Need for long-term planning, savings- UG Economist

Last Updated on Thursday, 18 January 2024, 1:27 by Denis Chabrol

Even as Guyana’s private sector is welcoming the GY$1.1 trillion dollar national budget, University of Guyana Economist Dr Thomas Singh sees the need for long term planning to guarantee growth while saving.

While governments prefer to deliver annual programmes, he argued that Guyana could not achieve sustained economic growth by spending heavily on social and physical infrastructure on the basis of closing the development gap. “If that government spending is what we call procyclical-that is to say government spending increases when there is a boom-that is a recipe for trouble. In every discussion on the way we spend oil revenues, the way we spend windfalls; if our fiscal spending is procyclical, it means that when there is a recession that requires fiscal spending, we won’t be able to do it,” he said.  Dr Singh recommended that alternatively, whenever Guyana experiences a boom the focus should be on saving alongside a long-term development programme.

Finance Minister Dr Ashni Singh on Monday said Guyana’s debt ceiling would once again be increased and government would again amend the Natural Resource Fund (NRF) rules to increase the amount of money the administration could withdraw. But the Economist said Guyana would have to shift away from “there’s a boom, we’re spending more” approach.

In a preliminary reaction ahead of a detailed analysis of the 2024 budget, he identified the need for a discussion on the implications of an infrastructure-driven short-term stimulus or human capital development. Beyond fiscal expansion, he said attention must be paid to inflation, budget deficit, unsustainable balance of payments deficit and the exchange rate policy. “Those are the big things that go beyond a fiscal expansion,” he added. The Finance Minister had said that Guyana’s  real Gross Domestic Product (GDP) was 33 percent overall in 2023, with stronger-than-expected expansion of 11.7 percent in non-oil real GDP. For 2024, government forecasts that  real GDP growth will be at 34.3 percent, with the non-oil economy expected to grow by 11.9 percent. Last year’s inflation was two percent and this year, that figure is expected to be 2.5 percent.

The Finance Minister said the overall deficit after grants for the Central Government is projected at GY$395.9 billion, or 8.5 percent of GDP. He said the balance of payments deficit was financed by a drawdown on the Bank of Guyana’s foreign reserves, to an estimated US$898.2 million at the end 2023, equivalent to 1.1 months of import cover.

Already, the Private Sector Commission (PSC) and several of its affiliates have separately welcomed the budget which provides ordinary Guyanese with zero income tax for workers earning GY$100,000 or less, GY$3,000 increases in Old Age Pension and Public Assistance, an unspecified increase in wages and salaries that would be known by year-end, a GY$7 billion cost of living support which would would be handed out later this year, a GY$5,000 increase in cash grants for school children in public and private schools, assistance with cervical cancer tests, eye tests and a GY$15,000 contribution towards the cost of spectacles.

Asked whether he believed that there should have been higher increases in Old Age Pension, Public Assistance and the income tax threshold should have been greater because the cost of living support would not be available until later this year, PSC Chairman, Komal Singh cautioned against looking at any area in isolation. He said 13,000 persons would be removed from the tax net as a result of the “significant” increase in the income tax threshold. While the increases in Old Age Pension and Public Assistance might seem small, he said taken together with other benefits a broad cross-section of Guyanese would benefit from this year’s fiscal package. “We cannot look at these areas without taking account the allocation for disabilities, health care etc. They all have significant impact that will trickle down to the wider population,” Mr Singh told Demerara Waves Online News.

He commended the Guyana government for guaranteeing a better standard of living through proposed improvements in health, education, “massive allocation” for housing, increased access to funds by small businesses and “significant allocation” for the construction that are all aimed at ensuring economic sustainability. “This is a $1.1 trillion dollar budget this will bring significant relief and positive value to the population and businesses,” he said.

But the UG Economist, said the huge capital expenditure would largely be in the interest of the business community rather than ordinary Guyanese. “Our private sector is all about getting government contracts and executing government contracts,” he said. He contended that in Guyana the issue was not more or less markets.

The 2024 Budget states that the Public Sector Investment Programme (PSIP) is projected to grow by 57.9 percent this year to GY$666.2 billion, while non-interest current spending is expected to grow by 17.5 percent to reach GY$434.8 billion.

Touching on the announced increases, he said Guyanese would be grateful for them but they would have been more meaningful if the Guyana dollar had strengthened against the United States dollar and other major currencies. “I think it is a glaring outcome that the Guyana dollar has not appreciated…It could be that all the increased foreign currency that we receive is used to finance purchases from abroad or to send back profits,” he said, adding that hoarding by private people.

Asked if the cost of producing Guyana’s non-oil exports would become more expensive if the Guyana dollar strengthens, the UG Economist acknowledged that was also a real concern. If the cash-transfer increases are wiped out by inflation, Dr Singh said the effect on the country’s international competitiveness would be the same as if the Guyana dollar is allowed to strengthen. “Our cost of production is going to be higher to persons who want to buy from us either if the Guyana dollar is higher or if there is inflation locally; in either event we lose international competitiveness so you see the policy mix is quite complex,” he said.