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Business and Economic Commentary by Christopher Ram Part 14
October 13, 2024
Focus on Budget 2025?
Introduction
In what was probably his most consequential address to Parliament, President Ali, this past Thursday, gave us more than a glimpse of what will be announced in Budget 2025 – an election year. It was a comprehensive and ambitious presentation, embodying responses to calls by various stakeholders for several years. The President also reflected on his Government’s achievements since retaking power in 2020, outlining them in detail before turning to the future – 2030 and beyond. With oil revenues driving the economy and the agenda, the President committed vast sums to reshape Guyana’s future, improve living standards, and build a modern, resilient nation.
At times, the address felt personal, with the President using the word “I” more than fifty times as he laid out his vision for harnessing oil revenues to fund large-scale cash transfers, subsidies, and public investments.
The headline-grabbing measures included a one-off $200,000 cash grant per household, the abolition of bridge tolls (primarily benefiting those crossing the Berbice River), a 50% reduction in electricity costs, free university tuition, and a child allowance for tax purposes. Additionally, the President committed to raising the public service minimum wage to $100,000 and transferring $10 billion to the National Insurance Scheme (NIS) to help contributors who did not make the 750 contributions required to earn a pension. These policies aim to provide immediate financial relief to citizens, while other cost reduction measures seek to further ease economic burdens.
Economic Risks and Sustainability
From all the vibes, the initiatives are popular and have the potential to improve living standards, but they do come with risks that demand serious attention. The pace and scale of spending raise concerns about fiscal sustainability, particularly given the reliance on the Natural Resource Fund. If the economy overheats, as it certainly will, there would be significant inflation, pressure on the exchange rate, and the exacerbation of challenges related to Dutch Disease and the Resource Curse. Delay or failure to engage in robust and meaningful planning only heightens these risks. Seizing this unique opportunity without falling victim to the maladies of other resource-rich nations will require prudent fiscal management.
Inflationary Pressures and Economic Imbalance
It is likely that even the private sector might have been caught off guard by the influx of billions of dollars into the economy, with little time to adjust internal supply capacity and imports at this short notice. If available goods and services do not meet the increased demand, inflation is inevitable. There is also the risk of price gouging, particularly in sectors controlled by a small number of players and groups which dominate the distribution sector. The economy, already growing at breakneck speed – averaging a 40% annual GDP increase over the past three years – may face inflationary pressures that could diminish the value of the very cash grants intended to assist citizens.
The Government has yet to clarify how it plans to mitigate these problems. Even if inflation is partially managed, the impact will still erode the purchasing power of citizens, creating the risk of a cycle of handouts followed by price increases and further economic instability. It will be crucial for the Government to find ways to ensure this does not happen.
Exchange Rate Management and Dutch Disease
Despite the talk of food security, many consumables – including an increasing range of food products, and water – are imported and paid for in foreign currency. The economy is already experiencing tight foreign currency liquidity, which could worsen unless the Government, through the Bank of Guyana, takes proactive measures to address this strain. The paradox of a highly successful economy that exports vast quantities of oil, yet experiences foreign currency shortages, is glaring, especially with much of the Natural Resource Fund already spent. Labour, too, is increasingly being redirected to the petroleum sector, with implications for Dutch Disease.
Even as the Government finances large-scale social and physical infrastructure projects, these investments may undermine the competitiveness of sectors such as agriculture and manufacturing. Diversifying the economy beyond oil is not just a goal but a necessity for long-term stability. The Government has to pay more attention to this reality.
University of Guyana and the Guyana Power and Light Inc.
While free tuition to the tertiary level is a long-overdue constitutional goal and is welcomed without reservation, this is a recurring cost of billions of dollars. The same goes for the electricity subsidy, which offers short-term relief but does not address the underlying inefficiencies of Guyana Power and Light Inc. (GPL). Some might view the electricity subsidy as merely a way to prop up an outdated model of generation and transmission, rather than modernising the system to meet the needs of a growing economy.
Both these subsidies will likely continue indefinitely, as no future government would dare reverse them – making it all the more important to ensure that these liabilities are managed wisely. GPL’s issues cannot be solved by subsidies alone; they require substantial reform to create a stable, reliable, and modern electricity grid.
