Tag: Economy

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A nonsensical analysis

The Guyana Chronicle on Tuesday, September 27, 2011, under a caption ‘Lies Exposed’ carries a statement in full by PPP Executive Committee member Mr Robert Persaud, “debunk[ing] recent statements issued by PNC’s APNU, et al on Guyana’s development.” Taking aim at former Finance Minister Mr Carl Greenidge, Mr Persaud said that Mr Greenidge “ignores the fact that in 2010, the Guyanese economy (at current prices) was more than fifteen times the size it was in 1991 when he was at the helm.”

Mr Persaud might very well be accused of engaging in some lies of his own. I assume he knows that there are two measures of the size of an economy – Gross Domestic Product and Purchas-ing Power Parity. Size ‘at current prices’ is not a meaningful concept, and GDP at current prices is not used by economists for making the type of long-term comparisons Mr Persaud undertakes. Real GDP would have been more appropriate, because it makes allowance for inflation which accounts for the bulk of the higher values we see. It seems that Mr Persaud engaged in some simplistic exercise creating a table comparing 1991 GDP with that of 2010 at current prices. In grade-three style, he then divided one into the other to arrive at the figure of 15! Surely there must be someone who could and should have told Mr Persaud that he was holding himself up to amusement since this is not even apples and oranges, but more like apples and chalk.

The politician in Mr Persaud probably wanted to suggest that the economy grew 15 fold (1500 per cent!) since the PPP/C came to power. That is absolutely and obviously nonsense, requiring an annual growth rate of 15.3%. In fact the average annual growth rate as reported by successive Ministers of Finance for the past eighteen years and disputed by other observers was 3.26%. Cumulatively then, in real terms the economy has grown by only 78.11% at best since 1992, hardly the kind of growth one expects from a resource-rich economy coming from a horribly low base (ie, it has not even doubled in close to 20 years).

The other point worth noting is the arbitrary date that Mr Persaud has chosen – 1991 – when we all know that Mr Greenidge was Finance Minister for a full three quarters in 1992. I suspect the reason for the choice of the year 1991 rather than 1992 is that it suits Mr Persaud’s purpose to project the PNC and Mr Greenidge in the worst possible light and thus show the PPP in the best possible circumstances, albeit false and contrived.

What Mr Persaud wanted to hide was the fact that in 1991 the economy grew – using the non-bogus yardstick real GDP – by 6.1% and in 1992 it was 7.7%, levels not achieved since Mr Bharrat Jagdeo became Finance Minister in 1995.

But Mr Persaud’s distortion goes to inflation as well. Mr Persaud refers to the inflation rate of 70% in 1991 without acknowledging that this was due almost entirely to a devaluation of the Guyana Dollar relative to the United States Dollar from G$45 to $101.75, more than 125%. The rate continued to decline in 1992 reaching G$125 to the US Dollar by October 1992 when Dr Jagan pledged to reduce it. It is now $204 to the US Dollar.

Mr Persaud also selectively relies on an IMF quote in 1988 – before the introduction of the Economic Recovery Programme (ERP). Is he not aware that on April 28, 1992 Mr Lewis Preston, the President of the World Bank, wrote the IDA Board of Directors in the following terms concerning Guyana: “Few countries have moved as far as Guyana in terms of implementing a comprehensive adjustment programme… and eliminated its arrears to international financial institutions.”

It is a sad testimony of the PPP and Mr Persaud that he would seek to ridicule Mr Greenidge for facing up to the truth about the state of the pre-ERP economy while he (Mr Persaud) can indulge in cheap distortions.

May I add that Mr Persaud might not know or wish to admit that before his administration signed on to the ERP, then President Hoyte invited Dr Cheddi Jagan as leader of the Opposition to attend a Cabinet meeting at which Dr Jagan grilled Mr Greenidge about the ERP.

Many Guyanese, including me, did not support the ERP either on ideological grounds, or because they did not think the ERP would succeed, or because of the programme’s immediate harsh social impact while its compensating ameliorative measures were slow in coming. But at least we have to credit the PNC and its finance team led by Mr Greenidge with courage, honesty and integrity, concepts that are largely alien in this era.

