Category: Public sector

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Over-budgeting or underpayment of public sector wage and pension increases

Introduction
In his presentation to the National Assembly of the 2011 Budget on January 17, Dr Ashni Singh announced that public assistance was then being paid at a rate of $4,900 per month to approximately 9,000 beneficiaries. He went on to announce a 12% increase to $5,500 per month from February 1. And in the same speech, he announced that “in like manner,” old age pensions then being paid at a rate of $6,600 per month to approximately 42,000 pensioners would be increased to a rate of $7,500 per month, a 14% increase. Even allowing for the word “approximately,” the information was specific enough to allow for a reasonable calculation of the total cost – inclusive of the announced increases – of $4,330 million, made up of Public Assistance of $590 million and Old Age Pension of $3,740 million.

But the 2011 Estimates themselves tell a very confusing story which could easily mislead readers. What is clear however is that a one-line item from page 21, Table 9 of the 2011 National Estimates accounts for the entire year’s pensions cost – without the need for any further increase. Yet, there is a provision for increased pensions of $2,106 billion or 31% of the year’s pensions cost, exclusive of the increase. To emphasise, the increases are already built into the non-statutory pension cost and there ought to be no further provision, unless of course tens of thousands of persons suddenly become eligible for pensions! I would unhesitatingly dismiss any suggestion that the provision relates to persons in receipt of statutory pensions and gratuities since that would amount to an increase of nearly 100%!

Moreover, there was no indication in the announcement by GINA that those in receipt of statutory pensions would also receive the 14% increase, usually intended for persons classified as vulnerable. But even if one charitably assumes that they too will share in the 14% previously announced, the increase is still only $325 million, leaving a huge amount to be accounted for.

Padding
The situation is no different in 2010 or indeed 2009. Unlike wages and salaries, OAP and Social Security are not subject to any negotiations, and any proposed increases should be included in the year’s budget, or explained somewhere in the budget. Indeed any uncertainty would be removed if Dr Singh would comply with the requirement of the Fiscal Management and Accountability Act that the assumptions underlying the budget should be stated. Without subscribing to any conspiratorial fear, for the Minister to do this might expose the budget to some of the padding that takes place, allowing for “authorised” slush funds, many of which are controlled by the Minister of Finance and his President.

This is more than a procedural or presentational point. It is about serious and substantial over-budgeting while somehow the government still manages to utilise the full amounts budgeted. If this is indeed a case of utilising over-budgeted funds, it would compound questions asked about Ms Manickchand’s pensioners‘ register, which has been the subject of adverse comments in a report by opposition parliamentarian Sheila Holder, and me in the letter columns.

According to Mrs Holder that register may contain as many as 17,640 phantom persons, with an annual loss to the state of over $1.3 billion. My estimate was higher because I applied the law strictly which would eliminate those returning Guyanese who have not been here for the minimum period specified by law and those persons who on account of assets and income would not qualify for the receipt of pension.

Wages
Let us now turn to similar provisions for wage increases. It took the Guyana Information Agency rather than the Accountant General or the Secretary to the Treasury to report the President’s announcement of his pre-elections wage increase for public servants. According to GINA, the “8 percent increase is payable to all public servants and members of the disciplined services, while teachers will get a 3 percent across the board hike with effect from 1st January 2011 on top of the 5 percent increase previously paid by Government with effect from the same date in accordance with the multiyear agreement concluded between Government and the Guyana Teachers Union.”

Here is a summary of the estimates raising similarly disturbing questions as they do in relation to wages and salaries.

WAGES AND SALARIES EXTRACTS 2011

Source: 2011 National Estimates

Affordability
What seems clear is that the government can afford to pay much more than the 8% that it has announced. Forget for a moment that as the employer and tax collector the government gets back 33.33% of any wages and salaries it pays to taxable persons. And forget too that the so-called contract employees like Ms Teixeira, Reepu Daman Persaud and Odinga Lumumba have fixed remuneration contracts and would therefore not be entitled to the 8%. The allocation in the Estimates for revision of wages and salaries in the 2011 Budget allows the government to pay a minimum of 13% to all public sector employees, or 17% if the contract employees are excluded. And since the government gets back 33.33% of what it pays out as remuneration, it can afford to pay as much as 20% to 25%, depending on whether it excludes or includes the contract employees.

