We need not get excited about oil and gas as it is merely a premium

Apr 23, 2020 Letters

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DEAR EDITOR,

The Finance Minister recently posited in a press statement that the country’s resource is “slender”. Editor, may I point out that, with the greatest of respect, it is under the subject Minister’s stewardship unfortunately, over the last five years, inter alia, the economic policies administered therefrom that have been woefully responsible for this “slenderness” of the country’s resource.
The Minister went on to state that Guyana will be lucky if it gets anything around US$60 million for the next three oil lifts and that “if the Government was able to access half of that for the COVID-19 fight it would certainly go a far way in assisting small businesses in particular and the vulnerable in society.”
Now, let’s contextualize the learned Minister’s statement to the nation: US$60 million is equivalent to approximately GY$13 billion, therefore, half of this amount is GY$6.5 billion. Let us examine now, where the state’s resources stand in 2020 and where it stood in 2015 – that is, what the Minister inherited.
In 2015 the Government’s total deposit in the Central Bank stood at a surplus of $15.3 billion, total public sector deposits in the commercial banks stood at $68.2 billion giving rise to total Government deposit $84 billion surplus in the banking system. The Bank of Guyana International Reserves stood at US$595 million which represented almost five months’ worth of import cover in reserves; at the end of 2014 total public debt stood at $330 billion which includes external debt; and the overdraft on the Consolidated Fund (CF) at the end of 2014 stood at $77 billion.
As at February 2020 the Government’s deposit accounts at the Central Bank stood at a whopping $82.4 billion as a negative/deficit balance from a surplus of $15 billion in 2015. While bearing in mind that these deposit accounts over the last two decades had always recorded surplus balances as high as $60 plus billion at one point. The public sector total deposits in the commercial banks stood at$55.4 billion which would give rise – when taken together with the balance at the central bank to a deficit of $26.5 billion or US$127 million, compared to a surplus position in 2015 of $84 billion or US$403 million. The international reserves as at the end of February 2020 stood at US$548 million which is equivalent to less than 2.5 months’ worth of import cover – thus an indicator of a weaker position from almost 5 months equivalent in 2015.
Total public debt stood at $354 billion by the end of 2018 representing an increase of $24 billion from 2014, while the balance on the CF as of 2017 (the most recent publicly available data) stood at $137 billion deficit from a position of $77 billion in 2014 representing an increase of its deficit/overdrawn position by $60 billion. Editor, it is important to note that these huge deficit balances drawn on the central bank are in effect the creation of debt which ought to be repaid. These Central Bank balances should not be used as perpetual financing for Government’s spending.
Editor, to understand the gravity of excessive spending of public finances by the Government within this last five years period – total expenditure amounted to $1.2 trillion which is currently over $1.5 trillion compared to total expenditure of $2 trillion spent by the previous administration over a period of 23 years. In other words, the previous Administration expended less than $500 billion within a five years period while the current Administration expended more than twice the amount to reach almost close to $2 trillion in five years if these trends of excessive, unapproved spending continue such as the $1 billion Ocean View project.
In the final analysis, it is noteworthy to mention that Guyana never produced oil before and does not need oil to transform its economy. As is evidenced in the analysis herein, the economy had a much stronger macroeconomic framework pre-2015 and without oil. The flawed policies over the last five years weakened major productive sectors resulting in a loss of close to US$2 billion in foreign exchange from other major sectors. Ironically, today oil price is well below US$10 and the price for sugar is gaining momentum on the global markets.
I have written extensively over the last two years through published articles, that sugar is viable in the long term apart from its many bi-products and options of diversification of its revenue streams. These were well documented in the Commission of Inquiry as well. I have also pointed out on many occasions in my academic articles that the Administration is committing a huge error since 2015 by neglecting the productive sectors with its sole focus and excitement with oil and gas. Oil will not last forever: in my work over the last two years I contended that the industry would not last more than 20 years. Therefore, we need not get excited about oil and gas as it is merely a premium, nothing else.

Yours faithfully,
JC Bhagwandin, MSc., Exec Ed.
MBA Lecturer & Consultant – JB Consultancy & Associates

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