the debt relief obtained under the HIPC Initiative. Debt service payments on both the internal and external debt increased as a result of higher redemptions of domestic debt instruments and arrangements made in satisfaction of the original HIPC Initiative in the case of the latter.

Domestic Public Debt

The outstanding stock of government domestic bonded debt increased by 15.4 per cent or G$6,405.5 million to G$48,035.2 million at end-December 2000. This increase was attributed primarily to stronger efforts at monetary sterilisation through larger issues of treasury bills which represented 91.6 per cent of total domestic debt.

The maturity structure of the outstanding stock of treasury bills showed a shift towards the medium-term as evidenced by the holdings of 182-day treasury bills which expanded by 70.7 per cent to G$8,453.1 million. The stock of 91-day and 364-day bills grew by 15 per cent and 18 per cent to G$4,947.2 million and G$30,613.3 million respectively. Consequently, the share of 182-day bills accounted for 19.2 per cent of the outstanding stock compared with 14.1 per cent at end-December 1999. The shares of 364-day and 91-day treasury bills slipped to 69.6 per cent and 11.2 per cent from 73.7 per cent and 12.2 per cent last year. The increased share of Government treasury bills in domestic bonded debt was accompanied by a decline in the share of debentures and defense bonds from 15.4 per cent to 8.4 per cent, a 37.4 per cent decline from G$6,422.6 million to G$4,021.6 million.

The holders of treasury bills shifted during the year with claims of the financial sector increasing and those of the non-financial sectors decreasing. The banking system held G$23,920 million or 54.3 per cent of the outstanding stock of treasury bills in comparison with G$14,011 million or 39.8 per cent at end-December 1999 and was due to their high level of liquidity on account of slow growth in credit. The other financial companies recorded moderate growth of 5.3 per cent to reach G$6,516 million or 14.8 per cent of the outstanding stock. In contrast, the non-financial public and private sectors recorded declines of 4.7 per cent and 39.6 per cent to G$12,336 million and G$1,240 million respectively with shares of 28 per cent and 2.8 per cent respectively.

Table XIV

The Government of Guyana issued treasury bills totaling G$60,482.2 million, 18.6 per cent more than that issued last year. Issues of the 364-day and 182-day maturities increased 18 per cent and 37.1 per cent respectively, while issues of the short-term instruments rose by 2.2 per cent. There were no issues of debentures or sale of defense bonds during the year.

Redemptions during the year increased sharply by 18.7 per cent to reach G$51,670.8 million. Redemptions of the 182-day and 364-day maturities expanded by 4.2 per cent and 40.1 per cent to G$13,252.2 and G$25,951.9 million respectively. Redemptions of the 91-day issue were marginally higher by 1.5 per cent for a total of G$12,466.7 million. Principal repayments on outstanding debentures during year 2000 amounted to G$2,401 million compared with G$1,705 million in 1999.

Table XV

Interest Payments on Domestic Debt

Interest payments on the domestic bonded debt increased by 43.5 per cent to G$5,102.9 million in 2000. This rise in domestic debt service resulted mainly from the larger issuance of 364-day and 182-day treasury bills at higher yield rates in 1999 that matured in year 2000. Interest paid on the 364-day and 182-day treasury bills grew by 99.7 per cent and 24.8 per cent to reach G$3,404.4 million and G$789 million respectively. Interest on maturing 91-day bills contracted by 3.6 per cent or G$12 million to G$320.3 million on account of a lower interest rate in year 2000. Interest paid on debentures also fell by 33.5 per cent or G$297.1 million to G$589.2 million reflecting the reduced stock of this instrument and the decline of the 91-day treasury bill benchmark rate.

Stock of External Debt

Debt relief under the HIPC Initiative contributed to a net 1 per cent or US$12.3 million decline in the stock of public and publicly guaranteed external debt to US$1,187.7 million.

Guyana's external obligations are largely to multilateral and bilateral creditors with shares of 66.4 per cent and 29.4 per cent respectively. Multilateral balances declined marginally by 0.4 per cent to US$788.3 million as obligations to all, except for the Inter-American Development Bank and the Caribbean Development Bank, declined during the year. Debt outstanding with the International Development Agency and the International Monetary Fund contracted by 2.2 per cent and 16.3 per cent respectively or US$4.2 million and US$22.8 million to US$181.5 million and US$117.4 million respectively. Obligations to the Inter-American Development Bank, the largest multilateral creditor, increased by 14.5 per cent or US$38.5 million to US$304.2 million, reflecting new loans contracted primarily to finance physical and social infrastructure. Obligations to the Caribbean Development Bank also increased by 4.3 per cent to US$53.7 million.

Table XVI

Total bilateral obligations stood at US$349.5 million, a decline of 1.8 per cent which was explained primarily by the changes in the balances of the smaller non-Paris Club creditors, China, Brazil and Venezuela. Obligations to Trinidad & Tobago, which accounted for 50.6 per cent of bilateral obligations and 14.9 per cent of total debt, was unchanged at US$176.9 million.

Major Developments

Guyana successfully completed debt relief pre-conditions and reached decision point under the Enhanced HIPC Initiative, with the approval of the Second Annual Arrangement under the Poverty Reduction & Growth Facility (PRGF) in November 2000. The estimated value of the relief under this Initiative which provided for additional relief amounting to 56 per cent of the total debt relief was US$329 million in net present value terms or US$462 million in nominal terms and reflects debt service relief over twenty years. Some bilateral creditors such as Germany, UK, USA and Canada have confirmed their commitment to writing off 100 per cent of eligible debt during 2001 when Guyana is expected to reach completion point. The IMF, IDA and IDB are expected to provide, in net present value terms relief of US$39.5 million, US$41 million and US$64 million respectively.

External Debt Servicing

Arrangements made under the HIPC Initiative, inclusive of a deferral of some debt service payments in the latter half of 1999 to 2000, contributed to higher debt service during 2000. This along with lower export receipts combined to increase the external debt service ratio to 16 per cent from the 14.2 per cent achieved last year. The ratio of actual debt service to central government current revenues was 20.5 per cent compared with 14.9 per cent last year. Arrangements under the original HIPC Initiative, excluding debt service assistance in the form of payments support from creditors through their respective trust funds, realised a net reduction in debt service of US$17.6 million from scheduled pre-HIPC debt service of US$106.3 million to US$88.8 million. This nevertheless, represented a 26.4 per cent increase in debt service on the previous year. Debt service relief in the form of creditor payments via their respective HIPC Trust funds further reduced the country's debt service cost by US$7.8 million to US$81 million. This relief was in the form of principal and interest payments of US$6.7 million and US$1.1 million respectively.

Principal and interest payments for the year amounted to US$53 million and US$35.7 million respectively. Payments on central government debt amounted to US$51.6 million or 58.1 per cent of the total. The Bank of Guyana's debt service accounted for US$37 million or 41.7 per cent. Debt service to multilateral creditors increased to US$65.3 million. Payments to the IMF and IDB of US$23.5 million and US$17.3 million respectively were the largest to multilateral creditors. Bilateral debt service payments increased by US$5.5 million above the 1999 level to US$20.4 million or 23 per cent of the total payments. Under the 1999 Lyons Rescheduling Agreement, Trinidad & Tobago received US$8.6 million in interest payments and accounted for 42.2 per cent of total bilateral debt service.