Readers will recall that the increase announced in 2010 was 5% when the National Assembly had approved increases equivalent to anywhere between 10% and 13%. No one knows how the substantial difference of about $1.2 billion was spent. The only certainty is that it was spent.

Similarly, in 2011, a payment of 8% will leave the government with a hefty surplus or slush fund of about $1.5 billion.

Poor oversight
While the unearthing of some of the missing information requires some kind of detailed investigation, the public sector unions and especially the Public Service Union have been in the business long enough to alert themselves to the fact that the government might be shortchanging them. They ought to be aware that given the attitude of the government to its own employees, public servants deserve strong leadership from their unions.

The teachers too, have perhaps as weak a leadership as ever and one recalls their President Mr Colin Bynoe describing a 5% annual increase over the next five years as a “giant step.” One wonders whether he thinks President Jagdeo has made a giant leap of benevolence or has convinced him of what many felt when he accepted the five year, five per cent annual increase for his members. While he might have been overwhelmed, what is unforgivable is that his union might not have been aware of the budgetary allocation for public sector employees, including teachers.

But let us not blame the unions alone. What about the parliamentarians, including those sitting on the Public Accounts Committee which is chaired by an opposition member? They should be challenging rather than following the tepid report of the Auditor General who seems to see no evil even in the most glaring impropriety. That the Estimates are so unfriendly to readers and incomprehensible to most persons should suggest to them that they should ask probing questions, seek independent advice and ensure that they are capable of doing the job the taxpayers of this country pay them to do.

Hopefully, the next parliament will do a better job.

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Region 9 flood relief was distributed through PPP/C party office

‘Business Page’ in this past Sunday Stabroek noted how the government has undermined the regional administrations and the local democratic organs across the country. For more than ten years, it has failed to pass the necessary laws and to establish the Local Government Commission required by the Constitution of Guyana to allow for operational and financial autonomy of those bodies. In that column I reminded readers that Article 12 of the Constitution states that “Local government by freely elected representatives of the people is an integral part of the democratic organisation of the State.” Instead of democracy, the PPP/C has restored party paramountcy in its vilest form.

One day after the column appeared I learn through the online news medium Demerara Waves that during the PPP/C’s electioneering campaign in Region 9 this weekend, that party’s regional headquarters was the location from which hundreds of persons were paid $20,000 in cash. The ostensible purpose of the payment was “flood relief.”

It is entirely irrelevant whether the recipients were told that the money came from the public Treasury and not the PPP/C. Each of the ten administrative regions has its own office, staff and transportation facilities. It is wrong, and egregiously so, that public funds are disbursed from any party office. I would like to think – though with this dishonest government and its political arm the equally dishonest PPP/C, no one can be sure – that following the flood, a proper, auditable system was used to identify eligible persons for “flood relief.”

Yet, this government, which for years had robbed the Amerindians of their entitlements under the Amerindian Act 2006, heartlessly made the flood victims wait for five months until the PPP/C elections entourage rolled into town to make the “flood relief” payment at their party’s office. I would not be surprised if the payment was deceptively an inducement to the poor Amerindians to attend the PPP/C rally and had little to do with “flood relief.” It is after all, how the party has commoditised the Amerindians of this country, particularly since 1992. It is about paramountcy of the party which Guyanese had deluded themselves had died in 1992. In fact paramountcy has matured into a semi-criminal enterprise.

This is just the latest case of the government using the prorogation of the National Assembly as a cover to continue misusing, mismanaging and misappropriating public moneys in a crude and shameless vote-buying national exercise. Even as the non-government parties campaign to unseat the PPP/C, they should remain alert to and oppose all the abuses which are coming to light.

