Tag: Budget

Posted on

The Supplementary debate and the Audit Office

Introduction
In last week’s Business Page I indicated that I would be addressing the 2010 Auditor General’s report this week. It will be remembered that the report was handed over to the Speaker of the National Assembly around the time of the dissolution of the Assembly, its release delayed because of the dissolution. Before I consider the report, however, it is useful to comment on last Thursday’s sitting of the National Assembly when Bill No 1 of 2012 containing a request by Dr Ashni Singh, Minister of Finance for $5.7 billion.

Supporting the Bill were two financial papers, one for $2,240 million to replenish the Contingencies Fund and the other $3,471 million for supplementary approval under four headings. From all appearances, it was quite a contentious session during which acting Speaker Ms Deborah Backer had to offer some maternal advice to the Finance Minister who, clearly uncomfortable with the uncharted waters, appeared several times to have lost his cool. The arguments raged to such an extent that the Bill was not fully addressed in the session and the House was adjourned for another month!

From reports, it appears that save for some transactions for about two hundred million dollars, Paper 7 was approved in principle based on explanations offered by the Minister and his junior, Bishop Edghill. I learnt from one parliamentarian that the expectation is that Paper 8 would be more contentious, having a few transactions for substantial sums. There seems a fundamental misunderstanding of the two papers and how they ought to be treated under the Financial Management and Accountability Act which sets the rules for the receipts and payments of “public moneys,” a term that is much wider than actual cash.

The Fiscal Management and Accountability Act
It does not seem to me that the genesis and provisions of this Act are understood by many of the members of the National Assembly. To start with, then Minister of Finance Saisnarine Kowlessar and Prime Minister Sam Hinds resisted the pleas of Winston Murray and James McAllister for the Bill to be referred to a Select Committee because delay could cause the government to lose US$30 million. The urgency was evident in that the Act was assented to and gazetted one day later.

Our MPs on checking the Hansard of the debate on the Bill would have seen too the arguments by Murray on what constitutes qualifying expenditure from the Consolidated Fund and how he succeeded in getting the National Assembly to insert the word “urgent” before “unavoidable and unforeseen.” Many of the items in Paper 7, even if the details were submitted in accordance with the FMA Act, would not meet the strict test for payment out of the Fund. It has to be seen therefore as an act of some considerable compromise for the opposition not only to accept oral explanations in place of the written details required by the Act but also a relaxation of the criteria which the PNCR had insisted on when the Act was passed in 2003.

I can only hope that when the Bill comes up for voting, the opposition makes it clear to Dr Singh that taxpayers‘ money is not there to be dispensed at the whim of any politician.

Enhanced obligations
While the ordinary person expects all legislators to understand the law, that obligation is greater on those who have been in the National Assembly for some time, or who have served on the Public Accounts Committee, and greatest on the Minister of Finance. It seems to me that Paper 8 reflects a lack of awareness, by all these persons, of section 21 of the Act and the concept of conditional appropriation to which Mr Murray drew attention in the parliamentary debate.

Such an appropriation would have allowed for the spending of specified sums of money, conditional upon budget agency receipts being credited to the Consolidated Fund. By definition, such a case requires prior and not subsequent approval, as Dr Singh is now seeking. There is room to speculate whether his reason for not doing the right thing at that time is because he did not wish to reflect an even larger deficit, or did want to have to answer too many questions about some of the transactions.

When it comes to budgeting – an essential element of financial management – this Minister has either been ineffective or rather cavalier. He brought eight financial papers to the National Assembly for supplementary funds for 2011. The amount he sought was over $18 billion on budget heads of less than $30 billion. He came to the National Assembly twice in September 2011 and yet he did not know that GPL was bleeding, even as it was bleeding the consumers. Any responsible Minister of Finance would have sought supplementary funds at that stage rather than wait until after the end of the year. But let us not complain: the country is the beneficiary of the miscalculation by Dr Singh in thinking he would be able to get the National Assembly to vote money for him however and whenever he wishes.

The country must now wait another month – Parliament seems to work at most, only on Thursdays – to see how Paper 8 is debated and how the vote on the Bill will go. Some MPs are hoping that when the National Assembly resumes, the Minister will add some flesh to the bare details offered in Paper 8 and that such details will be explosive.