Labour Market and Incentives
President Ali referred to Guyana’s tight labour market as a “good problem,” indicating economic vitality. Yet, unemployment remains high in certain parts of the country, with many people either unwilling or unable to join the workforce. There is a risk that the combination of cash transfers and subsidies may inadvertently disincentivise employment unless measures to improve labour force participation and productivity in a timely manner.
The decision to raise the minimum wage in the public sector to $100,000 is commendable, but it should have been accompanied by an adjustment to the national minimum wage to avoid disparities between the public and private sectors. Failure to address these differences, runs the risk of public sector employment crowding out the private sector, further exacerbating the labour shortage in non-government sectors, which already face competition from the petroleum industry. To build a balanced and sustainable economy, private sector development must be a priority, with policies aimed at fostering entrepreneurship and job creation.
The National Insurance Scheme
The announcement by the President of a $10 Bn. injection is an acknowledgment and welcome attempt to resolve a recurring and longstanding problem in the NIS. That deals with the demand side. We anxiously await the details and the enabling legislation to address the myriad challenges facing the NIS, including inadequate physical and human resources, outdated legislation, and enforcement against non-compliant employers. An urgent, more holistic approach to NIS reform is needed, including updating laws, improving enforcement mechanisms, modernizing systems, and ensuring long-term actuarial sustainability.
One simple step the NIS needs to take is publish its outstanding financial reports.
Taxation
The two references to taxation were on tax holidays in which the President reinforced expanding the number of regions which can qualify on the basis of new employment generation and the introduction of the child tax credit, allowing parents to claim an additional deduction of $10,000 per month per child. This is another case of itemised deductions, from which Guyana had previously moved away from in favour of a simpler tax system.
This may be well received but it will increase the workload of the Guyana Revenue Authority and test its capacity to prevent fictitious claims by taxpayers. It would be much simpler to raise the threshold and make the personal tax system more progressive.
Targeted Social Programmes and Efficiency
While the universal cash transfer of $200,000 per household may seem straightforward to administer, it raises concerns about the efficiency of resource allocation. A one-size-fits-all approach dilutes the impact of these programmes in addressing inequality. A more targeted system – such as means-tested grants – would ensure that resources are directed toward those who need them most, maximising the effectiveness of government spending.
Funding and Long-term Considerations
President Ali is acutely aware that current high oil prices are driven by global conflicts in Europe, the Middle East, and Africa. However, these prices will inevitably fall, and production in the Stabroek Block could decline post-2030. If diversification efforts are not successful, the country could face significant fiscal challenges when oil revenues decrease. Without other sources of revenue, Guyana’s ambitious commitments could become unsustainable, leading to budget shortfalls and austerity measures.
The President’s address did not devote enough attention to how these programmes will be funded in the long term, particularly in the event of declining oil prices. Diversification is the only solution, but meaningful progress in this area seems to be absent from the current agenda.
Conclusion
The President’s vision for Guyana is bold and imaginative, centred on using the country’s newfound oil wealth to improve living standards, investing in infrastructure, and creating opportunities for all Guyanese. For this vision to succeed, however, it will require competent management, a diversified economy, and strong adherence to the principles of good governance – transparency, accountability and a commitment to reducing corruption.
The address did not explore potential “what-if” scenarios or some of the costly risks involved. While it is forward-looking, there are major concerns—inflationary pressures, exchange rate volatility, and the long-term sustainability of public spending—that must be addressed. Additionally and undesirably, the Natural Resource Fund may increasingly be used to support recurrent expenditure, raising further concerns.
Hopefully, Dr. Ashni Singh, the Minister responsible for finance, will address these in the 2025 Budget.
A Call for Better Road Management and Traffic Solutions
Dear Editor,
The Government often touts its extensive and expensive infrastructure projects as one of its key achievements. Yet despite billions of dollars being spent each year, the quality of road management remains deplorable and dangerous, contributing significantly to the high level of accidents and deaths on our roads.
