Report No. 25640-GU Report No. 25640-GUA Guyana Development Policy Review The Challenges of Governance and Growth A Guyana Review Policy Development November 6, 2003 Caribbean Country Management Unit Poverty Reduction and Economic Management Unit Latin America and the Caribbean Region Document of the World Bank CURRENCY EQUIVALENTS Currency Unit: Guyana Dollar (G$) US$l.OO = G$179.53 (as of October 20,2003) FISCAL YEAR January 1 to December 3 1 ABBREVIATIONS AND ACRONYMS ADR Alternative Dispute Resolution IDB Inter-American Development Bank AVB Automated Vote Book IMF International Monetary Fund BNTF Basic Needs Trust Fund LAC Latin America and the Caribbean CARICOM Caribbean Community MDG Millennium Development Goals CAS Country Assistance Strategy MOE Ministry of Education CDC Commonwealth Development MOF Ministry of Finance Corporation MOH Ministry of Health CET Common External Tariff NDC Neighborhood Democratic Council CIDA Canadian International NDS National Development Strategy Development Agency NGO Non-Governmental Organization DFID Department for International NPV Net Present Value Development (UK) OAG Office of the Auditor General EFA-FTI Education For All Fast Track ODA Official Development Assistance Initiative OECD Organization for Economic Co- ERP Economic Recovery Program operation and Development ESC Economic Services Commission PAC Public Accounts Committee EU European Union PNC/R People’s National Congress/Reform FIAS Foreign Investment Advisory PPP/C People’s Progressive PartyKivic Service PRGF Poverty Reduction and Growth GDP Gross Domestic Product Facility GEM Gender Empowerment PRSC Poverty Reduction Strategy Credit GEMP Guyana Economic Management PRSP Poverty Reduction Strategy Paper Project PSC Private Sector Commission GGMC Guyana Geology and Mines RDC Regional Democratic Council Commission SAA Semi-autonomous Agency GNCB Guyana National Commercial Bank SIMAP Social Impact Amelioration Program Go-Invest Investment Promotion Agency of STD Sexually Transmitted Disease Guyana STEP Skills Training and Employment GPL Guyana Power Limited Program GRA Guyana Revenue Authority UNDP United Nations Development GUYSUCO Guyana Sugar Corporation Program GUYWA Guyana Water Authority USAID United States Agency for HIPC Highly Indebted Poor Country International Development HMC Health Management Committee VAT Value Added Tax I-PRSP Interim Poverty Reduction Strategy WPA Working People’s Alliance Paper WTO World Trade Organization Vice President David de Ferranti Country Director Caroline D. Anstey Sector Director Ernest0 May Task Team Leader Mustapha Rouis GUYANA DEVELOPMENT POLICY REPORT The Challenges of Governance and Growth TABLE OF CONTENTS PREFACE............................................................................................................................................................. i EXECUTIVESUMMARY .................................................................................................................................... 11 1. POLITICAL ECONOMY- A CRISIS OF GOVERNANCE............................................................................... 1 HISTORICALSE~NG ................................................................................................................................... 1 DEADLOCKAND THE CRISIS OF GOVERNANCE............................................................................................ 1 SHARED GOVERNANCEvs . INCLUSIONARYGOVERNANCE......................................................................... 3 BREAKINGTHE DEADLOCK-THEMAY 2003 COMMUNIQUE ..................................................................... 3 CRIME AND GOVERNANCEIN GUYANA........................................................................................................ 6 PERCEIVED ROLE OF DONORS...................................................................................................................... 7 CONCLUSIONS............................................................................................................................................... 7 2 . ECONOMICTRANSITION-AN OVERVIEW OF DEVELOPMENTOUTCOMES ............................................. 9 POLICY AND INSTITUTIONAL REFORM ......................................................................................................... 9 ECONOMICPERFORMANCE-MIXED RESULTS.......................................................................................... 11 FISCALPOLICY AND DEBTSUSTAINABILITY .............................................................................................. 13 POVERTY REDUCTION AND SOCIAL PERFORMANCE .................................................................................. 15 AID EFFECTIVENESSAND AID COORDINATION .......................................................................................... 17 THE CHALLENGE AHEAD............................................................................................................................ 19 3 . IMPROVING PUBLIC SECTOR PERFORMANCE AND GOVERNANCE......................................................... 20 IMPROVINGPUBLIC FINANCIALMANAGEMENT ......................................................................................... 20 REFORMING THE PUBLIC SERVICE ............................................................................................................. 22 ACCELERATINGJUDICIAL REFORM............................................................................................................ 24 CONCLUSIONS............................................................................................................................................. 25 4 . INVESTMENT CLIMATE AND GOVERNANCE........................................................................................... 27 PRIVATE SECTOR PROFILE.......................................................................................................................... 27 ELIMINATING STATE DISCRETION.............................................................................................................. 29 IMPROVINGFINANCIALINTERMEDIATION ................................................................................................. 31 STRENGTHENING INSTITUTIONALCAPACITY ............................................................................................. 32 IMPROVINGINFRASTRUCTURE................................................................................................................... 33 5 . INVESTINGIN HUMANDEVELOPMENT ................................................................................................... 3j SOCIAL WELFAREPERFORMANCE-MIXED RESULTS............................................................................... 3j CROSS-SECTORIALCHALLENGES ............................................................................................................... 37 SECTOR-SPECIFIC CHALLENGES .................................................................................................................. 41 CONCLUSIONS............................................................................................................................................. 44 6 . MEDIUMTERM OUTLOOK-PRODUCTIVITY GAIN AND EXPORTDIVERSIFICATION ............................. 46 REVITALIZING AGRICULTURE-SHIFTING TOWARDSMORE COMPETITIVE ACTIVITIES .......................... 46 SUSTAINABLE MINING DEVELOPMENT..................................................................................................... 49 IMPROVINGNATURALRESOURCES MANAGEMENT ................................................................................... j0 DIVERSIFICATIONFOR FUTUREGROWTH ................................................................................................... 51 PROSPECTS AND RISKS ............................................................................................................................... 52 REFERENCES................................................................................................................................................... 62 BOXES Box 1.1: REVISING THE 1980 CONSTITUTION................................................................................... 4 BOX 1.2: CRIME INCREASE IN GUYANA............................................................................................. 7 BOX 2.1 : A PROFILE OF POVERTY IN GUYANA................................................................................ 16 Box 2.2: AN OVERVIEW ASSESSMENTOF THE PRSP ...................................................................... 17 BOX 2.3: EXTERNALFINANCIAL ASSISTANCETO GUYANA,2000-2002 ......................................... 18 BOX 5.1: HUMANCAPITAL FLIGHTFROM GUYANA........................................................................ 39 Box 5.2: INDIGENOUS PEOPLE IN GUYANA..................................................................................... 42 Box 5.3: POVERTY-REDUCTION AND SAFETY NETPROGRAMS ...................................................... 44 TABLES TABLE 2.1: ECONOMICINDICATORS .................................................................................................... 11 TABLE 5.1: SELECTED SOCIAL INDICATORS: GUYANAAND COMPARATORS, 2000 ........................... 35 TABLE 5.2: SOCIAL SECTOR EXPENDITURES:GUYANA AND REGION, 2000....................................... 37 TABLE5.3: GUYANA:SELECTED EDUCATIONAND HEALTHINDICATORS, 1999-2003 ...................... 37 TABLE 6.1: GUYANA,MEDIUM TERM PROSPECTS.............................................................................