Audit report 2010 and the Audit Office
Over the past four years Business Page has had about seven columns examining the annual reports of the Audit Office on the accounts of the ministries, departments and regions of Guyana. I have noted the standard response by the press and the public to revelations of Contingencies Fund abuse, unreconciled bank accounts; single sourcing of drugs from the New Guyana Pharmaceutical Corporation; vehicle log books not maintained and improperly kept stock records. I have written that Mr Deodat Sharma who has been acting in the position as Auditor General since 2004 often turns a Nelson’s Eye to many of the serious financial improprieties and mismanagement in some of the budget agencies, including the Office of the President.

I have said on numerous occasions that NICIL seems to have audit immunity from the Registrar of Companies as well as the Audit Office. I have suggested to the Public Accounts Committee to get a professionally qualified accountant to head the Audit Office so that staff progression is not stymied and the quality of their audits brought to an acceptable standard. Along with others, I have wondered about Article 216 of the constitution in relation to the lottery funds and how then President Jagdeo ignored the basic elements of financial management to dispose of the funds as he thought fit.

The Audit Office has been reminded of the many funds around that are not being audited and its attention drawn to the continuing failure of the majority of ministers to table the annual reports and audited financial statements of the entities for which they bear ministerial responsibilities. It has regularly been reminding him that Flood 2005 money, Carifesta and World Cup remain unaudited and that there is no evidence that it carries out the audit of “tax concessions” under the Investment Act.

No change
Despite these, nothing seems to change. That the report of the Audit Office hardly offers any new insights is evident in the number of paragraphs under each budget agency that has far more “prior year matters which have not been resolved” than current year matters. In the case of the Operations of the National Procurement and Tender Administration there are only prior year issues, as is the case with the Ministry of Foreign Affairs.

But that applies to the report of the Audit Office itself. It keeps moving the goalpost on when it will have its full complement of staff, or when it will issue its next Value For Money audit. Amidst the verbiage of the developments on VFM audits, we learn that only two such audits were concluded in 3½ years, while two were promised, first in 2009 and the same two were promised by end of 2010. It is now 2012.

We should surely be expecting more from our Audit Office that includes “six officers of the unit including the Auditor General who spent 9 month in training in Canada,” and another fifty-nine who were trained locally. We learn too that the Audit Office has a Forensic Audit Office which was established in 2008 and which has “continued to be an integral part of the Office.” Let us hope they start producing some results.

To close this first part of the review of the report it may be useful to note that for several years now the post of Accountant General has been filled with acting appointees. In the last five years, the occupants of the office were Mr H Autar – 2 years; Mr G Abrams – 2 years; and Col J Persaud. Several positions below the Accountant General are also filled by acting appointees, a situation that mirrors the Audit Office where almost the entire top brass are themselves acting. That cannot make for a healthy control environment.

To be continued

Posted on

Managing the country’s finances

Introduction
“The Contingencies Fund continued to be abused with amounts totaling $550.025 M drawn from the Fund and utilized to meet expenditure that did not meet the eligibility criteria as defined in the Act.”

Even allowing for the imprecise language, these words appearing in paragraph 3 of the Executive Summary of the Report of the Auditor General 2010 must be very discomfitting to Dr Ashni Singh, Minister of Finance. Not that the sentiment is new; words to that effect have appeared in every single report since Dr Singh was appointed a senior technocratic minister in 2006. But what makes the words perilous for him is that the report, which for four months has been kept secret from MPs and public alike, was tabled in the National Assembly on the same day as were two financial papers – Nos 7 and 8 – for $5.7 billion.

In each case of reported abuse in the past, the ministry gave one stock, banal response to the finding by the Audit Office: “that the Ministry of Finance continues to ensure that there is full compliance with the requirements of the Fiscal Management and Accountability Act.” No one can accuse Dr Singh of not understanding the Act and its requirements.

But perhaps he felt, like Steve Jobs, that he could bend reality at his command, or he underestimated the commonsense of Guyanese, or he did not care, assured of the unquestioned support and vote of his parliamentary colleagues and the cover of his former authoritarian boss, President Jagdeo.