As a member of civil society and of the Committee for Human Rights and Free and Fair Elections, I hope that Gecom, the Electoral Assistance Bureau and all those who will pronounce on the November 28 national and regional elections are taking note of these malpractices. The stage is being set for massively unfair elections.

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Local government financing and democracy

Introduction
The reader should not wonder why in the caption of this column ‘democracy’ does not precede ‘financing.’ Obviously it should but the reader will also appreciate the procrustean attempt to fit what is at first blush a political and local governance issue into a business column. Still, it is clear that our Constitution in fact acknowledges the importance of financing to local government and specifically addresses financing in three Articles under Chapter 7 of the Constitution dealing with local democracy.

It is often said, and by no less a person than the President of the country, that Guyana has one of the best constitutions in the world. That is of course true if one is prepared to overlook the fatal flaws that permit an elected dictator who is more equal than the rest of the citizens, an emasculated Cabinet and National Assembly unable or unwilling to carry out their constitutional responsibilities and a political class that would cynically ignore those sections of the Constitution that they find inconvenient.

The constitution
– in theory
Notwithstanding these serious limitations, one area in which the Constitution is on paper very strong relates to local government. The problem is that our Parliament which comprises the National Assembly and the president has failed to carry out their constitutional duties. Article 12 states that “Local government by freely elected representatives of the people is an integral part of the democratic organisation of the State” which Article 71 (1) recognises as “a vital aspect of democracy” and requires that it “be organised so as to involve as many people as possible in the task of managing and developing the communities in which they live.”

The Constitution does not leave it there and imposes on Parliament the obligation “to provide for the institution of a country-wide system of local government through the establishment of organs of local democratic power as an integral part of the political organisation of the State.” Such local democratic organs are constitutionally autonomous and the decisions they make are binding upon the communities and citizens of their areas.

Helpfully the Constitution also provides that for the purposes of local government administration the country should be divided into regions, sub-regions and other subdivisions as Parliament deems fit. The relevant considerations in such a determination include population, the physical size, the geographical characteristics, the economic resources and the existing and planned infrastructure of each area, all with a view to ensuring that the area is or has the potential for becoming economically viable.

Article 74 (1) lays down as “the primary duty of local democratic organs” the efficient management and development of their areas and to provide leadership by example. Article 74 (3) imposes on local democratic organs the duty to maintain and protect public property, improve working and living conditions, promote the social and cultural life of the people, raise the level of civic consciousness, preserve law and order, consolidate the rule of law and safeguard the rights of citizens.”

The practice is different
Local government elections not having been held since 1994, this “integral part of the democratic organisation” has been in abeyance for nearly fifteen years, something that everyone seems to accept as the norm of this new democratic era.

The Constitution recognizes that the discharge of the obligations of the local government bodies requires financing; Article 76 empowers Parliament to permit the regional democratic councils to raise their own revenues and to use such resources for the benefit and welfare of their areas. The Constitution does not specify the bases on which these bodies may raise such funds but Article 77 A requires Parliament to make a law for the “the formulation and implementation of objective criteria for the purpose of the allocation of resources to, and the garnering of resources by local democratic organs,” being the regions, sub-regions and other sub-divisions into which Parliament divides Guyana.

There is some amount of confusion arising out of Article 77 (of the Constitution) which requires the development programme of each region to be integrated into the national development plans, and for the government to allocate funds to each region to enable it to implement its development programme. The Constitution framers might have thought that the meaning of the word ‘development’ is so self-evident that no definition is necessary, but I fail to understand how a “development programme” can mean the annual office cost in the operational budget of any region.

Parliamentary failure
What is disappointing – if not shocking – is that we have had two full-term parliaments since these changes were made to the Constitution but the parliamentarians have done nothing to give effect to those changes. Still, it does not seem particularly shocking that a National Assembly that could cynically pass laws to postpone local government elections on several occasions would have any difficulty in otherwise undermining the autonomy of local government bodies, including the means and necessity to raise money to enable those bodies to carry out their mandate. Consequently there is no effective local government and the paradox we are faced with is of a central government minister exercising operational control over regions and local democratic organs.