Table XVII

• FINANCIAL SECTOR DEVELOPMENTS

Monetary policy remained focused on the objectives of price and exchange rate stability through the sterilisation of excess liquidity in the financial system. This led to moderate growth in base money which, with slow growth in private sector credit from cautious lending policy, resulted in a deceleration in the growth of broad money. Treasury bill discount rates declined for most of the year except for the last two months, on account of strong competition for treasury bills. Intermediation spreads of the commercial banks widened as the decline in the average savings rate outstripped the decline in the average lending rate. The non-bank financial institutions (NBFIs), with competitive deposit rates continued to attract depositors' funds to increase their market share in the financial system.

MONETARY DEVELOPMENTS

Reserve Money

Reserve or base money, comprising currency in circulation and Bank of Guyana's liabilities to commercial banks increased by 14.1 per cent to reach G$29,786 million at end-2000. This outturn resulted from a 20.5 per cent expansion in liabilities to the commercial banks and an 8 per cent increase in currency in circulation. The growth in liabilities to commercial banks emanated from the increase in statutory reserves on account of the expansion in private sector deposits while the growth in currency in circulation was seasonal occurring mainly towards the end of the year.

The overall expansion in the monetary base reflected incremental growth in the net foreign reserves which resulted from an increase in gross reserves and a decline in foreign liabilities. Gross international reserves of the Bank of Guyana which stood at G$54,651 million (US$295.8 million), rose by G$5,358 million (US$29 million) reflecting higher foreign inflows. The Bank's foreign liabilities declined by 12.6 per cent or G$5,025 million to G$34,815.9 million (US$188.4 million) partly reflecting debt relief during the year. Net domestic assets of the Bank declined by 46.3 per cent or G$8,221 million as net deposits which was associated mainly with the sterilisation effort, rose by 14.6 per cent or G$4,834 million.

Table XVIII

Money Supply

Broad money (M2) grew by 11 per cent to reach G$85,445.1 million at end-2000, marginally lower than the 12.1 per cent recorded in the preceding year. This outturn reflected increases in both narrow and quasi money. Narrow money (M1) grew by 15.1 per cent to G$24,826.6 million with currency in circulation and demand deposits expanding by 8 per cent and 26.7 per cent respectively. Quasi money grew by 9.4 per cent due to a 11.3 per cent and 8.4 per cent growth in private sector time and savings deposits respectively.

Money Multiplier and Income Velocity

The yearly average for the M2 multiplier (defined as M2/Reserve money), declined marginally to 3.02 from 3.04 in 1999, reflecting the faster growth in reserve money compared with that of broad money. The credit creation multiplier contracted with slow growth in private sector borrowing. This was reflected in high weekly average excess reserves which stood at G$2,718.4 million compared with G$1,584.2 million in 1999, an increase of 71.6 per cent. The liquidity of the public as indicated by the ratio of currency in circulation to deposits, remained unchanged at 0.16 in year 2000.

The income velocity of money circulation, defined as the ratio of GDP to M2 which measures the speed at which broad money (M2) circulates to support a given volume of transactions, declined to 1.6 compared with 1.7 in 1999, reflecting a slow down in economic transactions in the current year.

Commercial Banks Deposits and Credit

During the review period, total deposits and loans of commercial banks registered lower growth rates with credit decelerating faster than deposits. Consequently, the ratio of banks' loans to residents deposits fell to 0.62 from 0.71 in 1999. The deposit growth was attributed to higher nominal income of households while that of loans resulted from the cautious lending policy of banks.

Deposits

Total commercial bank deposits of residents grew by 16.4 per cent compared with 3.9 per cent in 1999. This growth reflected higher levels of deposits from the private, public and non-bank sectors. Private sector deposits which accounted for the largest share of total residents' deposits, expanded by 12.5 per cent or G$7,771.1 million to reach G$69,923 million. Consequently, as a percentage of broad money, private sector deposits rose to 81.8 per cent from 80.7 per cent in 1999. Within the private sector, household deposits continued to be the major source of funds, although at a reduced share of 81.2 per cent compared with 87.2 per cent at end-1999. Private business enterprise's deposits amounted to G$13,151.5 million, 65.3 per cent more than the 1999 level, causing its share of total private sector deposits to increase. The relatively steep growth in business enterprise deposits was partly explained by postponed investment in year 2000 and the reclassification of a privatised public entity.

Table XIX

Total deposits of the public sector amounted to G$9,148 million, 25.8 per cent above the 1999 level and accounted for 10.4 percentage share of total deposits. While most categories of the public sector recorded higher deposit growth, the increase in 'other general government', comprising primarily of the National Insurance Scheme (NIS) deposits, was the largest. The non-financial public enterprises and local government were the only categories to record lower deposit levels during the year. Public enterprise deposits declined by 46.9 per cent or G$1,548.7 million, reflecting the privatisation of Guyana Stores Limited, as well as mixed financial performance in others. The decline in local government deposits was marginal at 0.7 per cent or G$0.8 million.

The non-bank financial institutions continued to supply funds to the banking system, albeit at an increasing rate. Net deposits of the non-bank financial institutions rose by 45.9 per cent or G$2,658.4 million, contrasting with the 1.7 per cent or G$102.1 million decline in 1999. This was attributed to the aggressive marketing by some depository non-bank financial institutions to attract private sector funds by offering higher interest rates and new financial products.

BANKING SYSTEM

Net Domestic Credit

Net domestic credit, comprising net borrowing from the banking system by the public and private sectors and the non-bank financial institutions, rose by 5.1 per cent or G$1,211.7 million to reach G$25,071.7 million at end-2000. The private sector accounted for the major share of net borrowing, while the public sector reduced net deposits. In contrast, the non-bank financial institutions recorded a steep growth in net deposits, 49.1 per cent or G$2,567.2 million above the 1999 level.

Credit to the Private Sector

Loans and advances to the private sector which amounted to G$58,715 million, increased at a slower rate of 5.2 per cent compared with a 7.7 per cent growth in the preceding year. The deceleration in private sector borrowing was attributed to a risk reducing strategy by banks in light of the incidence of non-performing loans. As a percentage of total deposits and M2, private sector credit stood at 67 and 68.7 per cent respectively compared with 74.2 per cent and 72.5 per cent in year 2000 and 1999 respectively.

An analysis of credit by economic sectors showed that although credit to the manufacturing sector grew at a slower rate of 3.1 per cent compared with 15.8 per cent in 1999, it continued to be the largest recipient of the banking system's credit with 28 per cent. This outturn was due to increased lending for lumbering and saw-milling, as well as for processing sugar and molasses. The distribution sub-sector, the second largest recipient of private sector credit, also experienced slower credit growth at 3.6 per cent compared with 18.5 per cent in 1999 while its share remained unchanged at 18 per cent. Credit for 'other services' rose by 7.1 per cent compared with the 5 per cent in 1999, reflecting increased lending for transportation and communication, as well as entertainment and catering. Credit to the agricultural sector expanded by 7.3 per cent during 2000, in contrast to a decline of 9.8 per cent in 1999. There was reduced lending for construction & engineering, as well as rice milling. Bank lending to the mining sector declined by 22.6 per cent to G$803.1 million in year 2000 compared with a 0.5 per cent decline in 1999. Credit to the personal sector declined by 7.1 per cent compared with an expansion of 0.9 per cent in 1999, reflecting individual's aversion to risk under unstable economic climate.

