An accountant’s rather than an economist’s Budget

Jan 19, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – A Budget is a one-year financial programme of the government. It provides projections of estimates of expenditure – what the government intends to spend – and it revenues – what it intends to collect.

However, and notwithstanding that the Budget is a one-year programme of the government, it should be informed by a larger vision of the government. It should be anchored in the government’s national development strategy and, at least, in a medium term fiscal plan. Regrettably, the government does NOT have a national development strategy. The Low Carbon Development Strategy is an environmental strategy, and to borrow a term on which the President is now hooked on, it does not represent an economic “ecosystem”.

The Minister of Finance in his Budget Speech spoke about the vision of the LCDS becoming a reality. And what was this vision which became a reality? It was pointed out that during 2022, 33.5 million carbon credits were issued and the agreement for the same of 37 million carbon credits. There was little mention in the Budget Speech as to how, apart from revenue flows from the sale of carbon credits, the LCDS informs the economic programmes for 2023. The LCDS is essentially therefore a financing mechanism and not a national development strategy.

As such, there is overarching or underlying economic strategy which should guide the preparation of the Budget. What the government has been tabling since 2020 is an accountant’s Budget rather than an economist’s Budget. No wonder the Budget Speech and the public relations blitz which followed it were dominated by figures about the total spending which will take place in the various sectors. We have heard, for example, about $2B allocated for establishing a regional food hub, hinterland agriculture and harnessing technology in agriculture.

We have heard about G4B to be injected this year into GUYSUCO. The corporation is now on the brink of collapse. We have heard about $300M for rice production and productivity, We have heard about $19.7B for drainage and irrigation, two years after the expenditure on drainage could not prevent the disastrous floods of 2021. We have been told that $584. 2M will be allocated to small business development.

The education sector will receive $94.4B in 2023; sport, youth and culture will receive more than $4B. The health sector will receive some $84.9B; almost $150B has been allocated for transport infrastructure and sea defence. It is all a numbers game. But how were these numbers determined? This is where a medium-term fiscal plan assumes greater importance. What the country needs is a medium-term fiscal framework and a medium-term fiscal plan to guide the government’s annual spending and revenue plans. But the 2023 Budget is not linked to any such framework. The International Monetary Fund had emphasised the importance of such a framework to anchor fiscal policy. In its 2022 Article 1v Consultation report, the IMF had recommended that Budgets be set within a medium-term macroeconomic framework.

The Inter-American Development Bank has offered similar advice. A June 2018, Policy Brief had underscored that the magnitude of the country’s oil revenues not be understated and that work should commence on a rule-based fiscal framework. The Natural Resource Fund with its formula for withdrawals represented a start in this direction. That policy paper made some damaging assessments which were true then as they are now. Referencing IMF and IDB sources dating back to the Jagdeo presidency, the report noted that the existing medium-term framework was weak and NOT correlated to strategic goals.  In terms of the Budgetary process, the report observed that there was limited monitoring of budget execution, “evaluations of impacts are rare, and contingent liabilities are not explicitly accounted” for.

The 2023 Budget therefore has been framed outside of any medium-term fiscal framework and is not linked to any national development strategy since there is none. The Budget is a hodgepodge of measures many of which contradict the government’s stated objectives. For example, the government had promised 50,000 jobs which were told would include thousands of jobs created by the housing drive. Yet the government is now moving to create thousands of part-time jobs- an unsustainable measure.

An examination of the Budget estimates would also reveal another major shortcoming of the Budget. The economy simply does not have the capacity to absorb the massive capital expenditure which is being projected for 2023, and continued expansion of current expenditure will be inflationary. The absence of a medium-term economic framework and a medium-term, rules-based fiscal framework will result, inevitably, in the misallocation of resources. But that is nothing novel when it comes to Guyana!

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• budget, GUYSUCO, Inter-American Development Bank, Low Carbon Development Strategy, Peeping Tom

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