To realise how extreme the situation is one only has to look at the National Estimates to recognise that the country’s ten administrative regions are dependent entirely on the central government for their revenues, a situation that has few if any parallels around the world. By way of example, I refer to a review by me of the new constitution of Kenya published in the Stabroek News of November 30, 2010. Under that constitution, only the national government has the power to impose income taxes; value added taxes; excise taxes as well as customs and other duties on the import and export of goods.

No silver bullet
The governance problems in Guyana are so endemic that there is unlikely to be any silver bullet solution and while we heard first of devolution and later power-sharing, in my view the issue of local government financing has received far too little attention. This centralization of power and control of the national purse on the one hand and the restrictions on regional and local government bodies to garner their own resources are counterproductive to good governance and democracy as envisaged in Guyana’s Constitution.

The failure of the Ninth Parliament and more specifically the PPP/C and the PNCR to agree on the establishment of the Local Government Commission required under Article 78 A was a major hurdle to local government elections. There was little talk if any of the reform of local government financing. That is a pity.

And it is not as if there is any major hurdle in accessing good examples. We do not have to go as far as Kenya – just look at the Amerindian Act of 2006. Guyana has witnessed and suffered from the excesses of central controls. For all the powerful arguments for power-sharing, they will come to naught without improved local democracy and efficiencies.

Studies show that the revision of funding sources is a key part of the reform of local government and that “local government finance is the litmus test for central government’s commitment to local government.” That is not to say that there is such a thing as an optimal level for local government, and without exception, the size and structure of local government varies often in relation to the functions imposed on them. What we have in Guyana is a situation in which the functions of local government bodies are defined but the resources to carry out those functions are controlled by others.

Conclusion
Given the long absence of meaningful local government it might be useful to restate what are regarded as the main reasons underlying the system of local government, as a manifestation of local democracy and a provider of local services. Locally elected politicians make decisions on behalf of local communities and serve as a safeguard against central government domination, while the strengths of local government as a democratic instrument are its closeness to the population, its elected status, its accessibility and the opportunity it provides for public participation in the democratic process.

Even for those countries with an established tradition of local government there is the continuing effort to determine the right size to ensure local democracy and economic efficiency in the delivery of local public services. Various models have been developed to meet these two, often contradictory, demands but we need not worry too much about these. Here in Guyana, if we ignore for the moment the system of village councils we had up to the sixties, we really are starting from scratch and have numerous examples on which to draw.

The 2011 Manifesto of the PPP/C did not see local government financing as an issue which they thought needed addressing. Whether the other parties will share that perspective we will soon know.

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Berbice Bridge Company Inc. – Not really a profit

Introduction
At long last, the Berbice Bridge Company Inc. (BBCI) has decided to file annual returns and financial statements with the Registrar of Companies. The law requires that such returns and accounts be filed no later than around mid-August of each year for companies with a December 31 year-end. Why BBCI chose to file some years and not others is for speculation but one thing is certain: the return and the financial statements for 2010 make for very interesting reading or indeed for some serious concerns.

On the face of it the company did very well in 2010. Its revenue for 2010 is $1,115 million, up 17% over 2009, the company’s first full year of operations. Total non-interest expenditure was $287 million, up 16% over the previous year. Included in non-interest expenditure is a depreciation charge of $140 million, a small increase over the preceding year. And that is where the questions begin to arise. But before that important digression, let us continue the brief income statement analysis. Interest expense has risen from $694 million to $715 million, thus accounting for 64% of the company’s revenue. Because of its tax-exempt status the company was able to record a net profit of $137 million compared with $5 million in 2009.

More borrowings
The Balance sheet shows the company as having $8,865 million of fixed assets compared with $8,965 million in 2009, the entire reduction being attributable to depreciation charge in 2010. The more easily realisable current assets have declined in value from $161 million in 2009 to $24 million in 2010, with cash resources reducing from $152 million in 2009 to $24 million in 2010! Current liabilities which are amounts that are payable at the balance sheet date or within twelve months thereof amounted to $205 million, a significant decrease in such liabilities over 2009 as the company paid out $450 million in subordinated loan stock interest and returned some $130 million in corporate bonds.