Real estate mortgage loans recorded a phenomenal growth of 35.6 per cent, to reach G$3,091.2 million at end-2000, accounting for 5.3 per cent of private sector credit. This outturn was due to increased demand for funds in the construction of new houses. Loans to the household sector for the purchase of and repairs to existing houses amounted to G$4,345 million, compared with G$3,335 million at end-1999.

Credit to the Public Sector

The public sector remained a net depositor of funds to the banking sector in year 2000. Total net deposits of the public sector amounted to G$25,848.3 million, 3.3 per cent lower than the end-1999 level. Central government's deposits with the banking system, net of loans, advances and treasury bills registered a decrease of 7.5 per cent or G$1,659 million, reflecting increased capital expenditure during the year.

The rest of the public sector, which includes the combined accounts of the public corporations, the state and local government, social security, pension funds and other special funds, recorded net deposit of G$5,427.3 million, a 16.6 per cent expansion over the end-1999 level. The deposit growth resulted mainly from the National Insurance Scheme which reduced holdings of Government Treasury Bills and benefitted from increased pension contributions following the rise in public sector salaries.

Credit to the Non-Bank Financial Institutions

The non-bank financial institutions continued to be net depositors of funds with the banking system, totaling G$7,794.9 million or an increase of 49.1 per cent over the end-1999 level. The faster growth in net deposits by these institutions was associated with the private depository non-bank financial institutions in particular, the New Building Society.

Net Foreign Assets

The banking system recorded a substantial increase in net foreign assets, largely on account of Bank of Guyana operations. Net foreign assets of the banking system amounted to G$22,808 million (US$123.5 million) from G$11,591.9 million (US$64.2 million) at end-1999. The net foreign assets at the Bank of Guyana stood at G$19,835.1 million (US$107.4 million), an increase of US$61 million over the 1999 level. The gross international reserves at the Bank of Guyana improved by US$29 million to US$295.8 million, reflecting largely higher hard currency inflows. The gross reserves rose to 4.5 months of imports of goods and non-factor services compared with 4.3 months in 1999. The foreign liabilities of the Bank declined to G$34,815.9 million (US$188.4 million) from G$39,841.1 million (US$220.7 million), largely on account of debt relief during the year.

The net foreign assets of the commercial banks declined by US$1.8 million to US$16.1 million. The gross foreign assets and liabilities declined by US$3.4 million and and US$1.5 million respectively.

Interest Rates

The lending and savings rates trended downwards in keeping with the overall decline of 187 basis points in the 91-day treasury bill rate which was the reference rate for the market. The 91-day treasury bill rate, after peaking in March, declined continuously to its lowest point in November before closing at 9.2 per cent. Consistent with the decline in the 91-day treasury bill rate, the weighted average lending rate decreased by 19 basis points to 17.68 per cent while the 'small savings' rate decreased by 69 basis points to 7.28 per cent.

Table XX

The relatively high interest rate spreads continued to be a source of major concern. The spread between the weighted average lending rate and the 'small savings' rate rose by 50 basis points to 10.4 at end-2000. The spread between the prime lending rate and the 'small savings' rate also widened by 65 basis points. Notwithstanding these movements, the spread between the average 91-day treasury bill discount rate and the 'small savings' rate narrowed to 1.92 percentage points at end-2000 from 3.1 percentage points at end-1999.

Liquidity

Commercial banks continued to hold a substantial amount of funds at the Central Bank reflecting the cautious lending policy. The banks' reserves at the Bank of Guyana in excess of the statutory requirement, recorded a weekly average of G$2,718.4 million compared with G$1,567 million for 1999. The higher level of excess reserves reflected reduced lending to the private sector among other factors. The average excess reserves to average private sector deposits rose to 3.4 per cent and was used primarily to invest in Government Treasury Bills.

NON-BANK FINANCIAL INSTITUTIONS

The Non-Bank Financial Institutions (NBFIs) continued to successfully mobilise resources within the financial sector during year 2000. The NBFIs, which accounted for the activities of depository and non-depository licensed and unlicensed financial institutions, recorded a 13.1 per cent growth in financial resources to reach G$48,285.5 million at end-December 2000. Consequently, the NBFIs maintained their share of total assets in the financial sector of 29.1 per cent at end-2000.

The increased resources of the NBFIs were derived mainly from an 18.6 per cent or G$2,491 million expansion in private sector deposits, a 15.3 per cent or G$658.7 million growth in foreign liabilities, an 11 per cent or G$926.9 million rise in pension contributions and an 8.6 per cent or G$1,190.8 million increase in other liabilities. The growth in retained earnings of the Finance Companies accounted for 27 per cent or G$322 million of the increase in other liabilities.

The resources mobilised by the NBFIs were transformed into claims on both private and public sectors. Claims on the private sector consisted of increased mortgage loans in keeping with the national housing drive, while claims on the public sector reflected investment in treasury bills. At end-December 2000, claims on the private sector rose to G$21,063.4 million, 6.4 per cent above the end-1999 level, accounting for 43.6 per cent of total assets of the NBFIs. Mortgages explained 55.7 per cent or G$11,737 million, reflecting an increase of 50.3 per cent or G$3,927 million. NBFIs' holdings of treasury bills and other government instruments stood at G$6,263.9 million, 6.3 per cent or G$420.8 million below the end-1999 level. NBFIs' claims on the domestic banking system rose by 52.8 per cent or G$2,384.8 million to G$6,899.8 million with claims on commercial banks and the Bank of Guyana amounting to G$6,653.8 million and G$247 million respectively.

Table XXI

Claims on the foreign sector by NBFIs increased by 34.8 per cent or G$2,026.4 million to G$7,848 million at end-December 2000, faster than the growth of 7.6 per cent or G$410 million achieved in 1999. This reflected the combination of growth in the non-resident operations of the insurance companies, which accounted for 75.9 per cent and the impact of the depreciating local currency.

The New Building Society

The NBS continued to mobilise private sector savings during the year due to the competitive rates offered to customers. At end-December 2000, total resources of NBS amounted to G$14,548.5 million, 21.6 per cent or G$2,580 million above the end-December 1999 level. The expansion was explained mainly by the 23.4 per cent or G$2,321 million increase in share deposits that earned relatively higher rates of interest compared with commercial bank deposits. Consequently, the share of NBS in the total assets of NBFIs increased to 30.1 per cent at end-2000, up from 28 per cent at end-1999.

Deposits mobilised by NBS during the year were used primarily to extend mortgage loans, which accounted for almost all of NBS's loans to the private sector. Total loans extended to the private sector rose by 19.6 per cent or G$1,191 million to G$7,282 million due in part to the wider definition of acceptable collateral for mortgages and relatively lower comparative mortgage rates.

Credit to the public sector which was mainly in the form of government treasury bills, increased by 11.1 per cent or G$522 million to G$5,227 million and accounted for 36 per cent of total assets at the end of December 2000.