Every month, about a thousand new vehicles are added to our roads, a large number of them converging daily on the capital city. This influx, compounded by poorly maintained infrastructure, is causing unbearable traffic jams costing countless man-hours, waste fuel, and further harm the environment. Many of the commercial vehicles, too large for the narrow, deteriorating roads, contribute to the worsening road and traffic situation. The absence of proper planning and management to accommodate this growing traffic volume is glaring.
Just after 6 PM this past Sunday (a non-working, non-school day), I experienced firsthand the unacceptable state of road conditions between Waterloo Street in Georgetown, where I work, and Ogle on the lower East Coast Demerara, where I live. Along Carifesta Avenue, only a couple of streetlights were functioning, leaving much of the road in darkness. On the East Coast Highway, the medians are poorly marked, forcing drivers to navigate treacherous conditions, compounded by oncoming vehicles blinding them with high beams. I even had to turn on my hazard lights due to the poor visibility and dangers on the road!
The situation on the Railway Embankment Road from Turkeyen to Ogle is even worse. Potholes and unevenness are common, large unlit vehicles are parked on both sides, encroaching on the roads, while the traffic lights at the junction of Embankment Road and Ogle Airstrip Road have been non-functional for several days. To make matters worse, the Airstrip Road itself is in a terrible state of disrepair.
Meanwhile, our political leaders, who are quick to celebrate multi-billion-dollar road projects, are chauffeured around, some with sirens, and seem uncaring of the everyday frustrations faced by the average road user. They remain detached from the reality of those who navigate these poorly managed roads daily. Despite all the funds spent, it is clear that the core issues — maintenance, proper planning, and traffic management — are being neglected, by all state agencies involved.
New roads alone, without proper management, will not solve the growing crisis. The Office of the President, where much of the planning resides, along with the Ministry of Public Works, the Ministry of Housing, and the police, must bear responsibility for the consequences of their poor planning, coordination, and execution. The State, through its incompetence, failures, and inattention, is directly responsible for the hazards that road users face daily. I urge the relevant authorities to not only focus on building new roads but to ensure the effective management, maintenance, and long-term planning of our existing infrastructure. Immediate action is critical to prevent further loss of life, productivity, and resources. It is time the authorities address these issues so that the citizens of this country no longer have to suffer in silence.
Finally, I take this opportunity to appeal to my fellow citizens, who daily endure similar challenges in other parts of the country, to speak out and let our politicians hear their voices. If we fail to act, we will have no one but ourselves to blame when this crisis turns into a permanent nightmare.
This letter is being sent to the Office of the President, the Ministry of Public Works, the Ministry of Housing, and the police to ensure that those in positions of responsibility are directly informed of the concerns raised, and more importantly, will act on them.
Sincerely,
Christopher Ram
Business and Economic Commentary by Christopher Ram Part 13
October 6, 2024
The long overdue Census
Introduction
The Census is not only a core function of the Statistics Act of Guyana but is the very first function listed under the Act which was passed one year before the progression from a colony to a country. Prior to the Act, responsibility for statistics largely rested with the ministries and departments of government, outside of any central coordination. The Act brought a more centralised structure into being, its timing providing the government with the power to collect, analyse and disseminate information to foster informed planning and decision-making both by the government and the people. Indeed, as the Minister responsible for Finance stated in his 2022 Budget Speech, Census 2022 would “establish baseline data sets that will guide policies at all levels”.
It is very unfortunate however that policies by the current administration are formulated when key political figures visit regions in the country, speak at ceremonial functions, or at press conferences, without any reference to data compiled by the Bureau of Statistics. Because the Bureau has largely operated under the thumb of the Ministry of Finance, it has operated outside of the public purview, a necessary ingredient for enhancement in efficiency and utility. Indeed, the public, unfairly, associates the Bureau entirely with the ten-yearly census which is has never performed with distinction, almost always late. Indeed, increasingly so as the following table shows:
- The 1970 census; Report published in 1972.
- The 1980 census: Report published in 1982.
- The 1991 census: Report published in 1994.
- The 2002 census: Report published in 2005.
