Is the Guyanese economy about to collapse?

Dec 18, 2023 Features / Columnists, Peeping Tom

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Peeping Tom…

Kaieteur News – In a bizarre defense of his government’s paltry award of a 6.5 percent increase in salaries to public servants, Vice President Bharrat Jagdeo is reported to have said that any salary increases not grounded in an analysis of the economy, the state of the country’s finances and its revenue stream will not be sustainable.

So, what is the state of the country’s economy, its finances and revenue stream that cannot justify an increase higher than the 6.5 percent? Considering even the official rate of inflation, then a 6.5 percent increase suggests that there are serious problems with the economy and the country’s revenues. What are the facts?

It is the same government served by Vice President Jagdeo that brags consistently that Guyana is the fastest growing economy in the world. It is the same economy which is supposed to enjoy double digit growth right through to the end of the decade. Over the next four years, the economy is expected to grow at an average of 20% per annum with oil production reaching one million barrels were day within a few years.

The IMF in its most recent analysis of the Guyanese economy stated that the economy has tripled in size since oil production began and that growth last year was recorded at 62.3%. It indicated that there are no signs of the overheating of the economy. It claimed that the country’s economic fundamentals were strong.

In the face of this impressive report card on the performance of Guyana’s economy, it is implausible for the government to contend that the economy cannot sustain a 10% wage increase for this year.

Oil revenues are flowing into the economy. As a result, the country’s fiscal deficit as share of GDP has improved despite heavy capital expenditure.

The IMF states that total revenues are projected to grow strongly because of increases in oil revenues. It is expected this year to be about US$1 billion (6 percent of GDP), which will finance more than one-quarter of the 2023 budget, and capital revenues and carbon credit inflows (1 percent of GDP).  Given the country’s strong fiscal position, could the government not offer a higher increase to public servants?

The public sector wage bill also does not suggest a problem. In terms of government’s wages and salaries, these were only estimated at 3.1% of GDP in 2021, hardly an unsustainable level considering that in 2020, it was almost double this amount. The central government wages bill is projected to double over the next five years and this is not seen as a problem.

As such, Jagdeo or his government, can hardly have credible grounds for contending that higher than 6.5 percent public sector wage increases for public servants this year is unsustainable. There must be another reason for the pitiful increase offered.

It could well be that Jagdeo sees stresses emerging in the economy over the next year and beyond. For one, while the IMF sees no sign of overheating of the economy, one senior government official has pointed to the potential risk of overheating and has indicated that the government is taking steps to address this.

Overheating of the economy refers to a situation where economic activity accelerates at an unsustainable pace.  This condition is typically characterized by an excessively rapid expansion, often fueled by factors such as excessive public investment, consumer spending and government borrowing. Overheating may cause prices to rise as demand increases beyond the economy’s productive capacity. This can trigger a crash within the economy.

High private investment has contributed to inflationary pressures in the economy, particularly in the construction sector. But rather than constrain such high levels of investment so to avoid overheating, the government appears to be asking workers to shoulder the responsibility by foregoing a higher wage increase. This exposes again the fact that workers are going to be sacrificed for the interests of the bourgeois class.

Another possible stress within the economy is oil prices. These have been trending downwards. The projections for 2024 suggest that oil prices are going to be in the mid $70s range. Guyana may have been hoping that prices would have remained over US$80 per barrel. A decline in oil prices will have a negative impact on the economy.

When the Vice President therefore says that any salary increases not grounded in an analysis of the country’s economy and revenues is unsustainable, he may be hinting that the economy is not as healthy as its appears or as is claimed.

(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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