Righting the economy and wronging the people

Mar 17, 2017 Features / Columnists, Peeping Tom

The economy is in a tailspin. An economic free fall is likely to follow. This is inevitable and unavoidable.
The government does not seem worried. To its credit it is not in panic mode. It has resorted to the blame game, saying that sugar is a drain on the economy. However, the decline of sugar does not answer the question as to why other sectors such as agriculture, forestry, fisheries and construction are underperforming.
The government has found new excuses. It says that it is not being given credit for increasing disposable income. It also says that the economy is ‘righting’ itself and is preparing for economic lift-off.
Markets have self-correction mechanisms. Economies don’t.
Governments have to pursue policies to correct imbalances in an economy.
Oil is what the government most likely has in mind when it speaks about the impending economic take-off. The government, in other words, is hedging its bet on oil. It is hitching its wagon to the anticipated oil revenues.
In the meantime, we are being assured that the economy is in correction mode. This is the nonsense that the government is peddling. The ‘righting’ of the economy is translating to the wronging of the people.
When government speaks about ‘righting’ of the economy, it usually involves either stabilization measures and structural adjustment, or both, in the case of structural adjustment programmes. Neither of the two is taking place at the moment.
We do not have a problem with our balance of payments. We have strong international reserves. We are not printing money. Inflation is generally stable so far. Interest rates have not spiked. There is, though, a shortage of foreign exchange. But the government is denying this fact. This is called sleepwalking in a dark alley.
The ‘righting’ of the economy, essentially, is about addressing fiscal imbalances through increased taxes. The burden of those taxes is falling on the average citizen. The rate of VAT has declined by a mere 2%, but VAT is now payable on water, electricity, health services and private education, the burden of which will be passed on to consumers.
The righting of the economy is not addressing economic fundamentals. The government, for the close to two years it has been in office, has presented three Budgets. None of these Budgets have attempted to address the issue of shortfalls in production, the decline in foreign direct investment and the loss of critical markets for Guyana’s exports.
The central focus of all three of the Budgets has been on taxes, not growth, and not increased exports. With growth and increased trade, taxes alone will not be able to right anything other than the Budget deficit. Even government spending is a problem, with the administration having a poor project implementation ratio.
The government promised better. It said that the previous growth was declining. It said that the economy needed to grow at a higher rate. This is not happening. The economy is a one–legged economy at the moment. It is running on gold.
But even the producers in that sector are not happy with the government. The righting of the economy is hurting the goose that lays the golden eggs. The gold miners are concerned about measures which they view as representing increased taxes. So where is the ‘correction’ which is supposed to be taking place?
Guyana has had growth since 2006. The dollar remained stable against other currencies during that period. The new government comes in, promises higher growth. Instead of a stronger dollar, we are now have a de facto devaluation of the Guyana dollar. So where is the ‘correction’?
The government is waiting for oil. What will it do with the oil money? Will it hand it out to the citizens in the form of cost of living allowances? Increased spending in an economy without increased productivity, all other things being equal, leads to something called inflation.
The Guyanese consumer cannot wait on oil revenues, especially oil revenues that are going to be inflationary. They cannot wait on the invisible ‘righting’ of the economy.
Running an economy is not about budgets alone, it is about production, it is about trade, it is about prices, it is about wages, and it is about investment. On all of these fronts the government is clueless.
The SOS needs to be sounded. The government needs help. Call in the experts or call in Bharrat!

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Righting the economy and wronging the people

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