The guessing game

Apr 19, 2018 Features / Columnists, Peeping Tom

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The Ministry of Finance needs some help with its economic forecasting. It has failed to accurately predict targets and revised targets for the past three years, an indication of the need for the services of an econometrist.
In 2015, the Ministry of Finance projected an economic growth rate of 3.4%. It revised this by a mere 0.1% downwards in the same year, only to find that actual growth ended up being 3%. In 2016, the Ministry projected a growth rate of 4.4%. It later revised this downwards to 4%, but shockingly the actual growth was a mere 2.6%.
Given the experience of the two previous years, you would have assumed that the Ministry would have got it right in 2017. But here again, the Ministry’s numbers went awry. It projected economic growth at 3.8%, revised this downwards to 3.1 % but is now saying that growth was a mere 2.1%.
The deviations between the actual and the projected growth rates are too great. They signal a serious problem with economic forecasting which needs to be addressed urgently.
Investors look to projected growth rates to assess investment risks. The anticipated growth of an economy is a measure of whether the economy will expand and by how much. This influences type and level of investment to be made. The up-and-down forecasting which is being employed by the Ministry of Finance does not assure investors if a trusted level of predictability. It is, to say the least, misleading.
There is nothing unusual about a government revising its growth rates. This happens all the time because economies tend to be fluid. But what is worrying is when you overshoot in your projections and then have to revise this downwards only to find that actual growth rates are far worse than even the downward revision.
If the Ministry of Finance is going to play a guessing game with economic forecasting, it is best that it projects a low growth rate and then ratchet upward during its midyear revision. Barring a natural disaster, no government should find itself in a situation whereby it fails to reach even its revised projections. It should be exceeding its revised projections, not falling short of it.
The government blames the structure of the economy. It says that the economy has been dependent over the past fifty years on the same commodities which can go up and down depending on international demand, prices and markets. But for fifty years, Guyana knew this and therefore it is inexcusable for such large deviations to be occurring and with such consistency under the APNU+AFC.
If the structure of the economy has remained the same for five decades, this should make accurate forecasting better not poorer.
When it assumed office, the APNU+AFC Coalition indicated that the economy needed to grow faster. It therefore came into office arguing for higher growth rates. It has not delivered on this. It has not even been able to predict the low growth rates of the past three years.
When APNU+AFC said that the economy needed to grow much higher than under the PPPC, this meant that the non-oil economy needed to grow since first oil is not going to come until 2021, at the earliest. Yet APNU+AFC has been promoting a ‘breadfruit chips’ economy instead of taking steps to boost economic growth.
The government has not pursued any policies aimed at expanding the non-oil sector. If it has then those policies are as secretive as the signing bonus.
There has been a demonstrable level of cluelessness by APNU+AFC in managing the economy. Even in the area of small businesses, which the government has been encouraging, the resource envelope has been inadequate.
The small business sector needs increased demand to grow. Small businesses cannot expand the economy; it can expand employment only. It cannot grow in a contracting economy. Yet all of the major sectors, except rice contracted. Were it not for rice, growth would have plunged into the negative.
With oil coming, perhaps there is no urgency on the part of the government to bother about non-oil growth. Oil production is going to lead to an increase in growth. However, Guyana will become a victim of the resource curse unless it uses its oil revenues to boost non-oil growth.
However, this is clearly not the strategy of the Ministry of Finance. It is downsizing sugar. Political belligerence cost Guyana the Venezuelan rice market. The Mexican market is for paddy. The Cuban market was unsealed by a private company, not the government. Poor policies led to a reduction in gold production last year. Bauxite faces a bleak future. Fisheries has been hit by a US ban on species of fish which it is said accounts for 70% of exports to the US.
On the monetary side, there is uncertainty. Suggestions have been made that the Bank of Guyana has been buying more foreign exchange than it has been putting back into the economy, the reverse of what it should be doing. The Ministry of Finance has not yet responded to this allegation.
So just what exactly is the Ministry of Finance doing, apart from missing the mark in its economic forecasting?
Economic forecasting is not a guessing game. If it becomes this then the economy will rise and fall on a gambler’s luck.

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