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Budget jitters!

Dec 07, 2016 Features / Columnists, Peeping Tom

The market is sending signals which cannot be ignored. The rise in both the buying and selling rates for the US dollar indicates that less money is being sold to the cambios and there is greater demand for the US dollar. In other words, there is a shortage of US dollars on the cambio markets in the country.
The commercial banks have not yet seen an increase in their selling rates. But everyone in Guyana knows that it is the cambio that is a sign of future trends in the foreign exchange markets.
The government is denying there is a shortage of foreign exchange. It has pointed to the asset position of the banks in Guyana and the fact that international reserves remain at around four months of imports.
These markers – financial sector assets and the international reserves – have never prevented the slide in the Guyana dollar. The PPPC had used the same argument that the APNU+AFC is now using. When the problems with Anti- Money Laundering and the Financing of Terrorism Bill began, there was slide in the exchange rate, particularly that relating to the use of credit cards. Some businessmen were complaining that they had to pay as much as G$230 to US$1 to complete international transactions.
This has an effect on prices. Yet the government said that Guyana had negative inflation in 2015. The same APNU+AFC which has been highly critical and skeptical of the low inflation rates of the PPPC, now seems very comfortable reporting that inflation in Guyana was below 2% in 2016.
Take the people who have to go to the markets and supermarkets, they are not going to be convinced that prices have not moved higher than the government is claiming.
They will also point to the fact that the US dollar at one stage used to be selling at G$200 and it is now selling for as high as $213. At this time of the year, there is usually a fall in the buying and selling prices of the US dollar because of the flood of remittances from abroad. That avalanche usually occurs from after the December 15, 2016 after the bonus is paid in the US and Canada.
The fact that the Guyana dollar is depreciating in recent days would be a source of concern given what the government says are healthy reserves, financial assets and US currency held in the banking system.
So what can be accounting for this mad rush? It is hardly likely that the forex shortages in Barbados and Trinidad are responsible. Those countries have had their difficulties for some time but they are not buying up US dollars on our local markets since the cambios are not going to take off any great deal of Trinidadian or US dollars.
It is likely that what has happened is a case of Budget jitters. People who have US are holding their money because they do not know what the New Year will bring. The Budget has created shockwaves in the country. There are no growth policies. It is essentially a taxation Budget aimed at financing government expenditure and with the government likely to be borrowing to finance its deficit, people are afraid and are holding on to their US dollars.
A great many people are also likely to want to move their savings out of the country in order to avoid it being garnished for tax purposes. They may be willing to pay a higher rate for foreign currency to enable their capital flight.
The Bank of Guyana should be calming the fears of Guyanese by pointing out just how much foreign exchange they have released into the economy. They should be releasing more money to ensure that the Guyana dollar appreciates rather than depreciates.
Guyana should not be holding international reserves greater than the value of three months imports. Any excess should be put into the banking system but for use only for legitimate uses for major capital expansion. It is no use putting money into the system to facilitate capital flight. Foreign exchange should be released to help stabilize the Guyana dollar. And of course to calm the Budget jitters.

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