Trust Companies

The resources of the Trust companies which included the activities of GNCB Trust Corporation Incorporated, Trust Company Guyana Limited and Globe Trust & Investment Limited rose by 10.5 per cent or G$560.6 million to reach G$5,920.5 million due to deposits growth of 4.2 per cent or G$133.8 million as well as higher other liabilities (retained earnings, capital & reserves and other liabilities) which rose by 20 per cent or G$418.5 million. The share of the trust companies in the total resources mobilised by the NBFIs at the close of year 2000 was 12.3 per cent, lower than the 12.6 per cent held at end-December 1999.

Lending to the private sector increased by 4.7 per cent to reach G$4,837.2 million at end-2000. Mortgages accounted for 64.3 per cent of private investment and 52.5 per cent of total assets. The companies' holdings of other loans and advances consist of agricultural and personal loans which accounted for 32 per cent of total loans and advances. Banking system resources grew by 209 per cent or G$313 million to G$462.6 million to reverse the 8.7 per cent or G$14.3 million decline for the same period last year. There were no claims on the public sector at December 2000.

Finance Companies

At the end of December 2000, the Finance companies' share of total resources of the NBFIs improved marginally to 10.2 per cent from the 10.1 per cent in 1999. The Finance Companies which consisted of one stock broker (Beharry Stock Brokers Limited); one finance company (Laparkan Financial Services Limited) and one investment company (Secure International Finance Company Incorporated) recorded G$4,937.3 million in financial resources, 14.3 per cent or G$617.2 million above the end-December 1999 level. The increase reflected higher profitability as retained earnings grew by 15.5 per cent or G$322 million. Resources in the form of loans from companies affiliates contracted by 2.2 per cent or G$36 million to reach G$1,607 million.

There were shifts in the relative distribution of resources within the group's assets portfolio. Claims on the private sector represented 87 per cent or G$4,295 million of total holdings compared with 95.1 per cent or G$4,110 million at end-December 1999 while claims on banking system resources amounted to G$84 million or 1.7 per cent of total assets, lower than the G$94 million or 2.1 per cent of total assets held at end-December 1999. Other assets (other real estate loans, prepayments and stocks) amounted to G$113.9 million or 2.3 per cent of total assets. At end-December 2000, the finance companies held no government securities.

Pension Schemes

The consolidated resources of the pension schemes increased to G$10,117 million, 10.5 per cent or G$963.6 million above the end-1999 level on account of the steep rise in public sector wages and salaries during the year. This increase was mainly due to the 11 per cent or G$926.9 million growth in pension contributions. The share of the pension scheme in the total resources mobilised by the NBFIs at the close of the period was 21 per cent compared with the 21.4 per cent at end-December 1999.

There were noticeable shifts in the assets portfolio of the pension schemes. Claims on the public sector declined by 47.1 per cent or G$805.7 million while deposits with the banking system rose by 30.1 per cent or G$1,044.9 million to G$4,514.5 million at end-December 2000. This increase was due to attractive rates offered by the commercial banks thereby increasing the share of banking systems' claims in total assets to 44.6 per cent from the 37.9 per cent at end-December 1999. Claims on the private sector (including deposits with private non-bank institutions) amounted to G$2,741 million, 12 per cent or G$375 million below the end-December 1999 balance.

Domestic Insurance Companies

The insurance industry remained the second largest contributor to the total assets of the NBFIs' market share of 26.4 per cent following behind NBS' with 30.1 per cent at the end of December 2000. The resources of domestic insurance companies, comprising life and non-life companies, rose by 7.3 per cent or G$872.3 million on account of the 6.7 per cent increase in resources of the life insurance companies to reach G$12,762.3 million at end-December 2000. This compared with the growth of 11.3 per cent or G$1,205.5 million during 1999. The consolidated position of the non-life companies, comprising mainly motor, fire and general insurance recorded a moderate growth in resources of 9.4 per cent or G$277 million to close the year at G$3,244.3 million.

The moderate growth of the life sector, inclusive of the foreign component of some life companies resulted in the sector maintaining its share of the industry's resources at 75 per cent at end-2000. The main source of funds for the life insurance companies continued to be insurance premia, which rose by 6.5 per cent or G$413.5 million to G$6,763.2 million, with the non-resident component of G$3,764.1 million representing 55.7 per cent and 87.1 per cent of the life insurance fund and foreign liabilities respectively. The local life premium component grew by 12.2 per cent or G$326.3 million to close the year at G$2,999.2 million compared with the 15.9 per cent or G$367 million growth achieved in 1999.

The increased resources of the domestic insurance companies were used mainly to build claims on the banking sector. Total banking sector claims rose by 40.4 per cent or G$274.3 million to G$953.1 million, a reversal from the 28.8 per cent decline registered at end-1999. Claims on non-residents expanded by 14.9 per cent or G$771 million to G$5,954.7 million, representing 47 per cent of the insurance sector's investments. The companies' holdings of foreign assets comprised mainly of deposits at foreign commercial banks and foreign securities, representing 44.5 per cent and 26 per cent of the sector's foreign assets respectively. Additionally, loans and advances to non-residents accounted for 21.4 per cent of total foreign assets and 10 per cent of total assets. Private sector investments, which accounted for 15 per cent of the insurance assets, increased by 2.1 per cent or G$37.7 million to close the year at G$1,908 million. Claims on the public sector contracted by 47 per cent or G$117 million to G$132 million at end-December 2000. The sector's holdings of fixed and other assets declined by 2.4 per cent or G$93.9 million during the year.

Interest Rates

The interest rates of the NBFIs were modified to offer rates that were competitive and less volatile than the commercial banking system during 2000. On January 1, one of the deposit-taking trusts increased the rates offered on all of its deposit accounts, to bring the organisation in line with the mainstream financial sector. However, with the continued decline of treasury bill rates, the NBFIs made no further adjustments to their interest rates structures during the review period.

Effective from November 18, 2000 the average mortgage rate of the NBS was 9 per cent for loans not exceeding G$1.5 million and 11 per cent for loans up to G$8 million.

The interest rates offered by GNCB Trust on domestic and commercial mortgages during the period, stood at 16 per cent and 20 per cent respectively. The prime lending rates of Globe Trust ranged from 18 per cent to 20 per cent reflecting the risk associated with the liquidity of the securities tendered. The weighted average lending rate offered by the commercial banks was lower at 17.2 per cent down from 18.08 per cent at end-1999.

II

INTERNATIONAL ECONOMIC AND MONETARY DEVELOPMENTS

The World Economy

During the year 2000, world output growth was higher at 4.7 per cent when compared with the 3.4 per cent recorded in 1999. This was influenced mainly by the continued strong performance of the US economy. The consolidation of the recovery in Asia and a rebound from last year's slowdown in emerging markets in Latin America, the Middle East and Europe also contributed to the improved performance. World trade improved drastically by 10 per cent in volume terms compared with the 5.1 per cent recorded in 1999, reflecting higher levels of imports in advanced economies and countries in transition. Global inflation remained subdued despite inflationary pressures created by increased oil prices, on account of disciplined monetary and fiscal policies adopted by many countries.

