Are the budget cuts hurting the economy?

Jul 29, 2013 News

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…private sector, Govt., Greenidge differ 

By Keeran Danny

Even with one commercial bank attributing this year’s budget cut for the slowdown of Guyana’s economy, A Partnership for National Unity (APNU) is saying that Government spending does not necessarily help economies to grow.
According to former Finance Minister and APNU’s Member of Parliament, Carl Greenidge Government spending does not necessarily stimulate the economy, particularly when the spending becomes burdensome on citizens.
On March 25 last, Finance Minister Dr. Ashni Singh presented a $208.8B budget to the National Assembly, but after a series of amendments, it was reduced to $177.4B. The cut targeted $19B from the allocation for the Low Carbon Development Strategy; $5.6B under the Ministry of Public Works; and $5.2B in subsidies for the Guyana Power and Light Incorporated. The other cuts were $1.25B for the Specialty Hospital on the grounds that there was a lack of transparency, and a total of $217.1M from the Government Information Agency and the state-run TV and radio NCN, under the grounds that the entities were only pushing propaganda and shutting out opposition voices.

Three months later, Guyana Bank of Trade and Industry (GBTI) presented its unaudited Report on the Financial Performance of the Bank for the first six months of the financial year, while stating that the slashing of the 2013 National Budget by $31B is among several reasons why Guyana’s economy has slowed.
“…and a National Budget that was cut by $31B, we have seen a noticeable slowdown in our economy and this has put some pressure on Exchange Rate stability,” Robin Stoby, Chairman of GBTI Board said.
According to Greenidge, higher Government expenditure does not mean higher growth and simple economic management would reveal this. As such, restoring moneys to the Budget is out of the question.
Greenidge emphasized that if Government injects money into the economy by building a feasible factory, construct a road, and reduce red tape for exporting products there could be positive impacts.
However, when Government invests money in projects that are unfeasible or the projects flop, the burden is on the taxpayers.
“For instance, the Skeldon Factory was constructed for over US$100M and to date its output is very limited and taxpayers are already saddled with the high price of repaying for something that is not producing to cover its expense,” Greenidge said.
He reasoned if increased Government spending indeed helps economies to grow, many Governments in developed countries that are faced with economic hardships would have injected large sums.
But the Government and Private Sector Commission share similar sentiments expressed by the bank and differ from APNU.
According to Junior Finance Minister, Juan Edghill, the budget cuts have not put a damper on the economy but have indeed slowed the pace at which the economy was projected to grow and could grow.
Edghill said the budget was prepared to put the country along a positive growth path with transformative projects but reckless cutting by the joint Opposition (Alliance For Change and APNU) is slowing the economy. However, this “slow down” was anticipated and concerns were voiced by many stakeholders including those in the private sector.

“Cutting the budget by $31B meant that $31B would not have been available for circulation in the economy. It meant fewer sales of goods and services, less employment, and no transformative projects that allow competitiveness,” the Minister said.
According to Edghill, if the Opposition had approved the allocations for the constructions of the Specialty Hospital and Cheddi Jagan International Airport expansion, scores of Guyanese labourers would have been employed; building materials would have been purchased; and the trickledown effects of spending income would have helped to stimulate the economy.
But, the guarantee of the employment of Guyanese on these transformative projects is somewhat questionable since no Guyanese are employed in the ongoing construction phase of the Marriott Hotel, Kingston. The hotel is being constructed by Shanghai Construction Group (SCG) and the labour force is Chinese nationals. This stirred protest actions by the Opposition because the project is funded by Guyanese taxpayers.
Defending the possibility that the money labourers earned are not spent locally, Edghill said all building materials are procured locally, so many Guyanese are also benefitting from the construction of the hotel. However, this is only one project out of many that Government wants to execute for citizens, he added.
According to Chairman of the Private Sector Commission, Ronald Webster, the negative effects of the budget cuts is being felt by businesses, particularly those in the building and construction sectors.
From the outset, the Commission had been vocal about the cuts and pointed out what it said would be negative effects these cuts would have on the economy, taking into consideration that Guyana’s economy is based on commodity items such as gold, rice and sugar.
In GBTI’s unaudited report, it refers to these items, particularly gold which has depreciated in value on the world market. The delayed signing of the Guyana-Venezuela rice and paddy agreement and the low production of sugar also helped to slow the economy.
According to Webster, the building and construction sector is of critical importance to Guyana’s economy and contributed 11 percent of the country’s Gross Domestic Product (GDP).
He added that this sector could be better appreciated if it was better known that in 2012 construction and real estate ranked number four to the economy behind agriculture and forestry; mining; and wholesale and retail businesses.
The Chairman recognized the need for new projects to come on stream since construction has a huge impact on the economy. Construction is the best stimulant to any economy since stimulus spending stays within the country, he said.
The sector also provides employment for the skilled and unskilled. In addition, the end products such as roads, bridges and houses are long lasting and are an asset to the economy. As such, the Private Sector supports this exposition 100 percent.

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