Post November 28, that attitude can be fatal. Mr Jagdeo has gone, bequeathing a diminished PPP/C government, taking with him his immunity, and seemingly inured to any embarrassment. To President Ramotar, on the day he delivered his maiden presidential speech to the National Assembly, his Finance Minister tabled two financial papers that have his opponents excited and his own supporters confused. It is the Jagdeo legacy, so faithfully carried out by his protégé and appointee Dr Singh who, faced with criticism, demonstrates misplaced bravado and accuses me of “blatant distortions and misrepresentations.”

Over the next couple of weeks this column will review the report of the Auditor General but given the topicality of the two financial papers, these are addressed in this column.

The two papers
The two papers are respectively for $2.240 B of which $2.161B is for recurrent expenditure and $79.3 M on capital expenditure; and $3.471B, classified entirely as capital expenditure, although there seems to be some element of recurrent expenditure in at least one of the headings. It is probably worth repeating the elements of an occasion that would permit the issue of a warrant by the Minister for expenditure from the Contingencies Fund. Indeed, paragraph 29 of the 2009 and 2010 Auditor General’s reports reminds the Minister that the criteria require him [the Minister] to be satisfied that “an urgent, unavoidable and unforeseen need for the expenditure has arisen (a) for which no moneys have been appropriated or for which the sum appropriated is insufficient; (b) for which moneys cannot be reallocated as provided for under this Act; or (c) which cannot be deferred without injury to the public interest…”

The report adds that “where any advance is made, a supplementary estimate must be laid before the National Assembly as soon as is practicable for the purpose of properly authorising the replacement of the amount advanced.” What the report does not state is that the Minister, when seeking the replacement of funds, must provide to the National Assembly specifics of (a) the amounts advanced; (b) to whom the amounts were paid; and (c) the purpose of the advances. It is safe to say that this Minister has never provided the required information to the National Assembly. And equally significantly, the benign Audit Office never addresses the expenditure under the respective agency programme. Surely advancing the money to the expenditure agency is not the end of the transaction; the money has to be paid out.

Let us take a couple of examples. More than $200 million was spent by way of contingencies advances on Amerindian projects in 2010. There is not a single comment on the expenditure under the ministry. Similarly, $75.5 million was spent out of the Contingencies Fund on completing the swimming pool. Again, no mention under the report’s audit findings at that ministry.

And finally, $300 million was paid out of the Contingencies Fund under Agriculture for expenses described as “to assist farmers in regions 8 and 9 affected by prolonged rainfall.“ That would normally warrant some audit attention; none is suggested in the 2010 Audit report.

Let us now turn to the 2011 advances that have generated such excitement, starting with the Contingencies Fund. Some of the main headings are as follows:

Source: Financial Papers

It is incredible that the budget for national awards should be understated by 300%. The Office of the President has so often and so long operated outside of the already lax financial system that that is now part of its culture. Maybe the October awards were an afterthought of Mr Jagdeo with elections in mind. But Dr Singh, it must be remembered, presented a mid-year report in August and went to the National Assembly for money twice in September. He ought to have known then that GPL and Lethem Power would need substantial additional funds. The same applies to the security forces and their need for supplementary funds to cover additional security duties for the elections. And predictably, the Ministry of Agriculture gets supplementary funds for Black Bush and for Mannarabisi, while two Amerindian dormitories get $18 million in food and $3 million to get the children home for Christmas. Whether it was just poor budgeting or politicking is a matter for speculation.

The second paper
Paper 8 is for $3.471 billion and is made up of four items. These are:

1. Ferries from China
The paper seeks another $2,588 million for the two ferries from China for which Budget 2011 had an initial provision of $366M. There was no comment on this by the Minister in his 2011 mid year report but the capital project profile presented at the time of the Budget had a total cost for the ferries of $3,849 million, all of it to be financed by “foreign loans/grants.” The profile shows the project ending in 2011 and the entire amount should have been taken up at the time of the Budget.

2. Education delivery
The paper seeks approval for $160 million on this $8,943 million project for institutional strengthening of hinterland schools, school facilities, textbooks and child-friendly classrooms. $800M was approved in the 2011 Budget and with pre-2011 spending of $4,063 million, the accumulated sum drawn down at end of 2011 would have been $5,023 million, leaving a large sum undrawn. The project is shown as being financed by foreign loan/grants and comes to an end in 2011.