Industrial Countries

Industrial countries' growth accelerated to 4.2 per cent from the 3.2 per cent in 1999. This performance resulted, in part, from expansion in the G-7 countries. The United States' economy recorded real growth of 5.2 per cent which resulted mainly from increased consumer spending. In Canada, the economy registered 4.7 per cent growth reflecting increased exports arising from the buoyant US economy and strong consumer confidence. Japan recorded 1.7 per cent growth compared with 0.9 per cent in 1999. This was attributed to the Bank of Japan's zero interest rate policy which strengthened corporate profitability and investment as well as recovery in private demand. The United Kingdom recorded 3.1 per cent growth, up from the 2.1 per cent registered in 1999. This outturn was due to strong domestic demand and implementation of consistent macroeconomic policies. The Euro area experienced growth of 3.4 per cent with all member countries registering above their potential growth rates. This improved performance was caused by the resurgence in export growth due to the strengthened global recovery, a high competitive currency and prudent fiscal management.

Positive rates of economic growth in the industrial countries have resulted in lower levels of unemployment. The unemployment rate for the industrial countries declined to 5.9 per cent from 6.3 per cent in 1999. The United States and United Kingdom experienced the lowest unemployment rate. However, inflation increased marginally to 2.1 per cent, up from 1.4 per cent in 1999 on account of higher oil prices. The Euro area recorded inflation of 3.1 per cent, much higher than the 1.1 per cent in 1999.

Developing Countries

Real GDP growth in developing countries improved to 5.6 per cent from the 3.8 per cent recorded in 1999. The continued recovery in Asia with higher export performance, along with monetary and fiscal stimulus, including the easing of financial constraints, were the major factors which contributed to the growth. In Asia, moderate expansion continued with growth of 6.7 per cent up from the 5.9 per cent in 1999. The steady growth was the result of strong external positions and higher oil prices in Indonesia and Malaysia. In China, growth was 7.5 per cent, marginally higher than the 7.1 per cent in 1999. India's economy, which performed remarkably well since 1995, grew 6.7 per cent reflecting a rebound in the agriculture sector and robustness of the information technology industry.

Growth in the Western Hemisphere began showing signs of recovery. In Brazil, real GDP increased to 4 per cent from 1 per cent recorded in 1999. This expansion was due to the depreciation of its currency in early 1999 which boosted exports. Mexico's and Chile's economies continued to grow at a healthy pace of 6 per cent and 4 per cent respectively reflecting higher oil prices and the restriction of inflation as a result of tight monetary policy.

Countries in the Middle East and Africa grew 4.8 per cent and 3.4 per cent respectively, higher than the 2.8 per cent and 2.2 per cent recorded respectively in 1999. The rebound in world oil prices, as well as, increases in OPEC oil production quotas was responsible for the improved economic performance in oil exporting countries. Non-oil producing countries in the region, however, continued to encounter deteriorating terms of trade in non-fuel primary commodities. Higher oil prices have also adversely impacted on inflation in developing countries.

Table XXII

¹⁾ Projected figures for 2001

Countries in Transition

Countries in transition grew by 4.9 per cent, much higher than the 2.4 per cent recorded in 1999. The Russian economy recovered with growth of 7 per cent compared with 3.2 per cent in 1999. The expansion reflected higher earnings for energy exports, sustained growth in the non-energy exports sector and import compression due to the depreciation in the country's exchange rate. Increased economic activities in Russia have benefitted close trading partners such as Ukraine and Poland which experienced positive growth.

Caribbean Countries

Economic activity in the Caribbean has been susceptible to the policies and performances in the United States and Europe, reflecting the close economic and financial links. Strong demand for Caribbean goods and services and in particular, tourism from the United States and Europe, contributed to economic performance in the region's economies. Growth remained strong in Trinidad & Tobago due to inflows of foreign direct investments in the petroleum sector and further diversification of the economy into manufacturing and services. Jamaica grew for the first time since the financial sector crises and the severe drought in 1999.

Strong growth was recorded for Antigua and St. Kitts & Nevis, which grew by 7 per cent in 2000. Barbados grew by 3.2 per cent in 2000. The Bahamas recorded growth of 5.5 per cent and growth in countries of the Organisation of Eastern Caribbean States varied from between 6 per cent to 3 per cent. However, the Guyana economy recorded negative growth of 0.8 per cent in 2000.

Commodity Prices

Fuel prices have been volatile during 2000, reflecting attempts by OPEC to stabilise the price for oil through increased production. At end-December 2000 a barrel of oil cost US$28.21, an increase of 56.9 per cent compared with US$17.98 at the end of December 1999. In September 2000, OPEC ministers agreed to a further 1 per cent increase of global supply or 800,000 barrels per day.

The European import price for sugar has been allowed to fall gradually for the last few years. At present, it stands at US$0.252 per pound compared with US$0.268 per pound in 1999. However, this was substantially higher than world market rates. The Caribbean price is currently US$0.081 per pound, up from US$0.063 in 1999.

Gold price was US$273.15 per ounce on the London Bullion market, down from last year's mean of US$279. Prices for all types of timber have fallen substantially due to reduced demand in the world market.

The decline in the value of international rice trade was due to the reduced import demand for rice from the major importing countries that experienced bumper harvests in 1999 and 2000.

International Exchange Rates

The US dollar remained strong during 2000, resulting from robust demand at home, low unemployment and relatively high interest rates. The strength of the US economy resulted in a depreciation of both the Euro and the Yen. The Euro remained weak against the US dollar, in spite of intervention by the European Central Bank, and closed the year at 1.13 , a 14.1 per cent depreciation vis-a-vis the US dollar a year ago. Similarly, the Yen depreciated against the US dollar to close at 116.1 ¥ from 108.3 ¥ a year ago. The end of the year also saw the US dollar stronger in relation to all other major trading currencies.

Economic Implication

Guyana current account deficit increased to US$113.4 million at end-December 2000 reflecting higher fuel prices and lower commodity prices for traditional exports. Despite the deterioration of the current account, the exchange rate vis-a-vis the US dollar depreciated by 2 per cent as improvements in the capital account mitigated the effects of the current account's position.

In 2001, the Euro is expected to strengthen against the US dollar improving Guyana's terms of trade. However, the European Union's decision to implement "Everything But Arms" (EBA) is cause for concern, particularly for Guyana's rice and sugar sectors.

III

FUNCTIONS, POLICY IMPLEMENTATION AND BANK ACTIVITIES - 2000

• FUNCTIONS

The Bank's principal objective as specified by the Bank of Guyana Act No. 19 of 1998 was that of fostering domestic price stability through the promotion of stable credit and foreign exchange conditions which are conducive to the growth of the economy. In view of this overall mandate, the Bank of Guyana was entrusted with the following responsibilities:

• advising Government on any issue affecting its main objective of price stability;
• acting as fiscal agent, trustee and banker to Government;
• issuing the country's notes and coins and determining legal tender;
• advising the Minister of Finance on, and administering, the foreign exchange system;
• monitoring the country's balance of payments position and managing its foreign exchange reserves;
• acting as banker to commercial banks and other licensed financial institutions;
• supervising and regulating licensed financial institutions; and
• overseeing the country's payments system.
• 
  
  

• POLICY IMPLEMENTATION

The primary objectives of monetary policy in year 2000 were the attainment of price and exchange rate stabilisation. In this regard, the focus was on effective management of excess liquidity in the financial system. Measures consistent with the pursuit of broad macroeconomic targets of real GDP growth, inflation rate, as well as improvement in the gross international reserves and fiscal prudence were also implemented during the year.

The main intermediate target of monetary policy was to contain broad money expansion consistent with the projections for output and inflation.

