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US withdrawal from IDB investment will have adverse impact
… but can be seen as an opportunity – Goolsarran
Chartered Accountant, Anand Goolsarran
Since Guyana benefits significantly from loans and grants from the Inter-American Development Bank (IDB), the United States decision to withdraw its support from the bank’s investment fund, is likely to have implications. The Multilateral Investment Fund is a component of the IDB that supports mainly pilot developmental projects.
In an invited comment, Chartered Accountant Anand Goolsarran said that the US pulling its support from the Fund, is an obvious indication that IDB will have to prioritise its lending arrangements.
This also means that Guyana will have to compete with other countries for loans and other grants that it desires from the IDB.
“This action will definitely have an adverse impact on Guyana since over the decades we have been dependent on the IDB for the financing of major infrastructure works,” Goolsarran opined.
The Former Auditor General shares the strong belief that the US’ withdrawal can be seen as more of an opportunity, than a topic to grieve over.
“For decades, we have been running a budget deficit,” Goolsarran pointed out.
He said the time has come when Guyana has to do some resetting and decide on its priorities.
“Every year, we rejoice at the fact that we have the biggest budget ever, but little do we realise that we are living with borrowed money, and hence beyond our means,” the former Auditor General said. He went further to explain contents of the 2015 Auditor General’s report.
“The public debt was G$352.073B, the external portion of which amounted to US$1.143B at an exchange rate of US$1=G$203.1. At the current exchange rate, we will have to find more Guyana dollars to service our external debts.”
Given this, Goolsarran is of the view that the time has come for Guyana to introduce austerity measures aimed at securing a more balanced budget.
“As a minimum, we need to scale back on foreign borrowings. Countries such as Canada and the UK do not borrow to finance infrastructure works,” Goolsarran pointed out. He said that while the prospects of earning oil revenues are encouraging, the country must consider such revenues, as of now, “a bird in the bush.”
Whenever they materialise, we should consider them as a bonus,” he said.
In other words, Goolsarran is advising that Guyana not “put all our eggs in one basket.”
He is of the view that continuing to do this will see the country suffering “the Dutch disease.”
“In short, the economy needs to be diversified and we must aim to have a balanced budget, say at the end five years,” Goolsarran urged.
At a news conference last Sunday, the United States’ decision to pull its support from the fund was made known.
According to Reuters, the IDB had linked the U.S. decision to a policy shift since Republican President Donald Trump took office in January.
Founded in 1959, the IDB provides loans to governments and businesses in need of funds to finance projects, both large and small scale ventures.
The IDB has boasted of being the leading source of development financing for Latin America, lending $11.3 billion and $13.8 billion in 2015 and 2014, respectively.
According to Reuters, the Multilateral Investment Fund, or MIF, created in 1993, was instrumental in the development of microfinance and provides technical assistance to small projects aimed at providing economic opportunity to the poor.
The international news house quoted a statement from the IDB, which pointed out that the MIF, was actually a brainchild of former U.S. President George H.W. Bush, adding that the United States has historically been its largest donor.
“IDB member countries pledge to renew the fund’s coffers every several years. At the October meeting, the IDB governors agreed to provide an additional $300 million to keep the fund running from 2019 to 2023,” Reuters reported.
It was explained that this marks the first time since the MIF was founded that the United States did not contribute to the replenishment of the fund replenishment.
“In the U.S. absence, Latin American and Caribbean countries contributed 55 percent of the total $317 million added to the MIF this year, while Japan pledged $85 million, the IDB said. During the last replenishment in 2007, contributions from Latin America and the Caribbean totaled 8 percent of the $501 million added to the fund. The United States contributed $150 million,” the Reuters report said.
The IDB has, nonetheless, pledged its support to continuing with the Fund.
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