3. East Bank Demerara Highway Improvement Project
The project profile for this IDB-funded, five year (2011-2015) lane extension from Providence to Diamond shows a total cost of $4,510 million of which $450M was approved in the 2011 budget. The paper seeks another $261 million.

4. Electrification programme
This is listed in the capital profile as a two-year project ending December 31, 2012. It consists of:

● the expansion of the transmission and distribution systems;

● seven new sub stations;

● expansion and upgrading of two sub-stations; and

● installation of a Supervisory Control and Data Acquisition (SCADA) system.

The total project cost is $8,157M of which $1,395 M was spent before 2011 and $2,791M was approved in the 2011 budget. It would seem then that there will be some $1,000 million to be spent to the end of the project in 2012.

Conclusion
There is something fundamentally wrong with the manner of budgeting at the central government level. For example, “foreign loans/grants” is a term of confusion, not clarification. The information in the capital project profiles is unhelpful, and even unusual. It seems strange that the Budget would have had only a small part of the cost of the ferry when it was known that their delivery was scheduled in 2011. The reason it seems is a calculated strategy to mask the deficit at the time of budgeting. There is no reason to budget for part of the vessel – you either take the whole cost or none.

The Minister, as usual, was less than forthcoming in his mid-year report disclosures and projections. He then had another chance when he went to the National Assembly – not once but twice in September 2011. If he knew that there would be some matters of financial significance between the dissolution of the National Assembly and the end of the year, he should have sought to have provisions for those.

A senior minister can hardly admit that he was unaware about some of the party’s elections spending plans, although with Mr Jagdeo no one can be certain. Whatever it is, this Minister’s capacity for good budgeting and responsible financial management is being increasingly questioned.

And on the issue of the Contingencies Fund, his financial papers do not meet the requirements of the Act. Not only, in the words of the Auditor General, is the Minister a serial abuser of the Fund, but he shows some disdain for the National Assembly by his failure to provide it with the details required by section 41 of the Fiscal Management and Accountability Act.

At the wider level, the Jagdeo administration had engaged in a spending extravaganza, financed by borrowings.

So while the National Assembly persuades Dr Singh to bring financial papers in accordance with the law, and to stop the abuse of the Contingencies Fund, it also needs to bring under parliamentary control, our ballooning domestic and external debts.

Posted on

Country heading for massive budget deficit

Introduction
As campaign 2011 moves into top gear, no one it seems has the least interest in the financial and economic consequences of the explosion in what appears to be uncontrolled expenditure by the government. The simple rule of financial management is that new expenditure must either come from increasing revenues, or from utilizing accumulated reserves or from new borrowings. That is as true of an individual as it is of a company or government. But the very simplicity of the rule may help to disguise the stark consequences of the option of overspending financed by borrowings.

Take Budget 2011 as a case in point. That budget presented in January this year showed significant increases in government spending over 2010. Current non-interest expenditure was projected to increase by $9B from $78.5B to $88B and capital expenditure from $47B to $62B. Not that these increases were justified by the funds available or by new or additional revenues. No. The Minister, recklessly in my view, proposed to the National Assembly a budget deficit of $34B financed by external borrowings of $32B and from domestic sources by $2B. Over all the protestations of the opposition, the government passed the Budget without a single modification.

Warning
At that time, Ram & McRae immediately sounded the warning bell pointing in its January 18 review of the Budget that:

– External debt service in 2011 would be US$28.8 million and domestic debt service $4.979 billion, an increase of 15.1% over the preceding year;

– The percentage of budgeted current revenue used to service debt had increased from 7.9% in 2007 to 13.3% in 2010; and

– The impact of the unrestrained expenditure would be an increase in the overall balance on the financial operations from a negative $20.5 billion in 2010 to a negative $33.9 billion in 2011, or 65%, and double that of 2009.

From all appearances, the situation is turning out to be much worse. Between January and September, the Minister of Finance presented to the National Assembly six financial papers for supplementary funds totalling $12.2 billion. A breakdown of the financial papers shows $5.449 billion coming out of the Contingencies Fund and $6.77 billion for proposed spending. Unless these are financed from new sources or increases in revenue the deficit would climb to $46B. But not only are these not coming from new sources or increases in revenue but President Jagdeo has now conceded that some $14B budgeted in 2011 as revenue flowing from the Guyana-Norway LCDS initiative is now certain not to be coming in this year.

