GUYANA CAN BECOME THE CHINA OF THE CARIBBEAN

Jan 21, 2011 Features / Columnists, Peeping Tom

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It would be impossible for the government to engage in creative accounting in relation to last year’s economic growth. There is such intense international scrutiny of Guyana’s main economic indicators that it would not be possible for the numbers to be fudged in order to paint a rosier picture.
Yet there were some surprises. Tourism was one of them, considering the lack of any meaningful initiative in that sector this year. Telecommunication was another, growing at a rate that was unexpected. Not surprising, however, was the construction boom which along with financial services allowed Guyana to be within range of the IMF prediction of a 4% growth for 2010, which for any small country, at any time, is a great performance.
The main problem with the performance of the economy last year, which we are told grew by 3.6%, was that most of this growth was in the non-export sector. The marginal growth rate for manufactures, for example, reflects increased domestic demand and the phenomenal growth in the telecommunication, financial and construction sectors was mainly due to activities related to local expansion, and not to any outward-oriented production.
This makes for a very uneasy situation since Guyana’s economy can hardly sustain growth, thus any future growth will have to be based on export activity.
Both rice and sugar are, of course, highly susceptible to problems with the weather and export prices. Gold is enjoying its best years as it capitalizes on the fallout caused by the financial crises and the tendency of investors to hold their wealth in gold during times of recession. But what happens when gold prices dip, as they inevitably will?
This is one of the issues that the government benches will need to address when the budget debate gets underway. The government should not have much problems in defending the country’s largest budget, made even more so by the fact that there is no longer, as there were in previous years, any allocation for the capitalization of the Skeldon Sugar Factory. That in the absence of this, such a large Budget could be produced shows that Guyana’s economy is growing and the resources at the disposal of the government are perhaps more than it has the capacity to spend.
In the face of this massive budget, it is not surprising that the opposition parties are shell-shocked. It is going to be extremely difficult to criticize this budget in terms of its size and in respect to its assumptions. Even in the area of expenditure, the opposition is going to be hard pressed to find aspects on which it can throw a few salvos at the government. The sheer spread of public expenditure proposed for this year is truly amazing, considering that Guyana is still one of the poorest nations in the hemisphere.
Whether the record of the past five years can be maintained will, to a great extent, depend on political stability. Economic stability is not in question. The economy has never been stable, but as we have seen between 1997 and 2007, political instability caused investors to be cautious and watchful and as a result, growth was almost stagnant over this period.
There are obviously problems within the economy, including concerns over wealth distribution, unemployment and underemployment.
As the budget was being read fuel prices were rising, but Guyana no longer has any reason to fear any future oil crisis since as the Minister of Finance reported, the country’s reserves are extremely healthy, something that could not have been said in the past when runaway oil import bills crippled the local economy.
There also remain deep concerns about the ability of the security services to curtail crime. These are issues which can be addressed by the administration through improved governance.
Fundamentally, however, the main criticism of the economic performance for 2010 is the question of local demand ratcheting growth rates. This is an extremely dangerous trend. For a miniscule economy like Guyana, this is an unsustainable position.
There are limits to how much local demand can generate increased growth. With most of the export sectors being subject to the risk of falling prices and highly dependent on production, the government may wish during the budget debate to explain just what steps it intends to take to ensure that growth in the future will come from sources other than construction, financial services (loans) and telecommunication. These bubbles are going to burst eventually and when this happens, Guyana must be able to have other export sectors on which to be able to sustain growth.
Once growth can be sustained, however, Guyana can become the China of the Caribbean, but not without increased export-oriented production.

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