This reduction in short term liabilities came at the expense of increases in long-term loans. The Beharry Group added to their investment in the company some $325 million through the Guyana Bank of Trade and Industry ($250 million) and North American Life and Fire companies ($75 million). Hand-in-Hand Life increased its investment in the Bridge Company by $70 million while its Trust Company reduced its investment by $25 million. Meanwhile the New GPC Inc. a member of a group that has earned some investing notoriety in Guyana took out its entire $35 million in loan stock in the company.

Capital Structure and concealment
The company has an interesting capital structure. Its share capital is $400 million shared between six shareholders with four of them – NIS, New GPC, CLICO and Secure International Finance Company – having $80 million each, and two – Hand-in-Hand and Demerara Contractors – sharing the remaining $80 million. But then the ubiquitous NICIL has a special $1 share which gives it a veto power over any major decision of the company.

If the financial statements are taken at face value it may seem that that is the extent of NICIL’s investment in the company. A closer look indicates that a single investor has some $950 million in preference shares in the company earning a rate of dividend of 11% per annum or $104.5 million per annum. It is a requirement of the law that the persons holding shares in the company be listed in the Annual Return. This has not been done and to that extent the annual return signed by Mr. Winston Brassington, the CEO of NICIL should have been rejected. But then again, the Registrar was probably thankful that the company filed any return after six years.

The concealment gets worse. Note 10 to the financial statements tells the reader that the dividends paid on the preference shares are cumulative, i.e. if they are not paid in one year they are carried forward to the next period for payment at an increased rate of 12%! Forget for a moment that unhelpful use of language. What is striking is that the company owed the preference shareholder at December 31, 2010 more than $600 million but that shareholder is reported in the 2010 financial statements as waiving “dividend and interest on dividend due up to December 31, 2010”.

It does not take a genius to realise that that investor is NICIL or one of its many satellites through which it can funnel money that should otherwise have passed through the Consolidated Fund and voted on by the National Assembly. In fact NICIL’s satellite for the billion dollar investment and which waived the hundreds of millions of dollars was a company called Aroaima Mining Company Inc. which is no longer in operation. Even if there is a real company called Aroaima Mining Company Inc. its controlling parent is NICIL headed by Dr. Ashni Singh among several Cabinet members who are also NICIL’s directors. That such a stellar collection of responsible men could make such as decision and then try to conceal it from the taxpayers is reprehensible.

It would seem as well that under the Financial Management and Accountability Act NICIL has no authority to waive any such sums and that its Board including the Minister of Finance and the Cabinet Secretary are guilty of misfeasance in public office.

Wrong treatment
Then there is the question of the fudging of the depreciation versus amortization. Depreciation is the annual charge to write off the cost of a long-term tangible asset over its useful life. Amortization is the systematic allocation of the depreciable amount of an intangible asset over its useful life. I am aware that someone closely connected with the company had been calling around asking whether or not there was a need to charge any depreciation on the Bridge. Clearly fudging was being considered at some level. On being told of the query, I thought it was some junior not familiar with even basic bookkeeping. I should not have been so dismissive.

In fact it is clear to me that the entire treatment of the cost of the Bridge is wrong. The company does not own the Bridge as confirmed by the special share and its own note to the financial statements. Under a Concession Agreement that the law setting up the statutory framework for the Bridge has made so secret, the company has the right to operate the Bridge for a period of twenty-one years. Indeed note 1 to the financial statements described the principal business activities of the company as the construction and operation of a floating bridge. This is the classical Build-Operate-Transfer arrangement and gives the company not ownership of the public asset but a right to operate the Bridge. Such a right is an intangible asset subject to amortisation over the period of the right.

