Our approach to economic growth is not working?

May 25, 2016 News

---

THE VOICE OF THE LIBERAL DEMOCRATS….
 
 
By Sase Singh 

INTRODUCTION
There is no doubt that the economy started to slow down towards the end of 2014 under the Ramotar government. However, no one can rationally dispute the fact that the economic policy formation and implementation rate has been nothing better than mediocre over the last 12 months under the coalition government.
Such an environment of consistent policy paralysis actively contributes to a sluggish economy.  The new normal in Georgetown is economic malaise, with very little on “The How!”
In 2015, the economy grew at its slowest pace in seven years. Luckily for Guyana, our main imports (oil) saw a persistent decline in its price, which brought great relief to the balance of payments situation in that year.  However, these lower oil prices are not holding in 2016 as it marches towards US$50 per barrel by mid-year. The direct impact on our foreign reserves will be adverse.
In such a situation, project executives with solid track records should have been promoted to focus on the income-generating opportunities as a means to a positive end. Instead, we have chosen to recycle many people from the 1980s with fixed-mindsets and records of executive failure.
There are situations in several instances in the Agriculture and Housing portfolios where this is occurring, and the outcome will be much economic pain for the Guyanese nation. These executive failures continue to do everything under the sun but contribute actively towards implementing any creative solutions that will advance the economy.

OUR PRODUCTIVITY
Our productivity since 2014 is clearly stultified and in the first three months of 2016, it has been actually regressive. Productivity is the most important driver of overall economic welfare in a nation; the ”sine qua non” for increasing people’s incomes and improving their standards of living.
This is the first step. But with such a lack of focus, we have already started to reap the fruits of “scatter brain” attitudes toward national development (production in the rice and sugar industry declined by 29 percent and 20 percent respectively in the first crop of 2016).
What is clearly lacking in Guyana is sound numbers to benchmark our progress.  Unfortunately, the Guyana National Bureau of Statistics has for over a decade, been like a “fifth wheel to the coach” as it continues to underperform at the timely delivery of its mandate of ”…publishing socio-economic and other statistical data”.  Ministers are now making policy decisions on the “fluke” because they do not have enough sound data to drives sound analysis. This crisis in statistics in Guyana has to be fixed.
With a great dataset, we can more effectively take policy measures to boost business confidence and aggregate demand across the business and consuming sectors. As we continue to guess-estimate policy in Guyana (as clearly illustrated by the 2016 Budget), it is a hit-and-miss situation rather than a well coordinated economic development framework.  Such a situation is more suited for a cake shop operation rather than the management of a national economy.

AGGREGATE DEMAND = CONSUMPTION + INVESTMENT + GOVT. SPENDING + NET EXPORTS
In the 2016 Budget debate, the Leader of the Opposition and former President Mr. Jagdeo shrewdly referred to the captioned equation. I am convinced the majority in the Parliament did not have a clue what he was talking about and thus the lack of appreciation of “why we are where we are”.  But this equation goes to the crux of the economic challenge in Guyana and offers deep insights into how to fix this economy.
Spending taxpayers’ resources on fêtes, festivities, parades, jump-up and “Jubilee” can only drive marginal and temporary bumps in aggregate demand. The missing link remains subdued investments, consumption, and net exports.
Even if we spend all G$230 billion assigned in the 2016 budget, such a situation will not set up the desired growth trajectory for aggregate demand for 2017 and beyond. Unless we coordinate the implementation of the National Budget with policy measures to grow private consumption, private investments, and net exports, we will continue to run on the spot, which is clearly the case over the last 12 months.

THE NARCO ECONOMY IS OVER-EXAGGERATED
Using the lame excuse of the slowdown in the narcotics trade as the reason why the fruits of the economy are not filtering down to the people at the bottom is extremely misleading. Before drafting this column, I had a conversation with Dr. Tarron Khemraj.  His opinion on this matter goes as follows and I quote:
1.    It is obvious narcotics trading exists, but the dollar level of narcotics is nowhere near the levels in other countries (e.g. Suriname).
2.    As a percentage of GDP, gold smuggling is higher than the narco-trade.  Among some other illegal activities, they collectively are part of the underground economy because they are not reported.
3.    Gold smuggling robs the economy because the “drug guys” will bring back money to Guyana, but the gold smugglers are doing so to evade paying taxes; hence, those incomes stay overseas.
I fully concur with the above comments from Dr. Khemraj.
In my opinion, the key politicians, both past, and present, have always had a major stake in the gold industry. There is enough empirical evidence to prove that both the past and present governments have done too little to stem gold smuggling.  As technical people, it is no fun observing how our policymakers are continually mixing up concepts and terminology as they try to apply political sound bites to serious life-defining economic and financial issues. This state of executive confusion does contribute directly to the declining levels of private sector confidence.
If one studied the 2016 Budget properly, one will find that private consumption dropped from 94.3% of the GDP in 2014 to 78.1% in 2015 and is estimated to further decline to 73.6% in 2016.  If one observed private investments between 2014 and 2015, it was rather flat, and estimated to decline in 2016.  When one observes the performance of the export sectors in 2015, it increased by a measly 0.2%.  The actual performances in the main productive sectors to date paint a dismal picture.  For example, sugar exports were estimated to increase by 13% in the 2016 budget, but actually declined by 29% in the first crop.  The numbers just do not add up, and this exposes a fundamental weakness in the 2016 Budget.

CONCLUSION
We cannot talk down reality and talk up an economic bubble – that is tantamount to talking up a “Ponzi” scheme.  We have to formulate, communicate, implement, monitor and evaluate a series of new progressive economic policy actions that will turn around the productive sectors, especially those that are export focused. It is “The How” that matters, if we are really going to deliver on the “good life”.
“Ceteris paribus”, the year 2016 is shaping up to be a “hard guava season” year for the Guyanese people.  The Stabroek Market vendors are not benefiting from the crumbs of the “good life” and it is certainly not because of the weather or the cleanup campaign.  In broad strokes, it is the quality of strategy as we manage the Guyanese economy.

Please feel free to share your feedback at [email protected].

---

---