$128.9B Budget sees decline in major sectors

Feb 10, 2009 News

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…growth hinges on success of Skeldon sugar factory

 

By Gary Eleazar

Finance Minister Dr Ashni Singh yesterday announced a $128.9B Budget that aims at having the economy of Guyana withstand the impact of the global financial crisis, but this announcement was void of a long-awaited announcement of an increase in the income tax threshold.

Yesterday, while announcing a less than desired Gross Domestic Product growth, the Finance Minister said that 2009 should fare better, but it is dependent on the success of the New Skeldon Sugar Factory.

According to Dr Singh, the budget was crafted with the objective of preserving macroeconomic stability, but he was also cognisant of the fact that the country was operating in a global economy that, “is currently experiencing its most challenging time in recent memory.”

As such, the minister pointed out, for this year, the sugar sector is once again likely to exert significant influence on overall performance of the GDP, given that it is projected to recover from a particularly low base.

This notion is embedded in the fact that the new plant is supposed to be up and running under Guyanese control by mid-year.

Sugar recorded a horrendous performance in 2008.

The minister noted that it was against this background that growth in the non-sugar economy is projected at a moderate 1.8 percent, which was reflecting the prevailing global conditions. “With the inclusion of the sugar sector, real growth in gross domestic product is targeted at 4.7 percent.”

Sugar production is now projected to return to the level budgeted for last year, according to Dr Singh, a generous 290,000 tonnes, thus representing a 28.2 percent increase above the low production level of 2008.

He emphasised that the realisation of the set target was conditional on the development of an appropriate turnaround plan which will be outlined by the interim management board, “and the successful implementation of its recommendations for the immediate term.”

He said that the Government did recognise the risks and vulnerabilities inherent in the achievement of the objective, and will continue to monitor the industry especially closely to ascertain progress towards this objective and corrective actions that may prove to be necessary should any deviation arise.

The rice sector, which is another major contributor to the country’s GDP, is targeted to produce 306,156 tonnes, which represents a 7.1 percent decline from last year.

According to the Finance Minister, the projection was based on account of response to moderating price levels, and delayed planting as a result of weather conditions at the start of this year.

He announced a growth rate of three percent in the livestock sector as a result of improved breeds of cattle and numbers of swine which were distributed in 2008.

He added also that increased production levels of poultry meat and reduced levels of grain prices will significantly reduce cost.

The non traditional sector of exports of fruits and vegetables among others, Dr Singh said, will be yielding the benefits of the Grow More Campaign.

The sector is targeted to grow by two percent, which he posited should be enough to outweigh losses from flooding in the early part of the year.

“The forestry sector is expected to return to positive growth of 0.3 percent in 2009, while growth in the fisheries sector is projected to remain flat.”

The mining and quarrying sectors, which performed creditably last year, mainly due to increased gold production and a relatively high price, is expected to contract by 1.4 percent in 2009, with all of the three major products that comprise this sector expected to record negative growth.

The reason for the decline, according to the Finance Minister, is the continued depressed market prices.

He noted that the bauxite sector is expected to record a contraction in output of 7.1 percent, dropping to 1,943,624 tonnes.

“Even though gold prices are predicted to remain relatively strong, the performance of 2008 would be difficult to replicate and, as such, gold declarations are projected to decline by 1.5 percent to 257,503 ounces…Diamond production is expected to record a continued decline of 2.3 per cent for the year.”

There was good news to announce in the engineering and construction sector, which the minister posited is expected to grow by a moderate 3.8 percent.

He noted that this projected growth rate will be centered on lower-value home construction in expanding new housing areas, continued strong construction in the commercial and financial sectors, as well as public sector infrastructural works.

“The manufacturing sector is projected to remain flat, reflecting primarily the prospect of limited expansion in demand.”

As it relates to the transport and communication sector, Dr Singh predicted a four percent growth, and this was based on a levelling of growth in both of the sub-sectors.

The distribution financial services are all expected to grow minimally

 

Financial projections

The Finance Minister posited that in 2009 monetary policy will focus heavily on liquidity management is aimed at fostering stable prices and responsive exchange rates, while facilitating private sector growth.

The inflation rate, despite the dismal 2007 and 2008 declarations, is now targeted to reduce to some 5.2 percent and this is reflective of the lower oil prices and other commodity prices.

The minister added that the overall balance of payment projected for 2009 is expected to deteriorate to a deficit of US$13.9M, and the current account deficit is projected to improve marginally to US$288.7M which is attributed to projected lower oil imports that outweigh the marginal reduction in export earnings.

The minister announced that exports are expected to garner US$763.5M in earnings for the country which, however, is conditional on the achievement of the targeted level of sugar export earnings.

This re-empahised the point raised by the minister that the growth in GDP is primarily linked directly to the sugar sector.

Export earnings in gold, bauxite and rice are projected to decline by 18.8 percent, 12.5 percent and 3.7 percent respectively, and on the other hand, merchandise imports are projected to decline by 8.9 percent to US$1,184M primarily on account of a lower fuel bill.

He posited that private transfers are also projected to decline by some 20.9 percent, which is attributed to lower worker remittances and in-kind transfers, given the downturn in the global economy.

“The capital account is projected to decline by 10.1 percent to a balance of US$274.8 million, based on projected lower levels of foreign direct investment and capital transfers.”

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