Arbitrary and self-serving
I would think that the treatment as a tangible fixed asset is more than simple unfamiliarity with the relevant International Financial Reporting Interpretations Committee (IFRIC) guidance on the matter. So what did the Board featuring Ms. Gita Singh-Knight and Mr. Winston Brassington choose to do? They chose a write-off period of thirty-eight years under the reducing balance basis. If this is converted to the more common straight-line basis the Board is assuming a useful life of the Bridge of more than one hundred years! And to compound the grey areas they estimate that at the end of its so-called estimated useful life the Bridge would have a residual value of more than four billion dollars.

But the absurdity of it all comes from the company’s own financial statements. As the system implies, under the reducing balance method the depreciation charge declines each year so that if there is a $100 investment in an asset with a useful life of 10 years the depreciation in the first year will be $10 ($100/10), the second year would be $9 ([$100-10]/10) etc. The magicians at the Bridge Company claim to be using the reducing balance but end with straight-line depreciation charges!

Responsibility
Just who are responsible for the type of fudging that is taking place with the Annual Report’s omission, the mistaken application of tangible versus intangible asset and the fiddling of depreciation? To start with the Board is headed by Ms. Gita Singh-Knight of CLICO infamy. Ms. Singh-Knight was the CEO responsible for shipping billions of dollars of NIS and other funds for her boss Duprey who then squandered it abroad. Ms. Singh-Knight is an accountant by training and indeed is the only professional accountant on board.

Other members of the Board include Hand-in-Hand executive Keith Evelyn, Beharry Group executive Paul Cheong, engineer Edward Carter, Attorney-at-law Paul Fredericks and former jurist Cecil Kennard. The annual return should state the business occupation and particulars of other directorships. None is stated. The only other person with any claim to some amount of accounting knowledge is Mr. Winston Brassington whose role in prevailing upon entities like the National Insurance Scheme and the New Building Society for investments in the Bridge has been addressed before in this Page.

The political dimension
While the Government stoutly resists claims that its decision to bypass and in the process practically kill New Amsterdam as a commercial centre in favour of the Corentyne Coast, it was forced to have a skewed consultant report to justify its decision. But economics has a way of trumping race and politics. Having sited the bridge at D’Edward Village instead of Everton it must now contrive all forms of financial and other shenanigans to make the Bridge seem viable. Competition has been frustrated if not ruled out while the company, its investors, sub-contractors and everyone else connected with it enjoy a range of tax concessions that would make even the Ramroop Group green with envy.

Conclusion
Had it not been for some admirable creative financing and accounting the Berbice Bridge Company would not only have recorded continuing and significant losses but it would have been unable to meet the generous interest and dividend obligations to its investors. The public needs to be reminded that the President Jagdeo–Singh-Knight combination has placed a six billion dollars hole in the balance sheet of the NIS. And as a result of the Brassington– Luncheon work on the NIS, the Scheme had at December 31 2010 over $1.5B invested in the Berbice Bridge. Let us hope that the group combination will not cause the company to sink.

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Elections year mid-year report

Introduction
Today I conclude the review of the mid-year report for 2011, a statutorily required report under the Fiscal Management and Accountability Act 2003. In doing so I also draw attention and comparisons with the half-year report of the Bank of Guyana which while using the same data seems less inclined than the Minister of Finance to put a political spin on the numbers. Readers may find it of some interest that in this election year and with so much at stake, it is the first year since the Act was brought into force in 2004 that the mid-year report has been presented within the two-month deadline, hence the title of this column. Guyanese who have become quite cynical may not have been too surprised, given that the same treatment was accorded the Guyana Prize for Literature which was held this year after last being held around the time of the 2006 elections.

No wonder then there are many Guyanese who half seriously wish for annual national and regional elections simply for their practical benefits: the fixing of roads, clearing of garbage, completion and dispatch of pensions books to the living and the dead and the prompt announcement of a 5% Christmas gift to public servants under the unilateral collective labour agreement which the government has adopted for its employees. It would also mean that the Minister of Finance would not have to be misleading about the date of release of the mid-year report or the Bank of Guyana hold its hand on the truth.

