THE VOICE OF THE LIBERAL DEMOCRATS...The Banking System

THE VOICE OF THE LIBERAL DEMOCRATS…The Banking System

Dec 09, 2015 News

By Sase Singh
In the Statistical Abstract for September 2015, published by the Bank of Guyana, it was reported that net domestic credit from the banking system increased by nine percent to $169,150 million between the period December 2014 to September 2015. For the corresponding nine-month period in 2014, net domestic credit increased by 22 percent.
Net domestic credit is driven mainly by credit to the private sector, so let us review those numbers.
CREDIT TO THE PRIVATE SECTOR
Net domestic to the private sector grew by 2 percent between December 2014 and September 2015. For the corresponding nine-month period in 2014, net domestic credit to the private sector increased by five percent which clearly supports the position that there is a slowdown in the growth of credit to the private sector in 2015 vs. 2014.
This is NOT good news, especially in light of the fact that growth in credit to the private sector, the so-called engine of growth, is one of the key elements that drives economic expansion. If businesses are borrowing more, then it translates to them investing more, consuming more and employing more. This means that growth in private sector credit also holds great potential for promoting job creation and accelerating poverty alleviation.
In an economy like Guyana’s, that is constructed around the six sisters (gold, rice, sugar, bauxite, timber and seafood), the banking sector remains the principal source of credit to prime the economy in the short-term. It is not the only long-term solution, but it definitely can add economic energy in the short-term.
The banking sector also serves as an important channel of financial intermediation through which financial resources can be mobilized for productive investments that are needed to kick-start our medium-term economic growth plan. Therefore, these empirical data on the developments in the financial sector remain quite worrying.
Anyone who is committed to progressing the welfare of the poor and the working class has to recognize that our economy needs immediate surgery (financial policy interventions). Guyana’s greatest national threat today in December 2015 remains the economy; not Venezuela.
THE PUBLIC SECTOR INVESTMENT PROGRAMME (PSIP)
Former President Jagdeo personally paid full attention to the work of one team in the old government (even during the Ramotar term) – the PSIP Team. It spent an average of $50 billion annually by way of the Capital Budget, including the inflows from the foreign projects. Anyone who has any understanding of the Guyanese economy would know this is how the PPP under Jagdeo primed the economy.
We can cut it five ways, all the evidence will conclude that the principal factor that stagnated the economy was that poor decision of the Ramotar administration to prorogue Parliament. The impact of that poor decision was felt directly for seven months of 2015. However, with the passage of the 2015 National Budget, that horrible period came to an end, but the damage was done.
In spite of the passage of the 2015 Budget, the Guyanese public cannot feel the wind in their hair from the output from the PSIP Team. Budget 2015 was not small. Some $39 billion in capital expenditure was committed in 2015. But the evidence of it burning at the required levels is just not there. As we commence December 2015, we are a far way from that baseline.
How we spend on the Capital Investment Projects will remain the main fuel to grow this economy in the short-run. These expenditures are generally conceptualized, monitored and supervised in two departments of the Ministry of Finance. The Project Cycle Management Division (handles the inflows from foreign projects) and the State Planning Secretariat (monitors and evaluates the Capital Budget) have a clear mandate.
But something seems to not be working in these two departments since the APNU+AFC government was installed. People in the government system who are in positions to help the Coalition deliver on the capital budget have complained to me bitterly that since Budget 2015, there are clear acts of bias against aggressive implementation. All these officers are getting from either the State Planning Secretariat or the Project Cycle Management Division of the Ministry of Finance, are increased amounts of bureaucratic retardants.
Today we have found ourselves in a position where one of Jagdeo’s men will remain a key controller of the purse string on the 2016 Capital Budget. With such a reality, we can expect bureaucratic challenges in rolling out the donor-funded projects.
The old people say “all skin teeth nah laugh” meaning in his context that this Jagdeo loyalist might skin teeth with the Coalition Government, but his loyalty lies with Jagdeo. It is an absolutely impractical decision to hold on to people who have zero loyalty to the developmental agenda of the Granger/Nagamootoo Team.
Is this Coalition Government willing to take this risk of continuing along this path of possibly compromising its own growth strategy? I think a comprehensive review of the output from the State Planning Department and the Project Cycle Management Department ought to take place. A forensic process review should be conducted on the work of these departments to ascertain input, process and output.
Our economy has an estimated growth rate at the end of September 2015 of some 0.4 percent and it will be a real struggle to meet the budgetary target on growth. This is where the skillful execution of the capital works comes in. It serves as the needed stimulus toward moving the growth rate upwards in the short term. So why are we still stuck with Team Jagdeo in control of key Departments in the Ministry?
CONCLUSION
We cannot be distracted by prolonging these silly little matters; when the Minister of Business needs 100 percent support on his agenda. Attracting the foreign direct investments by way of the work of GO-Invest remains one of the main agenda items. An even bigger agenda item is enhancing our productivity in our productive sectors (the six sisters and more) by way of the Ministry of Agriculture, Natural Resources, and the Presidency.
There is no time to waste; we have four years to deliver on the elements of the “good life for all” and the results so far are not on target.