The “naysayers” have not done their homework

Feb 21, 2009 Letters

Dear Editor,
In the recently prepared National Budget 2009, there have been a number of “naysayers” who said that the economy could not grow last year (2008) much less grow this year (2009) as there have been contractions in the amount of minerals and food (principally sugar and rice) produced.

Many people understand that we can sell 1000 tonnes of rice at US$300 per ton and get US$300,000.
Or, we can sell less rice at a higher price and still get the same amount of revenue, or even more (eg. 800 tonnes of rice at US$500 per ton to receive US$400,000…..US$400,000 is more than US$300,000).

How do I go about proving that this is what happened? Well, when we compare the export earnings for 2007 (US$680M) to the export earnings in 2008 (US$725M), we see that even though there was contraction in the amount produced in some of the productive sectors, the export earnings were more.
Higher export earnings tend to point to more favourable world market prices (higher export prices).

The second point of contention is the economic growth rate last year (2008) of 3.5% and projected this year (2009) at 3.5% that the Minister of Finance has highlighted. Where is this growth rate coming from?
Ask Christopher Ram; he may be able to tell us… (Forget it). Christopher Ram had highlighted, after last year’s budget (2008) presentation that the Minister of Finance did not place emphasis on the amount of “remittance” (some US$450M) that Guyana received.

Had the “naysayers” done their homework, they may have been able to show that import was some US$1050M and export was some US$725M, leading to a trade deficit of US$325M.
There was an estimated US$75M in capital flight, leading to a Current Account balance of US$400M.
When the high remittances of US$450M are taken into account, there is a net Current Account balance of US$50M.

This excess US$50M is where the economic growth is coming from, as when we work out the percentage to the Gross National Product of US$1050M this excess remittance is (50/1050) times 100 to give 4.76% growth rate.

Dr Ashni Singh (Minister of Finance) may use a different approach when producing the National Budget….but it is the “excess remittance” coupled with higher world market prices that is propelling Guyana’s economic growth.

It is better to have remittance than Foreign Direct Investment (FDI), as FDI means most of the profits and investments are normally repatriated overseas.

I would expect that the amount of monies that are sent abroad as capital flight would be reduced due to the financial crisis affecting many overseas banks, and that the amount of remittances would be reduced, due to Guyanese abroad having less job security.

But I would like to emphasise that the Guyanese Diaspora needs to send the same remittance or even a little more to their relatives in Guyana than they did last year.
If, as an example, relatives abroad sent US$100 to their relatives in Guyana, I suggest that they send US$120 this year to their relatives.

The extra US$20 is not really going to break the bank for most overseas Guyanese, and it may lead to an economic growth rate of 9%, as opposed to 3.5% in Guyana.
This is because more remittances sent this year are really excess remittances that may propel economic growth.

The third point of contention is The Minister of Finance, Dr Ashni Singh, when he presented $128.9B National Budget for 2009, the biggest in the country’s history, to Parliament, is relying on taxes for Government expenditures.

Can anyone provide us Guyanese with a clear view as to where in the world Government revenue is not made up of taxes? So what exactly is your point?

The Government is overspending? Yes, but the exchange rate is relatively stable at G$205: US$1, so the impact of a rising Domestic Debt is not creating a real problem as yet.

The VAT at 16% is too high, as it is generating more monies for the Government? The VAT at 16% is working where the Consumption Tax at 30% was failing. It is not hitting the poor more than the Consumption Tax at 30%, as can be attested by the lack of malnutrition in Guyana. People who were not paying their taxes are contributing through the VAT at 16%.

In any event, the VAT at 16% only comes into effect when a company’s turnover is above G$10M.
This means it is big businesses that are profiting, as many small businesses (like food vendors) should not be charging VAT at 16% and reclaiming their VAT.
Sean Brignandan