I now turn to some of the other important indicators.

Balance of payments
The higher production of the major commodities referred to last week and coinciding with higher world market prices resulted in an expansion in export earnings in the first half of 2011 by 34.6 per cent to US$533.1 million.  Earnings from sugar increased by 32.4 per cent to US$50.1 million, reflecting a 30.4 per cent increase in quantity shipped to 99,738 tonnes, while rice export earnings expanded by 35.1 per cent to US$92.6 million, mainly attributed to a 26.4 per cent increase in average export price to US$551.4 per tonne, coupled with a 6.8 per cent increase in export volume to 167,945 tonnes. Gold continued to benefit from prevailing conditions in the global marketplace, and the average export prices witnessed a 29.1 per cent increase to US$1,370.3 per ounce, contributing to a 56.4 per cent increase in export earnings to US$229.5 million in the first half of the year. In addition, the bauxite industry earned US$65.2 million, 15 per cent more than in the corresponding period in the previous year due to higher production levels at both bauxite operations, with export volume increasing to 864,570 tonnes compared to 620,776 tonnes.

These significant increases more than off-set the 25.7 per cent decline in the value of timber exports due to a decline in export volume as plywood operations ceased, coupled with a fall in other timber exports.

On the other side of the account, the value of the country’s merchandise imports expanded by 25.7 per cent to US$859.5 million. The main factors contributing to this were: a) a 51.9 per cent increase in the value of fuel and lubricants imported; and b) an increase of 15.8 per cent in other imports with capital and consumption goods increasing by 48.8 10 per cent and 9.7 per cent, respectively, while imported non-fuel intermediate goods contracted by 2.2 per cent.

The overall deficit in the balance of payments at the end of the first half of 2011 was described by the Minister of Finance as a “modest” US$19.6 million but sufficient to warrant a revision of the originally projected surplus for the full year from US$24.4 million to an overall deficit of US$36.1 million by the end of the year.

Net payment for services amounted to US$74.4 million from US$36.6 million for the corresponding period in 2010. The outturn was due to a 43.1 per cent or US$19.4 million increase in payments for non-factor services. This reflected higher payments for freight and travel, which increased by 27 per cent and 252 per cent, respectively.

On the financing side, the Bank of Guyana reported that net current transfers increased by 20.0 per cent to US$216.0 million. This improvement was due to higher inflows to the private sector in the form of other current transfers which increased by 204 per cent or US$68.6 million to US$102.3 million. The Bank reported receipts from bank accounts increasing by 299 per cent or US$72.7 million to US$97.1 million and that the main sources of outflows were workers’ remittances and remittances to bank accounts, which amounted to US$94.0 million and US$53.6 million, respectively.

The Minister of Finance reported an increase in foreign direct investment of 9.2%, concentrated mainly in the energy, telecommunications and mining sectors. However the Bank of Guyana records the nuanced position that short-term private capital recorded a higher net outflow of US$21 million from US$4.5 million for the corresponding period in June 2010. This outflow reflected a rise in foreign assets being accumulated by commercial banks during the reporting period.

Monetary developments
The banking sector saw deposits by private and public individuals and entities and non-bank financial institutions increasing during the review period by 7 per cent to $253.2 billion. Private sector deposits which accounted for 77.9 per cent of total resident deposits increased by 8 per cent compared to the 4.6 per cent expansion in the corresponding period in 2010, attributed to an 8.5 per cent increase in business deposits to $35.5 billion and a 7.9 per cent increase in individual customer deposits to $161.8 billion.

Private sector credit at end June 2011 amounted to $119.8 billion. The main sectors of increased lending were agriculture (20.3%), real estate mortgages (10.3%), distribution (9.4 %), other services (7%) and mining and quarry sector (4.7%). The public sector remained a net depositor of funds with the banking system at end June 2011.

