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IS AN ECONOMIC CRISIS BREWING?

Aug 09, 2015 Features / Columnists, Peeping Tom

Is an economic crisis brewing? No one knows for sure, but the uncertainty will not make things any better soon, Budget or no Budget.
The Budget must, as an aside, help to assure the Guyanese people that no crisis is brewing, and that steps are being taken to ensure that growth is being maintained. This assurance will help improve the business environment which has witnessed a slump in recent months.
There has been a report that private expenditure declined in 2014. This is 2015, so that data really does not provide any comfort. What is the evidence in relation to 2015?
It would be interesting to learn what were the measures used to determine that private expenditure had declined in 2015. Does Guyana have the mechanisms to measure monthly or even annual public expenditure? If it does, this represents significant progress in data collection.
For the time being, I cannot accept this conclusion without being provided with the source from which this figure was arrived at.  Economic data is not timely in Guyana and therefore cannot be used to make informed projections about the performance of the economy. All of this only fuels speculation.
So what are the things that we can be certain about? The economy is likely to contract in the last half of this year. Rice is likely to be up, but gold, sugar and construction are likely to plunge for the second half. This should throw Guyana into either marginal or negative annual economic growth. The PPP will be blamed, even though they left a healthy half-yearly performance for 2015, despite the limitations on public spending.
Government spending is likely to decline relative to 2014 because of the fact that the Budget is being presented in August. The economy does not have the capacity to absorb in five months what is usually disbursed in twelve months.
The Budget was too long in coming. If this Budget does not have any tax reform measures; if it is not going to offer serious increases in salaries for public workers, then why in Heaven’s name did it take three months to be prepared?
One had anticipated that by taking so long to come out with a Budget that APNU+AFC would have laid out a large number of new measures including tax reforms, salary increases, reduction in the overall rate of VAT.
Now we are told that a number of accounts held by statutory agencies are going to be brought under the Consolidated Fund. It is said that the Guyana Geology and Mines Commission holds some 22 billion dollars in commercial banks. This money is now likely to be transferred to the Consolidated Fund. In effect the transfers represent a levy on these semi-autonomous agencies, since we are told that they are going to be used to fund the deficit.
There are implications of moving billions into the Consolidated Fund to finance the deficit. If the government will be financing its deficit by moving monies held as savings and retained earnings into the Consolidated Fund, it means that it will be borrowing less from the banking sector. If government borrows less, it will mean there are implications for the financial sector and for the money supply. Has this been considered by the experts in the Ministry of Finance?
With the need for more revenues – after all the emphasis is on reducing deficits – VAT is not likely to be slashed by the 5% many people were hoping; fuel prices are dropping and pressure will be put on government to reduce the price at the pump, which will affect government revenues. With business slowing, it will mean a lower tax base from which to collect monies. And with Sattaur on leave, who will fill his shoes to collect what was being collected.
God help Guyana!

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