- The 2012 census: Report published in 2016
The census which should usually coincide with the commencement of each decade was announced in September 2022 – two years after the PPP/C resumed the reins of power and two years and nine months after the preferred international census date. Of course, even this was turned into political theatre with the Bureau announcing that “the first persons to be counted were the households of the President, Prime Minister, and the Leader of the Opposition”, going so far as to naming the offspring of the President and the Prime Minister. It would be great if such obsequiousness and tastelessness were matched with better quality and range of output from the Bureau.
Vague timelines
In March 2023, the Chief Statistician was quoted in the press as stating that preliminary results of the census had revealed significant shifts in the population”, without offering a preliminary report, as would be the norm. Adding another twist to the timeline, the Minister of Finance told the National Assembly in December 2023, that the report was “slated to be made available to the government by the second quarter of 2024” but that the bureau would require a further four to six months from that time for preparation and publication of all reports. This begs the question whether the preliminary report is for the eyes of the Government only and why the public is not permitted access to that report.
The Bureau and the Government must understand that this census is historic and critical since it will be the first after the discovery of oil in Guyana, the most game changing economic event in this country’s history. That planning and major expenditure are taking place in this census vacuum is not only unfortunate but unacceptable. Since that time, the country is witnessing an explosion in largescale and transformative projects, in major roads and other infrastructure, in building a new city from the ground up, in locating about a dozen new hospitals, in more than a single gas-powered plant, and in the construction of schools and court houses etc. It means that Guyana will have expended as much as trillions of dollars without a proper population, household and demographic census, labour availability and unemployment conditions, in place.
Anyone visiting the Bureau’s website will have noted that there is information but more in the form of raw data, very little of it sufficiently organised and mostly with no analysis, as its Act requires. The Bureau needs to organise focus groups to meet with its technical team(s) to consider ways of making the trove of information it collects more relevant and useful.
Every Man, Woman and Child in Guyana Must Become Oil-Minded – Column 139 – October 5, 2024
The PNC-R’s 20-Point Plan for Guyana’s Oil and Gas Sector Part 2 And Questions about Sale of Oil
Introduction
Today’s column concludes the review of the PNC-R 20-point plan launched at a press conference hosted by its Leader Aubrey Norton last month. Unfortunately, neither Norton nor any in his circle of leadership has subsequently promoted the plan by interviews, letters or public engagements. True to form, the first critical response came from the Vice President Bharrat Jagdeo who is not without his own problems with the sector. The plan has, however, won the full-throated support of Dr. Vincent Adams, who is a member of the AFC and, more directly, a member of the Committee appointed by the AFC to prepare its own policy paper on the oil sector. Notably, the publication of the AFC’s policy on petroleum is several weeks late, with no explanation offered to the public.
The PNC’s plan has managed to avoid addressing some of the glaring deficiencies and omissions in the content and operationalising of the 2016 Petroleum Agreement, even within a wordy and extensive twenty points. At best, the plan could be considered cautious, conservative and careful, the minor changes here and there doing nothing to assure Guyanese that the PNC-R has the will or the capacity for any meaningful, let alone fundamental change to the 2016 Agreement. The party’s approach may be politically calculated to avoid alienating international oil companies or risking Guyana’s reputation, as does the PPP. Or maybe, like the PPP, it has swallowed the cool aid of “sanctity of contract.” In other words, there is little that separates the PPP/C and the PNC-R on their attitude to the Agreement.
Electoral interest over the national interest
Perhaps the most glaring issue with the PNCR/APNU’s plan is its complete lack of urgency or timelines. The plan is essentially a promissory note contingent on the party winning the next elections in November 2025 – more than a year away. This delay is particularly egregious given that the Norton leadership has several years to observe how the agreement has operated against the national interest.
Instead of urgently addressing the matter and taking a clear position – one way or the other – the PNC-R has chosen a “kick the can down the road” strategy that may have no political benefit other than that it will not have to follow-through, since success in winning the next elections is only a remote possibility. But any responsible, major opposition party is required to be consistently vigilant, representing those who voted or will vote for it. For the majority of Guyanese, this is not an election issue. It is a reality of everyday life, of our patrimony, of our sovereignty, our integrity, the future of our country, and of every Guyanese present and future. Every day that passes under the current agreement represents a missed opportunity to secure better terms for the Guyanese people with the potential of bringing in billions of US dollars.