Monetary Policy

The Bank's principal instrument of monetary control continued to be the auction of treasury bills in the primary market. The monetary policy stance was signaled through the volume of treasury bills issued with its implications for changes to the general level of interest rates. Monetary policy prescriptions, however, were determined within the framework of monetary programming.

Monetary Programming

In principle, monetary programming allowed the Bank of Guyana to set a targeted path for the growth of money, broadly defined, consistent with output growth and inflation. Its foundation rested on the observation that the Bank controls the demand and supply of reserve or base money in the financial system. The 'reserve money programme' was supported by a liquidity framework which involved forecasting the changes in the main items that influenced the banking system's liquidity on a weekly basis. The underlying assumption for the effective operation of the reserve money programme was the long run stable relationship between reserve money and the total money supply or the money multiplier. On the basis of the constancy of the money multiplier, the Bank determined the growth in reserve money required to attain the targeted expansion in the money stock.

During year 2000, weekly forecasts of the Bank's balance sheet were produced based on estimated reserve positions of the commercial banks and the public, collectively referred to as reserve money. These forecasts were compared with the weekly targeted monetary growth which was consistent with the set nominal output objective. The deviations established by this comparison indicated the level of the open market operation necessary to bring the forecast money supply in line with its targeted annual growth rate.

Treasury Bills

The auction of treasury bills with various maturities (91-day, 182-day and 364-day) at the primary level continued to be the Bank's principal instrument of monetary control. The objective was to influence the liquidity conditions of the commercial banks consistent with the targeted growth for broad money. The liquidity forecast framework and the reserve money programme provided the technical basis for decision making on the volumes and maturities of weekly treasury bill issues. The Open Market Operation Committee (OMOC), which is the decision making body on the issuance of treasury bills, adopted a consultative approach during year 2000 by liaising closely with agencies which impacted directly on liquidity in the financial sector. Additionally, other information such as the state of the foreign exchange market, the interbank market, the structure of interest rates and the liquidity position of the non-bank financial institutions facilitated more informed decisions by the OMOC.

The weighted average discount rate determined by the competitive auctions for 91-day treasury bills, remained the reference short-term rate in the market. The interest rates applied by the Bank and commercial banks were either directly or indirectly linked to this rate.

Reserve Requirements

The statutory reserve requirement remained an important instrument for monetary control and financial prudence in Guyana. The legislation on reserve requirements which was implemented in 1999 remained in force in 2000 and continued to make the operating framework consistent with the thrust towards monetary control.

The revised Reserve Requirements Circular - No. 33/98, issued two years ago, sets out the specifications for: (i) the institutions subject to reserve requirements; (ii) the prescription of the reserve base (iii) reserve maintenance periods; and (iv) the penalty charge for deficiencies in reserve requirements. With effect from the reserve base period which commenced February 1 1999, the statutory reserve requirement ratio applicable to all liabilities (i.e. demand, time and savings liabilities, whether domestic or foreign) of deposit taking financial institutions was lowered to 12 per cent from the sum of 14 per cent of time liabilities and 16 per cent of demand liabilities held by banks. This requirement remained unchanged in 2000 for commercial banks. However, effective January 1^st 2000 some variations of the requirement were implemented for licensed non-bank depository financial institutions (GNCB Trust Company Incorporated and Globe Trust and Investment Company) to create a level playing field and hence greater financial intermediation. These institutions were required to have a minimum deposit balance of 4 per cent of their total liabilities in their reserve account at the Bank of Guyana. This was to be incrementally increased every six months by 2 percentage points until the convergence with the ratio of 12 per cent applicable to commercial banks was achieved. Accordingly, the deposit taking licensed NBFIs' required reserve ratio stood at 6 per cent at end-2000. Non-compliance with the reserve requirement carried a penalty which took the form of an interest charge on the deficiency (actual reserves less required reserves). This was calculated at a rate equal to twice the rate of interest on the 91-day treasury bills which prevailed at the beginning of the reserve maintenance period over which the deficiency occurred.

Liquid Assets

Circular No. 52/98 on Liquid Assets Requirements which became effective from October 26, 1998, remained in force throughout year 2000. This circular provided for: (i) the extension of the liquid assets requirement to non-bank licensed depository financial institutions; (ii) ensuring consistency in the prescribed liabilities, liquid assets base period and maintenance period with the revised prescribed liabilities, base and maintenance periods for reserve requirements; and (iii) introducing a penalty for a deficiency in liquid assets requirements.

The statutory liquid assets ratios (LAR) which determined the minimum level of liquid asset holdings that commercial banks were required to maintain in relation to their deposit liabilities, remained at 25 per cent of demand liabilities and 20 per cent of time and savings liabilities. Actual liquid assets held by commercial banks continued to reflect large holdings of government bills with less than 91 days remaining to maturity. Almost 75 per cent of banks' liquid assets was in the form of treasury bills during the year.

The banks were more liquid in year 2000 compared with the previous year, as indicated by the higher ratio of monthly average excess liquid assets to average total assets. This ratio rose to 7.8 per cent or G$8,559 million in 2000 from 5.6 per cent or G$5,663 million in 1999.

Interest Rates

The Bank of Guyana used the treasury bill discount rates to signal its monetary policy stance to the rest of the economy. The Bank rate was seldom used since commercial banks were not permitted to borrow from the Bank of Guyana given the liquidity overhang. The Bank rate which peaked in January and March at 13.5 per cent fell continuously throughout the year before rebounding in December to 11.75 per cent. Generally, changes to the Bank rate responded to changes in the discount rate on 91-day treasury bills. The Bank continued to keep its re-discounting policy and terms under review during year 2000. The objectives were to ensure that the re-discount window was consistent with the development of the interbank money and treasury bill markets, as well as to promote competition and a secondary market for the primary issues of Government securities. The margins above and below the average re-discount rate on treasury bills purchased and sold by the Bank of Guyana, which were amended by Circular 13 of 1999 and made effective in March 1999, remained in force during year 2000. The level of the re-discount rate depended on the remaining days to maturity of the re-discounted treasury bills.

Exchange Rate Policy

The exchange rate policy, supported by appropriate fiscal and monetary policies was geared to strengthen the macroeconomic conditions to facilitate price and foreign exchange rate stability. Within this framework and vis-a-vis the gross international reserve target, the Bank's intervention in the foreign exchange market was marginal amounting to US$5 million in year 2000 compared with US$15 million in 1999.

Institutional Developments

The Bank continued to intensify efforts to develop the institutional capacity of the financial sector. Among the measures taken this year was the enactment of the Money Laundering Prevention Bill No. 10 of 1998, the passing of the New Building Society Amendment Bill, a review of the establishment of a Merchant Bank in Guyana, the passing of the Income Tax (Amendment) Bill 2000, the intensification of efforts to ensure compliance with the Bank of Guyana Act No. 19 of 1998 and the amendment to one of the Core Principles (Guideline No. 5) of Bank Supervision, an effort to ensure that the banking system remained sound in light of the recent crisis in the rice industry.

Money Laundering Prevention Bill

The Money Laundering (Prevention) Bill, No. 10 of 1998 was enacted in March 2000. The intention of the Act was to provide for the prevention of money laundering and for matters connected therewith. The Act sets out details regarding: (i) the obligation of financial institutions as they relate to anti-money laundering issues; (ii) the penalty for money laundering (iii) the supervisory authority and its powers; and (iv) measures to avoid money laundering, among other issues.