No lame duck
If we add this all together this is what we find:

In this table, I am conservatively and unrealistically assuming that there will be no further supplementary appropriations for 2011. Of course there will be. The problem is that no one knows the extent of the unbudgeted spending that has been going on since the last financial paper was submitted to the National Assembly before it expired in late September. It did not help that the parliamentary opposition had withdrawn from the National Assembly although it might have made no difference since the government is not known for its willingness to listen to any criticism of its actions, whether on money or otherwise.

What it did was to allow the distinctly un-lame duck President Jagdeo and the openly politicized Finance Minister to do as they wished, to spend as they wanted and to ignore the consequences. Even now, or rather moreso now, the President goes around handing out millions to all and sundry which the post-November 28 administration will have to add up and then approach the National Assembly to approve what he has been spending, as if it were coming out of his presidential pension package.

Out-turn
Let us return to the out-turn for the year. And let us assume that the government manages to shave as much as ten billion dollars of expenditure from the budget for the year. Here are two immediate consequences:

The resulting deficit will be approximately $50 billion or US$250M – more than the entire sum receivable from Norway over a five year period.

The total debt of the country – external and internal – expressed in US dollars, will exceed US$1.8 billion, just a little below the debt the PPP/C inherited in 1992.

Because of the depreciation of the Guyana dollar since 1992 from $125 to $204 to the US dollar, the per capita debt, which is the amount of debt divided by the number of Guyanese, would be higher in 2011 than it was in 1992.

The consequences of this will be severe on the taxpayer. In 2010, the interest cost of servicing the domestic debt in 2010 was $3.9B while the interest on the external debt was $2B. Total debt service inclusive of interest cost is 13.28% of current revenue. While servicing of the external debt in 2011 is projected to increase by 27.6%, the internal debt service is projected to fall in 2011 because of a substantial projected decrease in domestic debt repayment. That is an apparently painless way to say that the government never intended to pay down on the domestic debt in 2011.

Mid-year hope
I was hoping that the Mid-Year report prepared by the Minister of Finance would have offered some comfort. Unfortunately, while the National Estimates include a table giving an accounting classification of the Central Government Financial Operations, the Mid-Year report does not. The narrative in the later report indicates that full-year 2011 revenues are projected to exceed 2010 by about $7 billion while for the first half of 2011 non-interest current expenditure amounted to $38.3 billion, an increase of 16.2 per cent over the same period last year. Similarly capital expenditure for the first half of 2011 amounted to $17 billion compared to $13.7 billion in the corresponding period in 2010.

One other possibility is that the new expenditure will come from one of the many slush funds or padded line items such as the provisions for wage increases dealt with in Business Page last week. The economy cannot bear the kind of debt burden which reckless spending involves.

New money
Earlier in this column reference was made to the financial papers for additional money for the government. The principal agencies for which monies were voted were:

The vote for GPL was a single amount for the acquisition of a 15.2 MW power plant at Kingston. The allocation for Ministry of Finance was to buy fuel for the LINMINE Community Power Plant, flood victims in regions 6 (?), 9 and 10 and $1.2 billion for additional electricity charges. One expects the Ministry of Finance to be best at budgeting costs and to have its allocation for the payment of electricity charges is a poor reflection of its ability to manage and control costs.

Public Works had much to do with road expansion on the East Bank and East Coast Demerara, preparation of the Supenaam and Parika Stellings for Chinese vessels and cost for replacement of ferry spares. Health was mainly for the purchase of drugs while Agriculture was for D&I and other projects, some of which are related to the Grow More Food Campaign which the government is trying hard to justify against the huge sums spent so far.

Conclusion
For now, ‘boat gone ah falls.’ The Jagdeo administration will soon expire and hopefully a government with some commitment to financial discipline will see the need to cap borrowings to levels that are sustainable. It is what the economy and the country will need to cushion any challenges which inevitably happen even to the best managed economy.

Posted on

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.

Posted on

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.