This approach is particularly disappointing given the high stakes involved. Guyana’s oil resources represent a once-in-a-generation opportunity for national development. Every barrel of oil extracted under the current terms represents revenue lost to the Guyanese people. The PNC-R’s willingness to allow this situation to continue unchallenged for years to come is a serious abdication of responsibility and a betrayal of the trust placed on it by more than two hundred thousand voters.
The plan’s emphasis on building institutional capacity, reference to local content and environmental considerations is commendable but without a clear commitment to renegotiating the terms of existing agreements, there is little value to this plan. It might have been better if the PNC-R had described the document as a statement of intent or a policy framework paper but as a plan, it is really of little use and value.
Conclusion
Perhaps most critically, the plan’s failure to directly address the 40-year stability clause represents a significant missed opportunity. This clause, which effectively freezes the regulatory environment for four decades, is a major constraint on Guyana’s sovereignty and ability to adapt its policies as circumstances change. By not challenging this clause, the PNCR/APNU may be acquiescing to a long-term limitation on Guyana’s control over its own resources and muzzling its parliament,
The plan’s reluctance to commit to renegotiation and its failure to address the stability clause suggest a preference for the status quo over pursuing transformative change. This is not what Guyana needs and not what the people want. It does nothing to persuade any objective person to lend their support.
Where is this $1,500,250,000 ($1.5 Bn)?
The Government of Guyana is inviting tenders for the sale of its share of profit oil under the 2016 Petroleum Agreement. In his 2024 Budget Speech, the Senior Minister responsible for Finance gave particulars of the lifts received by Guyana under the 2016 Petroleum Agreement in 2023 and earlier this week the Minister of Natural Resources disclosed limited payment terms by the selling agents of the seventeen 17 million barrels of oil making up those lifts.
As the table below shows, the Government has received $1,500 Mn. from its selling agents which under the Extractive Industries Transparency Initiative (EITI) Rules to which Guyana subscribes, requires full disclosure of:
- The volume of the production sold.
- The revenue received from the sale.
- The buyer(s) of the government’s share of production.
Commission earned on Sale of Government oil
Source Budget Speech 2024 and Minister of Natural Resources – Kaieteur News Article
There are several deficiencies. It requires the average reader to make assumptions about the number of lifts sold and to compute the amount of revenue received. There is information on the gross sums received from royalty, but no disaggregation of the royalty received from each of the contractors. Nothing on the identity of the buyers, their country of operations, or the terms of the respective sale.
Regarding the agents, it is highly unusual for agents to pay commission to their principals, but the oil universe is populated by dealers involved in sanction-busting, money laundering, drug trafficking and arms trading, so stranger things do happen.
The table also shows that Guyana sold almost two-thirds of its oil via an agent (BB Energy) who is paying just over one-third the rate of commission payable by the other agent. That defies business logic and certainly needs some investigation. Had all the oil been sold via the agent paying the higher rate (JE Energy), the revenue earned would have US$11.9 million, meaning that we would have earned US$4.5 Mn more than we did, while if the composition of the sale had switched, we would have still earned a more modest but still significant US$2.2 million more. Significantly, the names of the agents suggest that they are unincorporated entities!
But there is an even more immediate, fundamental and direct concern about this revenue, and that is the absence of information on how the money is accounted for. A search of the Natural Resources Fund shows only three sources of income – royalties, the revenue from profit oil and interest earned. Similarly, the Revenue Estimates presented to the National Assembly do not disclose any information on this significant source of revenue.
This non-disclosure is concerning, in violation of the country’s obligation under its EITI membership, the rules of accountability and transparency, and a government’s duty to disclose. This will almost never happen if we had an empowered, independent Petroleum Commission but will almost always happen once we retain the existing inept supervisory arrangement over the oil companies currently in place.
Next week will deal with this month’s scheduled relinquishment.
Business and Economic Commentary by Christopher Ram Part 12
September 29, 2024
President Ali’s Address to the UN: Guyana’s Global Vision and Domestic Challenges
Introduction
This Commentary reflects on President Dr. Irfaan Ali’s address to the 79th Session of the UN General Assembly (UNGA) under the theme “Leaving no one behind; acting together for the advancement of peace, sustainable development, and human dignity for present and future generations.” It was one of the better written speeches by the President and both he and his speechwriter deserve credit.
