The economy is not in a crisis

The 10% rate on alloy steel, which the Guyana Revenue Authority says is as a result of an internal quality review process, will add to the woes of consumers. The price of steel on the local market will increase further and this increase will be reflected in increased construction and building costs.
Consumers cannot bear an additional 5%. Steel is no longer cheap. You can no longer get a steel rod for $50. Prices increased years ago because of the demand from China. Steel prices skyrocketed and have stayed high.
As much as the public will try to understand the reasons for the 10% tariff, it will cause problems for contractors who would have prepared estimates based on a 5% rate for steel and now have to pay 10%.
For the average citizen the building bubble has now burst. Prices of land are crashing down but construction costs are rising. The two are not unrelated.  Increased construction costs are reducing the demand for land since less people are building.
The decline in land prices is as a result of the decline in the construction sector. The decline in the construction sector has been confirmed in the half-yearly economic report produced by the government.
The lack of investment in construction means that the demand for land has fallen. It has also fallen because people are cautious, as evident by the decline in remittances. Less money is coming into Guyana because persons are adopting a wait and see attitude towards this government. They are waiting, but they are not seeing any encouraging signs that would allow them to keep investing back home. The fall in remittances may also be a sign of capital flight. This will be explained in a subsequent column
What all of this means is lower investment and lower demand for land. People are no longer eager to store wealth in land because the deprecation in land values since the government came in has been substantial. Just ask any real estate dealer.
Guyana does not have an economic crisis. The economy is strong, very strong. The PPPC left a solid economy.  The economy can withstand for another ten years of the present uncertainty. The revenue base of the government is solid. This is shown by the fact that despite the decline in a number of areas, revenues have still increased by billions. Money is not the problem and will not be the problem for a long time. The problem is whether government will spend the money in the right way or whether it will squander it by putting it into consumption.
The manufacturing sector is bawling because some inputs now have to pay tariffs which were not in the past being implemented by the previous government. The fact that they now have to pay what they never used to pay has placed some pressure and created uncertainty within the manufacturing community. The government did not do enough to address this concern. As a result, the manufacturers have become desperate and sought answers from the opposition leader.
A basic principle has been ignored by the government in managing its fiscal policies. Input costs should always be kept low. Capital equipment should not attract taxes. Land costs, including rentals, should be kept low. This is the ABC of fiscal management.
The government is doing the opposite. Inputs which were previously not taxed are now being taxed.  Machinery such as excavators used in both agriculture and construction are now attracting taxes. And increased land rentals are under consideration. Agriculture and construction will suffer.
Things are not going to get better with this sort of approach. But things will not collapse. The economy is not in crisis.

1 thoughts on “The economy is not in a crisis”

Surujpaul Rampersaud August 18, 2016 at 9:11 am

You got it right. I wonder if the economic advisors are in their right senses. Investors and developers need to be given incentives to invest. Yes the economy is stable in turn of revenues derived from taxation but what about foreign earnings to pay for imports?. Is the government targeting investors in an effort to restrict imports hence saving foreign ex or is government hoping that they will fail so that we will revert to state ownership that failed. I hope this is not the plan because if it is we are doomed