Structural reforms are needed to support economic expansion

Jul 26, 2018 Features / Columnists, Peeping Tom

Oil is not going to come to the rescue of Guyana’s economy this year. It is not even likely to have much of an impact in 2020, given the depletion of Guyana’s international reserves.
Those therefore hoping for an oil bonanza should not suffer from amnesia. They have forgotten that Guyana signed one of the poorest deals with ExxonMobil.
Unless, therefore, gold comes to the rescue of Guyana, as it has done over the past few years, we can be facing a major economic meltdown over the next two years.
However, the situation needs not de-escalate to that level. Rice can kick in with another record-breaking crop and save the day but even those in the rice industry are not that confident. The Agricultural Ministry lacks energy and has not been aggressive in pushing expansion in non-traditional exports, which is what can spur a recovery in the economy pending first oil.
In the meantime, there is concern about Guyana’s foreign exchange market. The Bank of Guyana is concerned about the shortage of foreign currency. It has therefore issued a warning, noting that certain businesses are conducting transactions in foreign currency.
This is another way of saying that certain stores in Regent Street are accepting foreign currency from Cuban nationals who are keeping the business sector alive at the moment.
The Bank of Guyana warning is a foreboding of what is likely to happen in the economy. It represents the fears that a shortage of foreign exchange is imminent.
Guyanese must not panic because oil prices have not escalated to the extent whereby they can harm our Forex reserves. But unless, the government takes steps in 2019 to expand rather than contract the economy, the situation is not likely to improve.
When the oil crisis of the early 1970s hit, Burnham was misadvised to contract imports as a means of dealing with the spike in prices. He banned a number of consumables and placed import restrictions on a number of items, which had the opposite effect to what was intended.
Capital flight accelerated because of the signals, which were being received. When emigration to North America accelerated, people not only left with their families but they found ways of getting their wealth out. This worsened the Forex situation with the result that Guyanese, after a while, were only able to lawfully take US$40 out of the country. People found ways, of course, of taking out more than this.
The curtailment of imports badly hurt the productive sector with spares and important inputs becoming short. The agricultural sector experienced problems and manufacturing starved of inputs shrunk.
Jagdeo took a contrasting approach when the financial crisis, far more serious than the oil crisis – hit in 2008. Instead of contracting imports, he countered the rise in food and energy imports by doing the opposite to what Burnham did. He pursued investments as a means of expanding the economy and exports. He cushioned the impact of flour prices on consumers and introduced a sliding scale for fuel to keep prices from skyrocketing.
The result was that Guyana enjoyed a sustained period of relatively impressive economic growth and a fiscal boon.
The APNU+AFC Coalition is at sea when it comes to adopting a strategic approach to the present crisis. Instead of having a strategic focus, the government believes that it can ride out this crisis by crunching Budget numbers.
The problems of the economy are however structural. It cannot be solved by reshaping revenues and expenditure.
The Leader of the Opposition yesterday made mincemeat of the economic management pointing out that that the government sees an early Budget as an achievement, when in fact the early Budget has led to serious problems, when it comes to the numbers, which are being presented in those Budgets. According to the Opposition Leader, the actual indicators have turned out to be far different from what was presented as estimates one month before the end of the fiscal year.
The government is hoping that first oil will correct the problems in the economy. If it were that simple, there would have been no cause for worry.
However, Guyana’s own experience demonstrates that structural reforms are always needed to support the gains of economic expansion, not the other way around. This is what the writer from the New York Times was trying to tell Guyanese.

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