Environmental Leadership and Biodiversity
Ironically, Ali begins his presentation critical of what he referred to as the annual pilgrimage to COP – the annual environment summit hosted by the UN – with a statement which, at the very least, warrants repetition at the next COP. The environment is one area in which Guyana stands out among countries of the world, giving the President the bragging right that Guyana has the second-highest percentage of forest cover globally and one of the lowest deforestation rates, although partly due to our small and concentrated coastal population.
Aiming to assert a leadership role for Guyana, the President announced the launch of a Global Biodiversity Alliance – convening the first summit in 2025 – the objective of which is the creation of a market for biodiversity credits, scaling conservation debt swaps, and promoting nature -positive actions which some might regard as technical jargon. He committed Guyana to doubling its protected areas by December 2025 and achieving the global biodiversity target of 30% by 2030. In a memorable phrase, he told the global audience that Guyana does not lecture but leads by example, boasting unnecessarily “without arrogance.”
Perhaps the President should have used the opportunity to call on the global body to support the right of small, developing countries to utilise their natural resources without being hypocritically lectured by the industrial world, the real and continuing culprit and cause of climate change. It was in such a context that some reference to Guyana’s oil development could have found a place in his speech and pointedly, how the oil industry of the world is loaded against developing countries.
International Relations and Border Dispute
His address dealt with the challenges to peace, human rights and human development across the world, beginning at home and then hemispheric countries Haiti and Cuba. He reminded the UN of Venezuela’s unlawful claim to two-thirds of Guyana, with its potential to stymie economic development in that space, and reaffirmed Guyana’s commitment to a peaceful resolution through the International Court of Justice (ICJ). He might have highlighted too that for a long time, the matter was under the jurisdiction of the UN and although it has moved to another forum, his country was still counting on the UN not to remove it from its radar, even amidst all the challenges the world faces.
On Haiti, Ali emphasised Guyana’s support for the UN Kenya-led force to bring peace to that beleaguered country and for Cuba, he called for the revocation of the US economic embargo against Cuba and its removal from the list of countries which engage in state-sponsored terrorism. With credibility as a Muslim, the President spoke with passion and conviction about the extreme action of the Taliban in silencing Afgan women in public.
Demonstrating Guyana’s engagement with global affairs and its willingness to voice opinions on complex international issues, Ali was unambiguous on several international conflicts, including Ukraine, Sudan, Afghanistan and the Israel-Palestine situation. An interesting observation is that on most, if not all of these issues, Guyana’s position was not at any significant variance with those of the USA, including on Ukraine which may not have gone down well in Moscow.
Other issues
Given that food production is an area in which Guyana enjoys some credibility, it was no surprise that the President showcased Guyana’s commitment to enhancing food production and that at least 35% of agro-businesses are owned by women and 60% by young people, even if the statistic is incomplete. It does not appear too, that he addressed the more mundane issue of ensuring fair trade in food commodities and affordable food prices across the world, posing a threat to the lives and livelihood of hundreds of millions.
Without offering any specifics or recommendations on how changing the composition of these organisations can better address the needs of small, rapidly developing states, the President called for reforms of international institutions like the UN Security Council, World Bank, and IMF to better represent developing countries.
Another omission was any reference to the challenges faced on the economic, social and political conditions even by a resource rich country like Guyana. This omission is particularly striking given the rapid changes the country is undergoing due to its oil boom.
Conclusion
President Ali’s address could potentially raise Guyana’s profile on the global stage, presenting the country as a responsible actor committed to environmental stewardship and international law. However, the speech misses opportunities to address the complex challenges which small states like Guyana face domestically.
Of course, the President chose how best to utilise the time allotted to him and with all that is taking place across the world, he was obviously constrained. In the circumstances, there must be omissions, while adhering to the theme of the occasion which the President himself repeated. Yet, for the domestic observer, there is another plausible reason: the President has become the country’s chief spokesperson internationally while his Vice President assumes that function domestically.
Next week’s Commentary will address the absence of the long overdue Census