Foreign exchange market transactions grew by 19.2 per cent to reach US$2,861.7 million. Transactions at the cambios and the Bank of Guyana grew by 23.5 per cent and 27.5 per cent, respectively. The Guyana dollar vis-à-vis the United States dollar retained its path of stability, depreciating marginally by 0.25 per cent.

Shocking employment numbers
A few days ago the Minister of Labour shocked the nation with the announcement that the country’s unemployment rate had fallen to 10.9% (he made sure it was not 11%) but nowhere did he say where he pulled those figures from, or what the last official rate was. Interestingly, there is no mention of such numbers in the reports by the Minister of Finance and the Bank of Guyana. Indeed the Bank of Guyana reported a downturn in employment within the central government of 1.67 per cent. Without stating its source the Bank of Guyana did however report that preliminary estimates indicated improvement in private sector employment especially in the growth sectors. The wholesale and retail, construction and other services sectors showed increased employment.

A few days later Barbados announced an unemployment rate of 12.4% which must have made the Minister blush that Guyana could be doing so well! And with all of this the registered number of employed and self-employed persons under the National Insurance Scheme stubbornly refuses to increase.

Inflation and falling medical cost
The Bank of Guyana reported that the year-to-date change in the Urban Consumer Price Index (CPI) for June 2011 is registered at 2.97 per cent. The Bank sought to explain this level of inflation as due to price increases in the food category and unstable fuel prices “occurring from conflicts in the Middle East.” It reported price increases in transport & communication, housing, footwear & repairs and miscellaneous goods & services, which rose by 10.1 per cent, 1.1 per cent, 1.9 per cent and 1.5 per cent, respectively. In addition, education and furniture recorded a small price rise of 0.9 per cent and 0.6 per cent, respectively. Amazingly, it reported that the price index for medical & personal care and clothing categories decreased by 14.5 per cent and 0.3 per cent, respectively during the review period.

Apart from the fact that the reports seem to find it convenient at times to speak of year-on-year indicators and at other times – as in the case of the rate of inflation – of year-to-date rates, the average member of the public would have to ask which planet the Bank of Guyana could be referring to that had a 14.5% decrease in the price index for medical and personal care.

Debt
There was a 7% increase in the country’s total external public debt, from US$1,042.7 million at the end of December 2010 to US$1,110.9 million. These arose from new disbursements of US$69.3 million from the IDB and Venezuela. External debt service payments totalled US$18.4 million compared to US$12.3 million for the same period in 2010, a 50% increase.

On the other hand, the Bank of Guyana shows the movement of the debt year on year, which reports that the stock of domestic and external public debt increased by 9.1 per cent and 15 per cent, respectively from end-June 2010 level. The level of domestic debt at June 30 2011 was $103,390 million making the country’s total debt well over $1.6 billion. The Minister of Finance clearly felt that he should disguise these numbers.

Fiscal position
The non-financial public sector registered a deficit of $149.6 million during the first half of 2011 with central government revenue for the first half of 2011 amounting to $61.5 billion, 12.8 per cent higher than in the corresponding period for 2010. Tax revenue collections for the period amounted to $57 billion, 11.4 per cent above 2010 collections. As a result of these developments, projected current revenue for 2011 has been revised upwards to $119.7 billion from $112 billion.

But the troubling side is with expenditure. In the first half of 2011, non-interest current expenditure amounted to $38.3 billion, an increase of 16.2 per cent. Already the Minister has been going to the National Assembly for supplementary funds to meet expenses for what could effectively be deemed vote-buying. On the capital side the Guyana Power and Light Inc continues along with GuySuCo to be major financial burdens with hardly any light visible at the end of the tunnel.

Conclusion
For all we know about the illegal and criminal economies and the attendant tax evasion and money-laundering, these matters receive no mention in either reports. Key indicators seem way out of line with reality, particularly with respect to certain components of the consumer price index and those relating to employment which admittedly came from Mr Nadir and not the Bank of Guyana or the Minister of Finance. But it is on the financing side that this will not be a good year. With continuing uncertainty about the receivability of the Norwegian funds the rest of the year will see increasing expenditure financed by a growing debt burden.