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The Macroeconomic Fundamentals are in Place

Mar 04, 2009 Letters

Dear Editor,
The recent economic shocks have left the world feeble; and it has demonstrated that no country is immune to unexpected economic shocks which are responsible for the fluctuations in national income, output and employment.
Despite this, Guyana has managed to maintain good macroeconomic fundamentals, with quite a stable inflation rate.  The inflation rate for 2008 was 6.40%, which was lower than the 14.05% rate in 2007.
Last year, Guyana managed to achieve positive growth rates of about 3%, which was slightly below the projected rate.  According to the Bank of Guyana Half Year Report 2008, the overall balance of payment at the end of June advanced to a surplus of US$47.6 million from a deficit of US$12.3 million for the corresponding period in year 2007.
With increased trade, the total transactions on the foreign exchange market continued to grow and the key monetary aggregates grew with increased economic activity.
Guyana experienced the impact of the rise in world fuel and food prices at the beginning of 2008. Food prices in Guyana increased by 27.2%; and Government increased the tax threshold by 25% from $28,000 to $35,000 per month and removed the value added tax (VAT) from a number of items.
Government also implemented a cushioning package of which low income public servants were offered a monthly stimulus package to aid the effects of the increases.  There was 5% increase in wages and salaries and the $4000 temporary cost of living adjustment for persons earning below $50,000.
Food security was a major concern within the economy.  As a result, the Jagdeo Initiative was discussed to revitalize the agriculture sector to promote food security.  Since Agriculture is the foundation of Guyana’s economy and a major contributor to the nation’s Gross Domestic Product (GDP), it is vital to note that it has links to other productive sectors of the country’s economy.
Deficit spending is necessary for the continued existence of our economy.  Deficit spending is basically when Government spends more money than what they receive through taxes and other sources of revenues.
For this reason, borrowing from the world market is necessary for developing countries, so as to acquire investments, generate markets for businesses, endorse consumer spending, and engender job creation for the people within the economy.
We must understand that inadequate demand increases unemployment; and so, it is important to ensure that there is a demand for goods and services by consumers, business investors and governments. An increase in the market demand will re-fuel the economy, increase private investments, induce greater productive output.
Increased spending in our social sectors (education, health, housing and water) and infrastructural development is essential for positive growth.
And so, Government also continues to stabilize price levels and exchange rates, makes certain that fiscal deficit is controlled, reduces unemployment, and keeps an eye on the cost of borrowing money.
Marissa Lowden

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