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Two per cent growth in the economy is wishful thinking

In looking to 2010, Business Page predicted that the 2010 Budget speech would make the economy’s decline of the first half year of 2009 into a full year growth. No sooner had I submitted that column than no less a person than the President himself, in his New Year’s message, reported “preliminary indications that the economy registered a positive growth rate of about 2% in 2009.” He was careful not to provide any support for such assessment, restricting his only specific comment to the sugar and bauxite sectors whose performance he described simply as “below expectations.”

But that limited comment is enough to caution even the most casual observer not to take the President’s assessment seriously. In November 2009, reporting a 1.4% decline in the economy for the first half of the year, the Minister of Finance reported a 19.3% half-year decline in sugar, a 6.7% decline in rice and flat performance in mining and quarrying. For the remainder of the year, the Minister expected the performance of rice to deteriorate and for mining and quarrying to do substantially worse than they did in the first half. We know too that bitter industrial relations since June 2009 ensured that sugar’s woes continued and, quite possibly, deteriorated in the second half of the year.

Even GuySuCo’s CEO, in his New Year message seemed keen to forget 2009 even as he expressed some optimism for 2010. If a miracle had in fact taken place and Guysuco had transformed a 19.3% decline in the first half of 2009 to a full year 10% growth, the corporation and the President would surely have noticed it.

The revised outlook for a 2.5% growth in real GDP, including all economic sectors, predicted in November by the Minister of Finance, was premised on the full-year growth (of 10%) in sugar – equivalent to a turnaround of 36% for sugar in the second half of the year! That simply did not take place and no other sector of significance could have made up for the loss. To put the numbers another way, non-sugar growth was expected to come in at 1.5%, so that the economy did substantially better than the Minister of Finance expected less than eight weeks ago.

The President’s assessment of an overall 2% growth seems more a mixture of wishful thinking, political rhetoric and self-vindication for his firewall assurance, than a serious, informed or honest assessment by someone trained in economics. Having done his political work, he has now placed the Minister of Finance, the Bank of Guyana and the Bureau of Statistics under immense pressure to produce numbers to vindicate yet another of his assessments.

They may oblige. It is hard to be confident about the integrity of the statistics coming out of a Stats Bureau that would not publish the monthly Georgetown price data it collects, usually doing so only after the Minister has announced suitably relevant numbers in his half-year report or his Budget speech. And the fiasco of conflicting rates of 2009 first half (un)real GDP growth, reported in the Business Page series (November/December), but which neither the Minister nor the Bank considered worthy of a public explanation, has similarly affected the credibility of both the Bank of Guyana and the Minister of Finance.

It seems to me that in relation to statistics on the economy and financial information coming out of the government, 2010 will be no different from 2009 and before.

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Half year economic performance

The Guyana economy has performed reasonably well during the first half of the year according to Dr. Ashni Singh, Minister of Finance, and there is cautious optimism about the domestic economy for the rest of the year. This is according to the mid-year report presented to the National Assembly by the Minister on October 27, 2008. However, anyone with a serious interest in the economy and concerned about the several important omissions contained in the mid-year report should read the report in conjunction with the half-year report done by the Bank of Guyana and published on the bank’s website.

Driven by improved performances in agriculture, mining, engineering and construction, and services, the economy recorded a 3.8 per cent GDP growth during the first half of 2008, but still a sharp decline from the 5.8 per cent growth in the corresponding period of 2007. The Bank of Guyana – using that well-known oxymoron – reports that the manufacturing sector recorded negative growth, due partly to the high cost of inputs − fuel and imported raw materials, challenges to which the sector is no stranger.

2008.11.16_Chart1
Source: Bank of Guyana Half-year report 2008

Revenue and expenditure
On central government revenue and expenditure, the mid-year report presents some interesting information. Value-added and excise taxes were budgeted to increase by 12.8% from the $36.7 billion collected in 2007 to $41.4 billion in 2008. For the half-year actual collections amounted to $17.8 billion (43% of full year) compared with the $17.1 billion collected last year. On a period by period comparison these collections represented a marginal increase in value-added tax to $11 billion from $10.2 billion, although excise tax collections declined to $6.7 billion from $7 billion.

