The government is biting off more than it can chew

Jan 29, 2022 Features / Columnists, Peeping Tom

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Kaieteur News – Two basic questions arise upon the reading of the proposed G$550B plus Budget for 2022. The first is whether the government has the capacity to spend that amount of money and second whether the economy has the capacity to absorb such excessive spending.
Last year’s Budget amount to G$383B. It means that this year the government proposes to spend an addition G$167B or more than 40 percent more than what was spent in 2021.
While a number of the measures announced amount to wasteful spending and misplaced priorities, it is doubtful whether the government has the means to spend such a massive sum during the remaining 12 months of 2022
It is well known practice for Ministries to go on a spending spree in latter part of December. Some of them usually place orders during this month and urge the suppliers to deliver in the New Year. The reason for doing so is that during the fiscal year, many Ministries and government departments are unable to fully spend their allocations and they know that unless they spend what was allocated, they will receive less in the coming year. And as such they try to spend as much as they can, including some unnecessary expenditure during December in order to avoid a shortfall.
They seem to not accommodate alternative view that their inability to spend all their allocation could be seen as a form of prudent management of resources. It is doubtful whether the various government Ministries, departments and agencies have the capacity to spend the massive increases in allocations this year.
Guyana has suffered in the past as a consequence of the poor public sector implementation. International financial institutions found that poor capacity affected the country’s ability to draw down on external resources. The Budget makes little attempt to fix the problems of public sector management. In fact the PPP/C appears to give little priority to reforming the public sector which is bloated and which is drag on public expenditure. A leaner more efficient public sector would release more resources and improve the economy’s absorptive capacity.
It is also questionable whether the economy can absorb such a massive increase in public expenditure at a time when the government is also hoping to see an increase in private expenditure inclusive of private direct investment in the economy.
One of the more recent World Bank (WB) reports on Guyana had highlight the dilemma posed by both lack of government capacity and the country’s absorptive capacity. The World Bank had cautioned: “The international experience with newly resource-rich countries highlights the importance of fiscal restraint and respect for the limits of both the expenditure capacity of the public sector and the absorptive capacity of the economy.”
Judging from the size of this year’s Budget, the government appears hell-bent on going on a spending spree rather than placing more attention, as the WB advised, on strengthening government capacity while enhancing the economy’s ability to absorb public spending.
But it is not only the WB which has cautioned fiscal restraint. The IDB and the IMF has also expressed concern about fiscal profligacy given the country’s low absorptive capacity. It is for this reason that on more than one occasion, advice has been given to the government to ensure that the Natural Resource Fund strikes a balance between resource flows and the economy to absorb such flows.
In fact, excessive Budgetary allocations can push government expenditure beyond the capacity of government institutions and the economy’s ability to absorb these expenditures. This can lead not only to inflationary pressures but result in upending macroeconomic stability.
While the increased allocations for education and health will be welcomed by the population, the World Bank had forewarned that the rates at which these social services can be improved depend on the absorptive capacity of the economy. Simply throwing money at the social sectors is not a guarantee that there will either be value for money or an improvement in the quality or reach of the services intended.
The government may be forced later in the year to take steps to shrink demand since local production cannot be expected to keep abreast with the increased demand which is expected to be generated from the massive spike in public expenditure.
Budget 2022 is a watershed for Guyana. It is the first Budget in which oil revenues will be utilised. But with the government biting off more than it can chew, the massive Budget may well turn out to be an economic Waterloo.
(The views expressed in this article are those of the author and do not necessarily reflect the opinions of this newspaper.)

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