Govt.’s effort to combat inflation

Apr 27, 2009 Letters

Dear Editor,

During the rise in food and fuel prices and the horrors brought by the global financial crisis, Guyana experienced a rise in its inflation rate which induced Government to make interventions to restore the economy to normalcy.

Inflation refers to the constant rise in the general level of prices quoted in the units of money. Inflation occurs when the purchasing power of the dollar diminishes. A high inflation rate would construe a negative change in a country’s price level, while a low inflation rate bodes well for increasing economic growth.

Last year, commercial banks saw a decrease in small saving rates falling by 9 basis points to 3.06% and the weighted average lending rate falling by 5 basis points to 12.35% because of the high levels of surplus liquidity in the banking system. The Caribbean region has had recent experiences in significant inflationary pressures, but Guyana managed to contain its inflation rate at 5.8%.

Last year was a challenging year as a result of the global financial crisis, and food and fuel crises. For this reason, a number of Government interventions were instituted to ‘stand the weight’ of these challenges. At the end of 2008, inflation was recorded at 6.4%, as against 14% in 2007. This decrease was due to lower fuel prices at the end of the year.

At the beginning of 2008, Government issued excise tax reduction on fuel products, to make these items affordable in the domestic market. Later in 2008, world market prices started to decrease, and so Government ensured that this reduction was reflected at the fuel pumps.

In 2008, gasoline was retailed at $555 per gallon reflecting a 30.6% decline from 2007. Kerosene was sold at $477 per gallon, reflecting a 32.7% decline from 2007. However, the price for diesel declined slowly as opposed to other refined products. In spite of this, diesel was retailed at $696 per gallon, reflecting an 11% decrease in price levels as opposed to 2007. At the end of that year, Government maintained the concessional excise tax on diesel and no taxation on kerosene.

The global economic crisis also forced Government to make interventions with regards to food prices. In addition, a number of zero-rated items were added to the list for exclusion of Value-Added Tax in 2008.

At that time, the Guyana Power and Light Inc. (GPL) received a cash subsidy of $3.3 billion to continue its operations, and a capital transfer of $5.9 billion for investment in capital expenditure to avoid increases in tariff for consumers.

In an effort to keep the inflation rate low, the Bank of Guyana and Government should work together to secure a tight fiscal stance in the form of lower government expenditure. The Bank of Guyana is also expected to counter any threat to increased inflationary pressures and sustain macroeconomic stability.

This year, focus appropriately seems to address management of liquidity, maintain stable prices, a stable exchange rate, and at the same time foster private sector growth.

Marissa Lowden

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Govt.’s effort to combat inflation

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