The New Building Society (Amendment) Act 2000

The New Building Society Amendment Act (No. 6 of 2000), provided for a decline in interest rates at mortgage finance institutions. This Act provided for easier access to mortgage finance and allowing for an acceleration in processing of titles for land.

The Establishment of a Merchant Bank

An agreement to establish the first Merchant Bank in Guyana was signed on the 23^rd of June 2000 in Washington between the Beharry Group of Companies, the Guyana Bank for Trade and Industry and the International Finance Corporation. The bank, when licensed, is expected to begin its operation with an initial equity capital of US$5 million.

Income Tax (Amendment) Act 2000

The passing of the Income Tax Amendment Act 2000 amended section 15:2 of the Income Tax Act (Chapter 81:01) and provided lower tax rates to all financial institutions which grant mortgages to boost the housing drive.

Call Exchange

The call exchange continued to function as a legal entity during 2000. However, the level of activity remained depressed as investors were not induced to trade in shares of the participating companies. Members of the Call Exchange did not hold any formal meeting during 2000.

• BANK ACTIVITIES

Currency Operations

The Bank has a statutory obligation to issue the country's notes and coins under section 21(1) of the Bank of Guyana Act. This obligation was discharged through the Currency Division of the Operations Department.

Notes

The total value of currency notes in circulation (including notes held in the vaults of commercial banks) at the end of 2000 amounted to G$15,969 million, a marginal increase of 3.6 per cent compared with a circulation of G$15,414 million in 1999. The share of G$1,000 notes in the total value of notes in circulation fell to 80 per cent compared with 88 per cent in the previous year. Correspondingly, the share of G$500 notes rose from 7 per cent in 1999 to 15 per cent in year 2000.

Table XXIII

¹⁾ Notes awaiting sorting, cancellation and destruction.

Table XXIII shows figures on the comparative stocks and flows of currency notes for the year 1998 to 2000. In 2000, total supply rose by 18.8 per cent due to the Y2K phenomenon and was attributed mainly to the increase in withdrawal of notes from circulation by way of commercial banks' deposits and to the substantially larger opening stock.

The policy of ensuring that only acceptable quality notes are in circulation was continued. This has been achieved by regular withdrawal of mutilated, defaced or otherwise poor quality notes and replacing them with new notes. Mutilated, defaced and poor quality notes amounting to G$36,123,180 were replaced in year 2000 compared with G$29,689,749 in 1999 and G$23,439,091 in 1998.

Coins

Coins issued by the Bank amounted to G$246 million at the end of 2000, an increase of 18.8 per cent above the G$207 million in 1999. The G$10 coin continued to be the highest proportion of the total value of coins, followed by the G$5 and G$1 coins respectively. Coins of G$10 denomination made up 45 per cent of the total value while G$5 and G$1 coins accounted for 36 per cent and 18 per cent of the total value respectively. The above distribution pattern remained virtually unchanged when compared with the previous year.

Table XXIV

Payments System

During the year, the total volume of low-value payments settled through the National Clearing House (NCH) amounted to 1,155,183, a 4.7 per cent increase compared with the volume of 1,103,216 recorded in the preceding year. The corresponding total value of payments amounted to G$136.6 billion compared with G$134.3 billion a year ago. The total volume of high-value payments was 53,626, an increase of 15.6 per cent above the 46,370 recorded in 1999. Total value of high-value payments rose to G$199.3 billion from G$191.2 billion in the previous year. At G$3.8 million, the average value of high-value payments in year 2000 represented a thirty-two fold increase above the corresponding amount (G$0.118 million) for low-value payments.

Money Market Operations

Treasury Bills Issue

Treasury bills continued to be the principal instrument in the Bank's programme of liquidity management during the year. Government of Guyana treasury bill issuances by the Bank resulted in 62 issues totaling a face value of G$60,482.2 million. This comprised 16 issues of 91-day bills totaling G$13,115.8 million, 19 issues of 182-day bills totaling G$16,753.1 million and 27 issues of 364-day bills totaling G$30,613.3 million. In 1999, Government of Guyana treasury bill issuances by the Bank resulted in 57 issues totaling a face value of G$50,759.6 million. This comprised 16 issues of 91-day treasury bills totaling G$12,833.6 million, 19 issues of 182-day treasury bills and 22 issues of 364-day treasury bills totaling G$12,224.1 million and G$25,701 million respectively.

Inter-bank Transactions

The inter-bank market, which provides overnight funds to commercial banks, was less active during the year 2000 relative to 1999. During the year, this market processed 126 transactions in comparison with 209 transactions in 1999. The value of funds traded on the market amounted to G$33 billion in 2000 compared with G$61 billion in 1999.

The inter-bank rate, which is influenced by the 91-day treasury bill rate, averaged 11.19 per cent compared with 13.98 per cent during 1999. The inter-bank average rate increased from 11.9 per cent in January to 12.57 per cent in February before declining to 11.29 per cent at end-June. The four months that followed witnessed a steady rate of 11 per cent before it finally closed at 10.5 per cent in December.

Foreign Exchange Operations

The gross international reserves of the Bank of Guyana rose by 10.8 per cent to reach US$295.8 million. This was due mainly to higher inflows. The gross international reserves was equivalent to 4.5 months of imports and comprised of US$275.4 million in 'hard currency' reserves, including gold and the remainder in other reserves, in particular, Caricom currencies. Total hard currency outflows (i.e. mainly US and Canadian dollars and Pound Sterling) for the year amounted to US$204.4 million comprising US$80.9 million in debt servicing costs and US$118.5 million in payments for oil, wheat and other miscellaneous expenditures. The Bank sold US$5 million to the bank cambios this year to ease the temporary shortage of foreign exchange in the market.

Relations with Commercial Banks

During year 2000, the Bank continued to support the payments system by providing cheque clearing facilities and inter-bank settlement services. Since the establishment of the National Clearing House (NCH), a number of cheques have been cleared under this system (see section on Payment system).

Commercial banks continued to supply most of their requirements for foreign exchange through purchases directly from customers under the Dealers in Foreign Currency (Licensing) Act 1989.

Balances held by the Bank in respect of amounts deposited by the commercial banks under the external payments deposits schemes fell marginally from G$76.9 million at end-1999 to G$75.6 million at end-2000.

Relations with Government

A total of 307 active Government accounts were held with the Bank at end-December 2000. The Bank rate (i.e. the rate of interest charged on Government overdrafts) decreased by 1.5 percentage points from the end-1999 level to reach 11.75 per cent at end-December 2000. This was due to the movements in the 91-day treasury bill rate to which it is linked.

At the end of the year, Government's deposit, net of treasury bills held by the Bank, rose to G$36,104.5 million. The Bank's holdings of treasury bills increased to G$2,178.2 million from G$1,567 million at end-1999. Holdings of Government interest bearing and non-interest bearing debentures declined to G$68,268.5 million.

Relations with International Organisations

The Bank continued to act as fiscal agent for the Government in its relations with the Multilateral Financial Institutions of which Guyana is a member. Guyana withdrew the equivalent of US$8.9 million under the IMF's Enhanced Structural Adjustment Facility this year compared with US$12.1 million in 1999. Repayments made through the Bank to Multilateral Financial Institutions in year 2000 amounted to US$55.7 million compared with US$55.1 million in the previous year. Of this, total debt service to the IMF and IDB were US$18.2 million and US$15.4 million respectively.

