Our last two budgets rescued economy from slipping into negative growth – Finance Minister

Nov 27, 2016 News

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By Kiana Wilburg
There is much suspense surrounding the 2017 budget which will be read by Finance Minister, Winston Jordan tomorrow in the National Assembly.

In fact, President David Granger already gave some insight into the budget, stating recently that given the poor performance of some of the nation’s main traditional sectors such as rice, timber, bauxite and sugar, an element of conservatism can be expected.
The Head of State also disclosed that the 2017 budget is centred on ensuring financial sustainability.
But to appreciate what is to come, it is wise to note what the Government’s last two budgets actually accomplished.
In a conversation with this newspaper last week, the Finance Minister revealed the significant impact that his 2015 and 2016 budgets had on the economy along with his thoughts on the way forward for ensuring that the nation is kept on the path of sustainable growth.
Jordan noted that his first budget which was presented to the nation on August 10, 2015, actually laid out a path that the Government will be taking over the next five years.
But more importantly, the economist said that the 2015 budget can be described as a “stabilizing budget.”
“As you would recall when we came in, we had an idea of what we would meet but the reality was far worse than what we were expecting.”
Jordan said that the sugar industry, for example, was found in a woeful state. He added that this state of affairs has not changed and is actually reflected in the production figures of the sector.
According to statistics from the Ministry of Finance, in August, last, 5,239 tonnes of sugar was produced, bringing the total to date to 61,884 tonnes compared to 96,491 tonnes produced from January to August 2015.
In addition to the first crop being lower than expected, planting for the second crop started late which has resulted in a significant decline of 65.9 percent, when comparing production for August 2016 to that for 2015. Due to late sowing, by several estates, the 2016 target for sugar of 218,188 has been revised downwards.
The Finance Minister also explained that the booming rice sector ran head-on into trouble after it lost its preferential market in Venezuela.
“As you would recall, Venezuela informed us that it was not renewing its contract with us. But what is worse is that they abrogated the existing contract when we came in, which should have run until November 2015. So we had to pay rice farmers for rice they would have already tried to ship to the Spanish-speaking territory, and I believe that rice is still on the wharf up to this day waiting.”
The Finance Minister continued, “Then, we had the issue of Venezuela and its renewed claim of our territory. Because of that, we had to divert a lot of expenditure. Compounding that was the fact that at the same time, we lost the PetroCaribe deal. So instead of saving foreign exchange, we had to expend resources on buying fuel on cash.”
To date, the Ministry of Finance has found that rice production for August 2016 reached 2,500 tonnes – up from 402 tonnes in August 2015. Higher production levels over the last three months continue to result from late reaping.
This brings rice production from January to August 2016 to 269,338 tonnes compared to 360,727 tonnes produced during the same period in 2015. August brings to a closure production of the first crop which was badly affected by the El Nino phenomenon.
Jordan added that given the state in which the new government found those sectors, it had the difficult task of trying to stabilize the economy; of trying to stop the economy from “sliding further” down the scale of growth. He said that “sliding” started since 2014.
The Finance Minister asserted that the Government, after the election period, also had the task of returning confidence in the economy. He noted that with every election, assurance in the economy is put to a test.
“So people either postpone investments decisions or abandon investments or do a ‘wait and see’ kind of story. Then we had to temper demands being made on the Treasury in terms of wages and salaries and demands for new concessions by various industries – whether it was fishing, rice, gold, or manufacturing. So we had to deal with all of those while trying to ensure that the economy we inherited did not slide into negative growth,” expressed Jordan.
He noted, in fact, that his maiden budget as well as the full year 2016 budget could be deemed as stabilizing budgets. He emphasized that both budgets served to set the stage for continued growth. He cautioned that the budgets should not be seen as transformational for the various traditional sectors. He stressed that this cannot happen in 18 months.
The Finance Minister said that before the transformation of the traditional sectors can take place, the foundation has to be set.
“Fifty years ago, this economy stood on three, at most four legs for traditional sectors. 50 years later and it is being expected to stand on the same legs. We, who stand on two, after an hour, would want a rest. So for 50 years, the economy has been standing on the same legs and now everything has come crumbling and crashing down. When we talk about transformation, we have to first talk about rebuilding what we have.”
The economist said that while some may be speaking about the transformation of the sugar industry as of late, one cannot simply “wake up tomorrow and decide that value added production is the way to go with sugar.”
The Finance Minister said that transformation or diversification in that regard would take studies which will cost money, especially “at a time when we don’t have.”
