THE FUTURE LOOKS BLEAK

Apr 04, 2017 Editorial, Features / Columnists

The people, especially businessmen, are very concerned with the way the country’s economy is being managed. They are worried about the administration’s failure to make decisions that will stimulate investment, reverse the slide in the currency, restore growth and create jobs.
They have also expressed concern over the excessive borrowing by the government which has significantly increased the debt ratio to GDP. What is even more troubling is how the country will repay its debt in the absence of economic growth, a declining dollar and with prosperity no-where near on the horizon.
The country’s economic situation has worsened with declines in GDP in each quarter since the May 2015 election. The general feeling is that the government is floundering.Many are worried that it is overwhelmed and out of its depth. It has not provided solutions to any of the major problems, including the high crime rate, unemployment or traffic accidents and deaths.
Simply put, the affairs of the country are being poorly managed. Efforts to stimulate the manufacturing sector, facilitate the expansion of the services sector, initiate construction activity, boost agriculture or attract investment have not succeeded. There has been no positive movement of the economy from decline to growth and prosperity, and production or exports have definitely not increased. In fact, our imports are twice that of our exports, and this has increased the deficit substantially.
It can be said that solutions to these problems are not as simple as they appear. The government has inherited most of them from the previous administration. Economists have asserted that the increase in price for gold and the potential revenue expected from oil would not be enough to bridge the fiscal gap if the country’s debt to GDP ratio remains high.They have warned that drawing down on the foreign reserves to fund the recurrent huge deficit gap is a bad idea and a band aid solution to the financial woes. The best solution is to stimulate the economy, stabilize the currency, and reduce imports as well as increase exports and production.
The Finance Minister in his 2016 budget statement had indicated that the economy would grow by four percent at the end of fiscal year 2016. His forecast, which was supported by the Governor of the Bank of Guyana, was based on the improvement in the fortunes of the mining sector, especially gold. The economy declined by about 2 percent. It should be noted that forecasts are just as good as guessing, because the economy contracted more in 2016 than in 2015.
It was a gamble that proved very costly, because the government had to borrow billions of dollars to plug the budget deficit. It was a bad decision that could yet result in major consequences for the country. Further, the lowering of VAT has not stimulated the economy and increased spending and revenue as forecast. What has happened so far is that the currency has declined, and this will obviously have far reaching effects on the country, both socially and economically.
Concerns are mounting that an even weaker dollar could lead to capital flight from the country and a dramatic increase in the cost for imported goods that could stall economic growth and further depreciate the dollar. An effective debt management strategy is needed for fiscal consolidation and to eliminate the current deficit.
The government and the Bank of Guyana have for months played down concerns over the value of the US dollar and its availability in the banking system. However, complaints from businessmen who are worried about the government failing, and who warned that a shortage of foreign currency could have severe repercussions for the economy, have led the Central Bank to intervene and inject more funds into the system. That is a short term solution. The future looks bleak.

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