Internal revenue collections amounted to $19 billion in the first half of 2008 compared with $17.4 billion collected last year. The bulk of such revenue comes from a handful of companies, including the commercial banks, telecommunications companies and Banks DIH, DDL and DEMTOCO. Despite the many unincorporated businesses, the self-employed category pays less than one billion dollars in taxes, or just about 15% of the taxes paid by the employed persons.

While both reports indicate significant growth in key sectors, tax revenues have not risen correspondingly and one is left to wonder whether this is a case of generous tax concessions or continued tax evasion within key sectors.

But it is in relation to expenditure that the picture is particularly interesting. And while the Minister in his report did not discuss the table which contains several errors, it must now be a matter of speculation why only 38% of the full year budget has been expended in what the table itself describes as key sectors. Particular attention is drawn to the Health,

Infrastructure and Agriculture sectors where only 41%, 27% and 33% respectively, have been spent in the first half of the year. Are we going to see a mad and irresponsible rush to spend during the second half of the year, simply because the money has been allocated?

2008.11.16_Table1

Debt
The mid-year report deals very inadequately with external debt and omits completely any information on domestic debt which has been rising alarmingly over the past several years. The Bank of Guyana Report shows the stock of government’s domestic bonded debt increasing by 7.6 per cent, while its external public and publicly guaranteed debt rose by a whopping 16.8 per cent from end-June 2007.

The outstanding stock of government domestic bonded debt, which consisted of treasury bills, debentures, bonds and the CARICOM loan, amounted to G$74,223 million, an increase of 7.6 per cent from end-June 2007 and 7 per cent from end-December 2007 balance. The increase from one year earlier reflected the expansion in the stock of outstanding government treasury bills at end-June 2007.

Over the year July 1 2007 to June 30, 2008, the stock of outstanding public and publicly guaranteed external debt rose by 18.2 per cent to US$774 million. This increase reflected disbursements of US$45 million by the Inter-American Development Bank and the delivery of US$44 million credit by the Venezuela Petrocaribe agreement.

Employment
This very critical economic and social indicator once again fails to attract the attention of the Minister and again recourse has to be had to the Bank of Guyana Report which by its own admission is not based entirely on hard data. One has to wonder why the government continues to refer to labour surveys but yet the Ministry of Finance seems unable or unwilling to deal with the issue. While indicating that preliminary data indicated that public sector employment remained relatively stable, the Bank of Guyana reports some decline due primarily to factors such as resignation and retirement of employees.

The Bank of Guyana reported that while “data on private sector employment are sparse, there are indications that the growth sectors recorded higher levels of employment.” It went on to state that the mining, distribution as well as the engineering and construction sectors seem (emphasis mine) to be associated with increased employment.

It is interesting how the Bank of Guyana and the Ministry of Finance are so sure of the performance of the various sectors of the economy but cannot establish similarly reliable numbers on employment.

Inflation
Inflation has been one of the most disputed and massaged variables in the Guyana economy. Both reports indicate a 5.8% rate of inflation but again the Bank of Guyana is more informative even if no less controversial. The Minister of Finance attributes the increase mainly to food items, identifying cereals and cereal products as the principal contributors which are unlikely to be the main concerns of the average consumer. In fact in a typical food basket done monthly by Ram & McRae, Chartered Accountants, the price increase in food items over the six month period was 10.2%, compared with the Bank of Guyana figure for the food group of approximately 9%.

Conclusion
While the date on the Minister’s report is shown as September 12, in fact it was presented to the National Assembly on October 27, repeating a pattern of wrong dating by this Minister. Despite the additional time he took in presenting his report, the Minister chose not to address the serious global economic issues that surfaced in the third quarter, nor did he treat in any serious way his duty under the law to include in the report a list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the government proposes to take to meet the expected circumstances.