2009 Index of Economic Freedom

Quick Facts

Population:

• 0.7 million

GDP (PPP):

• $2.6 billion
• 5.1% growth
• 1.0% 5-year compound annual growth
• $3547 per capita

Unemployment:

• 9.1%

Inflation (CPI):

• 12.2%

FDI Inflow:

• $102.4 million

Guyana's economic freedom score is 48.4, making its economy the 155th freest in the 2009 Index. Its overall score is 0.4 point lower than last year because improvements in four of the 10 economic freedoms were offset by a large decline in the government size score. Guyana is ranked 27th out of 29 countries in the South and Central America/Caribbean region, and its overall score is well below the world average.

Guyana does not rank strongly in any category of economic freedom and is slightly above the world average only in labor freedom. Although macroeconomic and financial-sector stability has been maintained, Guyana's average economic growth over the past five years was only about 1 percent.

Guyanese face substantial constraints on their overall economic freedom. Property rights are protected only erratically under the weak rule of law, and corruption is a problem in all areas of government. The biggest barrier to development is Guyana's oversized government, with expenditures exceeding half of GDP. Significant restrictions on foreign investment have been addressed only marginally, and these restrictions, combined with an inefficient bureaucracy, substantially limit investment and business freedom.

Background Back to the top

Colonized by the Dutch and later by the British, Guyana gained its independence in 1966. Support for the two major parties is polarized along ethnic and racial lines, and attempts at reform have been made only under framework agreements with international organizations. In August 2006, President Bharrat Jagdeo was returned to office in the first nonviolent elections in more than 20 years. His People’s Progressive Party–Civic government has a clear mandate and seems likely to serve a full five-year parliamentary term until 2011. Guyana is one of the poorest countries in the Western Hemisphere; its state-dominated economy, dependent mainly on agriculture and mining, has been stagnant for many years. Violent crime and drug trafficking are serious concerns

Business Freedom 60.9 Back to the top

The overall freedom to conduct a business is restricted by Guyana's regulatory environment. Starting a business takes an average of 40 days, which is roughly equal to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures, but closing a business can be lengthy and costly.

Trade Freedom 72.6 Back to the top

Guyana's weighted average tariff rate was 6.2 percent in 2006. Import restrictions, import taxes, import-licensing requirements for a relatively large number of products, burdensome standards and regulations, inefficient customs administration, inadequate infrastructure, and corruption add to the cost of trade. Fifteen points were deducted from Guyana's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 66.5 Back to the top

Guyana has high tax rates. The top income tax rate is 33.3 percent, and the top corporate tax rate is 35 percent. Other taxes include a fuel tax and a sales tax. A value-added tax (VAT) was implemented in January 2007. In the most recent year, overall tax revenue as a percentage of GDP was 31.9 percent.

Government Size 3.2 Back to the top

Total government expenditures, including consumption and transfer payments, are high. Privatization of state-owned enterprises has achieved mixed results. Poor management of public expenditures and constantly increasing social spending contribute to persistent fiscal deficits. In the most recent year, government spending equaled 56.8 percent of GDP.

Monetary Freedom69.6 Back to the top

Inflation is high, averaging 10.4 percent between 2005 and 2007. Guyana has made progress in removing most price controls and privatizing the large public sector, but the government still influences prices through the regulation of state-owned utilities and enterprises. Ten points were deducted from Guyana's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

Guyana has been moving toward a more welcoming environment for foreign investors, although the government remains cautious about approving new investments. The approval process can be burdensome and non-transparent. The government still screens most investment, and the relevant ministries have significant discretion in issuing licenses and approval. Residents (with restrictions) and non-residents are allowed to hold foreign exchange accounts. Payments and transfers are not restricted. Most capital transactions are unrestricted, but all credit operations are controlled. The constitution guarantees the right of foreigners to own property or land.

Financial Freedom40.0 Back to the top

Guyana's underdeveloped financial system is dominated by banking. High credit costs and scarce access to financing remain barriers to more dynamic entrepreneurial activity. Overall, the banking system remains inefficient. The percentage of loans that are considered non-performing is relatively high at 14 percent, down from 25 percent during the mid-1990s. Six commercial banks operate in Guyana, and the two largest are foreign-owned. The last state-owned bank, the Guyana National Co-Operative Bank, was sold in 2003. There are some restrictions on financial activities with non-residents. Guyana has six insurance companies and a small stock exchange, which lists 11 companies.

Property Rights40.0 Back to the top

Guyana's judicial system is often slow and inefficient. It is also subject to corruption. Law enforcement officials and prominent lawyers question the independence of the judiciary and accuse the government of intervening in some cases. A shortage of trained court personnel and magistrates, poor resources, and persistent bribery prolong the resolution of court cases unreasonably. There is no enforcement mechanism to protect intellectual property rights.

Freedom From Corruption26.0 Back to the top

Corruption is perceived as widespread. Guyana ranks 123rd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. There is extensive corruption at every level of law enforcement and government. Widespread corruption undermines poverty-reduction efforts by international aid donors and discourages potential foreign investors.

Labor Freedom65.2 Back to the top

Guyana's relatively flexible labor regulations enhance employment and productivity growth. The non-salary cost of employing a worker is low, but dismissing a redundant employee is relatively costly. The difficulty of laying off workers is a disincentive to employment growth.