Relations with Regional Central Banks

Clearing arrangements with Caricom Central Banks remained on a bilateral basis. Obligations to the Caricom Multilateral Clearing Facility (CMCF) continued to be honoured. During the year, an equivalent of US$11.7 million was paid to the CMCF from bilateral balances which had accumulated on the accounts with the Eastern Caribbean Central Bank and the Central Bank of Barbados.

The Bank of Guyana continued to participate in regional meetings of central bank governors. In year 2000, Bank of Guyana hosted and chaired a seminar for non-economists in collaboration with CEMLA.

Bank Supervision Department

On-site inspection and off-site surveillance of the licensed financial institutions (LFIs) continued during year 2000. Nine full-scope and five special inspections were conducted by the on-site division in keeping with the work programme while special inspections, not originally included in the work programme, were conducted at four commercial banks. Of the nine full-scope inspections, seven were conducted on bank branches, one on a commercial bank and one on a non-bank which had applied to become a deposit-taking institution.

The on-site division increased its efforts in following up compliance with recommendations emanating from inspection findings. During the year, a data gathering exercise on the recording of loans and interest by the LFIs was initiated with a view to implementing a uniform approach. During the year, the on-site division began to include along with its transactions, emphasis on a risk focused approach in line with current international prudential standards.

Monitoring by the off-site division revealed problems of poor asset quality in the industry in the form of a growing level of non-performing assets. Much effort was dedicated to LFIs carefully reviewing their credit portfolios to mitigate the problem. Statutory accommodation was made to assist the LFIs to provide in the form of restructured credit facilities, relief to borrowers whose agricultural businesses were affected during the year by natural elements.

During year 2000, only one application to establish a bank branch was received and approved. In addition, one application for the establishment of a merchant bank was received during the last quarter of year 2000.

The department aims to complete its self-assessment of the Basle twenty-five Core Principles started during year 2000, within the first quarter of 2001. These principles which were endorsed by "the international financial community" provide supervisory/regulatory authorities with an international benchmark against which the effectiveness of bank supervisory regimes can be assessed.

The department endeavoured to empower its staff through effective training and to this end, most of its technical staff were exposed to local, regional and international training.

Staff and Technical Assistance

Two hundred and sixty-three (263) persons were employed at the Bank of Guyana at the end of year 2000. During the year under review, six (6) staff members were recruited while staff turnover consisted of twenty (20) resignations, one (1) retirement and one (1) termination of service.

During the year under review, the Bank did not benefit from any technical assistance.

Training

The Bank's training policy remained focused on in-house training programmes during year 2000. Training included short courses sponsored by reputable local institutions. Selected employees also participated in short overseas specialised and technical courses while others were granted no-pay leave to pursue postgraduate courses abroad.

In-house Training

The first in-house training catered for twenty-six (26) recruits from seven (7) departments during February 28^th to March 2^nd, 2000. Thirty (30) presentations were made mainly by senior and middle management staff of the Bank. The focus of that seminar was on the inter-dependence of departments/divisions with emphasis on human relations on the theme 'Doing Things That Count Without Ever Stopping To Count Them.'

During April, a Security Awareness Programme was held with most of the guards and some senior security personnel. This seminar was organised by the Maintenance and Security Department and coordinated by the Training Division.

In June, the Communications Unit organised technical training for its staff with specific reference to the switchboard and telephone operators.

Other in-house programmes catered for the entire Cafeteria staff. This workshop was held during two Saturdays in July.

During August, a Customer Care Workshop was held for twenty-two (22) members of staff who interacted more frequently with external customers. Emphasis was on exposing participants to practices that would enhance interpersonal relations among staff members and between staff members and customers, thus enabling the provision of superior service and the enhancement of the image of the Bank.

Junior supervisors pursued a one week workshop during September. The focus was on reinforcing and/or developing their managerial abilities and skills. All junior management levels participated.

The Bank hosted a CEMLA-sponsored course on Economic and Operative Aspects of Central Banking for Non-Economists from October 2^nd to 13^th, 2000. Ten (10) caribbean colleagues from six (6) regional Central Banks attended along with nine (9) employees from the Bank. Two of the six lecturers were drawn from the Research Department of the Bank.

The Research Department also coordinated a Workshop on Capital Flows sponsored by Debt Relief International (DRI).

During the last quarter, the Research Department in collaboration with the Training Division, initiated a series of Research presentations in the Training Room. Presentations were done mainly by employees who had recently completed their postgraduate courses.

Other Local Training

During year 2000, other local training was provided for employees covering various programmes including Networking Essentials, Performance Management, Critical Factors for Survival in the New Millennium, Internal Auditors Seminar, HIV/AIDS and the Workplace and Feasibility of Establishing a Development Bank.

During the year also, six (6) employees graduated from the University of Guyana: three with degrees and three with diplomas. Specialised areas included accountancy, computer science, management and banking & finance.

Overseas Training

Attendance at overseas training programmes and seminars was kept at a minimum. Only those of a highly technical and professional nature sponsored by the International Monetary Fund (IMF), the World Bank, the Centre for Latin American Monetary Studies (CEMLA) and the Caribbean Centre for Monetary Studies (CCMS) were attended.

During the year, two members of staff of the Research Department returned to the Bank after successfully completing Masters degrees in Economics and International Finance at the Universities of Manchester and Glasgow respectively. Another employee of the Bank Supervision Department also returned after successfully completing a Master of Science degree at the University of Leicester. All three employees were granted British Chevening Scholarships. Finally, an employee from the Governor's Office was admitted to the Bar after completing the LLB degree and the Legal Education Certificate.

During the last quarter three other employees proceeded on leave abroad to pursue postgraduate degrees in Computer Science, Project Analysis, Finance and Investment & International Business.

IV

BALANCE SHEET,

PROFIT AND LOSS ACCOUNT AND REPORT

OF THE EXTERNAL AUDITORS

AG:/2001 31 March, 2000

REPORT OF THE AUDITOR GENERAL

TO THE MEMBERS OF THE BOARD OF

DIRECTORS ON THE FINANCIAL

STATEMENTS OF THE BANK OF GUYANA

FOR THE YEAR ENDED 31 DECEMBER 2000

I have audited the attached financial statements of the Bank of Guyana for the year ended 31 December 2000, as set out on pages 1 to 7. These statements have been prepared under the historical cost convention, modified by the revaluation of fixed assets, and in accordance with the accounting policies as set out on page 3.

Respective Responsibilities of Management and Auditors

The preparation of the financial statements, including assertions relating to their completeness, accuracy and validity, and compliance with applicable laws, regulations and contractual obligations, is the responsibility of the Management of the Bank of Guyana. My responsibility is to express an independent opinion on these statements based on these assertions and to report that opinion to you.

Basis of Opinion

I conducted my audit in accordance with generally accepted auditing standards (including those of INTOSAI). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.

Opinion

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Bank of Guyana as at 31 December 2000, and the results of its operations for the year then ended in conformity with generally accepted accounting principles and the Bank of Guyana Act 1998.

OFFICE OF THE AUDITOR GENERAL