BOGOTA - The Guyanese economy has recovered well after the COVID-19 pandemic thanks to an oil boom, the International Monetary Fund (IMF) said on Friday, but the country must be wary of over-dependence on oil income.

The tiny South American nation has an ambitious oil development plan that has followed over 30 oil and gas findings by an Exxon-led consortium. It is one of the largest reserve discoveries over the last decade globally, with 11 billion barrels of recoverable resources.

"Guyana's medium-term prospects are more favorable than ever before, with increasing oil production having the potential to transform Guyana's economy," the IMF said in a statement following virtual meetings between its staff and Guyanese officials.

The oil reserves "could help Guyana build up substantial fiscal and external buffers to absorb shocks while addressing infrastructure gaps and human development needs," the statement added.

"However, increased dependence on oil revenues will expose the economy to volatility in global oil prices," the statement said, adding IMF staff recommend moderate increases in public investment amid a strengthening of medium-term fiscal policy.

"While pressing development challenges still face the country, a large surge in public investment could add inflationary pressure, affect competitiveness of the non-oil economy, lead to an eventual loss in FX reserves, and might not be sustainable over the medium-term," it said.

(Reporting by Julia Symmes Cobb, Additional reporting by Rodrigo Campos, Editing by Mark Potter)