Jordan said that for the time being, what has to be done at this point by the Government is to “patch certain areas and hold on, until you can make decided investments to get to that transformation.”
The Finance Minister was also asked to explain the difference between the budgets he has presented compared to those done by his predecessor, Dr. Ashni Singh.
In this regard, he said that Singh’s budgets benefitted one way or the other, from good commodity prices. In the case of gold, Jordan said that the prices had shot up at one time and that created a huge response for gold. But when the prices slumped in the gold industry, production and the attraction to the sector saw a decline. Jordan commented that such a reaction is expected.
In the case of rice, Jordan said that this sector benefitted from the Venezuelan overpriced market; a premium market and when the price slumped so did the sector. He said that this has been proven even today, as the rice sector has shown that it could not sustain itself without a premium market.
The Finance Minister said that such behaviour in the sector was no surprise.
“So with that scenario in mind, it becomes clear why the Opposition Leader and the rest have been calling for new incentives to be given to the rice sector. But the reality is that the rice sector benefits from a significant number of incentives already,” Jordan asserted.
On the area of concessions, the economist said that these were never meant to be handed out to maintain a company, for example. He stressed that concessions are intended to help a business grown in its stage of infancy.
“When you are giving out concessions, you give it to start up industries. You give it to someone who is creating a big investment in your country and so on, but if you can’t run a business without significant concessions, then you ought not be in the business.”
The Finance Minister said that when it comes to the repeated calls for concessions, all it would do once granted, is erode the tax base. Jordan also recalled statements he made to the manufacturing sector last year, to the effect that he would much prefer a clamour for lower taxes than concessions. He stressed concessions also distort resource allocation.
In this regard, he explained, “If you have a business that can’t make a profit, ordinarily what you would do is take your money and go somewhere else. If the only way you are going to make a profit is if I give you x dollars in concessions, then instead of you originally taking your money and going somewhere else, you would continue to invest it in a loss-making area. So it is distorting resources.”
He continued that if a person or a company continuously needs a lot of concessions to stay in business then something is radically wrong. In any case, Jordan stressed that the nation’s tax laws were never created for concessions to be granted in such a manner.
Speaking specifically to the impact of the budgets, Jordan said that he is confident that they did their job by preventing the economy from sliding into negative growth. He said it is important to note that the country was actually on the brink of its growth being severely hampered.
Jordan said that based on Government’s prudent management of the economy, Guyana can now boast of being one of the few countries that has recorded positive growth over the last two years.
Even with this accomplishment under its belt, Jordan said that Government has not lost track of the fact that the nation is “still under the gun” since the sugar sector is collapsing even further.
The economist noted that this is a serious economic challenge and as such, it would be expected of the Government to accelerate efforts to diversify the economy. He said that the economy has to be moved away from its reliance not only on sugar but its other “traditional legs” that are now “tired and worn”.
The Finance Minister said that this is not to be misconstrued as Government throwing away the proverbial baby with the bathwater.
“It means that in term of the legs (traditional sectors) that we have, we have to treat with them in a smarter way. And just like how some older folks need a walking stick for support, we now have to develop new industries that can help the traditional sectors to sustain growth in Guyana at a higher level, while creating sustainable jobs.”
Jordan explained that the sectors such as rice, timber, sugar and bauxite maybe recording growth in production but they do not employ new labour.
He said that this is a crucial area of focus for the APNU+AFC administration, as it is intent on building new industries that can create permanent jobs rather than seasonal and other types of jobs.
With regard to forestry production, it was noted that for August, last, it amounted to 24,889 cubic metres compared with 26,010 cubic metres in August 2015. Total production from January to August 2016, currently stands at 202,596 cubic metres compared to 238,045 cubic metres produced during the same period in 2015.
The Finance Ministry reported that low production levels for 2016 has resulted from the Government re-organizing the sector in pursuit of better forestry management and greater value added works. Production levels are expected to regain momentum in 2017.
In the area of bauxite production, for August, last, it was recorded at 141,705 tonnes compared to 121,469 tonnes in the same month last year. This brings bauxite production from January to August last to 1,024,551 tonnes, compared to 986,176 tonnes produced during the same period in 2015, an increase of 3.9 percent. Except for the months of April and May, bauxite production has been consistently higher in 2016 compared to 2015.
The Finance Ministry said that this consistency is mainly attributed to improved efficiency.

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