Tag: GDP

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Challenging the Jagdeo myth

Introduction
Mr. Carl Greenidge, Finance Minister in the PNC Administration has been one of the chief targets of the PPP/C since 2011 for what they claim to be his mismanagement of the economy prior to 1992. This claim is at best one-sided and at worst totally dishonest, completely ignoring the performance of the economy when Greenidge demitted office in 1992. Perhaps as the calypsonian Chalkdust sang: “they ‘fraid Carl”.

A question for the PPP/C is if the Economic Recovery Programme (ERP) which they in opposition had dubbed Empty Rice Pot was so bad, why did they not replace it? The truth is that the ERP negotiated by Greenidge with the IMF and other international lenders and donors placed Guyana on a trend where its economic growth rate was well above anything the country has ever witnessed, before or after. Asgar Ally, riding on the wave of debt write offs initiated by Greenidge, kept the economy roaring until he was undermined by then Junior Finance Minister Bharrat Jagdeo.
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Stats Bureau should be doing far more to explain questionable GDP numbers

It was refreshing to see the letter by Chief Statistician Mr. Lennox Benjamin `Challenge of country’s growth estimate was undertaken without single reference to the economy’s sectoral sources of expansion’ (Stabroek News, May 4, 2014). Mr. Benjamin was responding to a letter in the Stabroek News of April 26, 2014 “challeng[ing] the Minister to illustrate to the nation how he arrived at the 5 per cent GDP growth rate reported in his 2014 Budget Speech”. In support of their conclusion “that the 5 per cent growth rate was an act of economic illusion”, the writers of the first letter drew attention to an overall balance of payments deficit of US$119.5 million compared to a surplus of US$32.9 million in 2012.

In his response Mr. Benjamin states that if the writers have doubts on the figures, they must say what the numbers should be. Mr. Benjamin is confusing the duty of the Stats Bureau to produce accurate and timely information with the right of the public to question the information and to ask for explanations. For example, the Stats Bureau reported an inflation rate of 0.9% in 2013, which as Mr. Benjamin knows is not a national inflation rate but an Urban Consumer Price Index for Georgetown only. The so-called inflation rate of 0.9% for 2013 not only defies all logic but is inconsistent with and unsupported by the several different specific and complementary measures and indicators to which Mr. Benjamin himself refers.
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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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Numbers are what you want them to be

Introduction
Mark Twain said, “there are three kinds of lies: Lies, damned lies, and statistics.” I won’t be allowed to say that in these hallowed columns, particularly in relation to the National Accounts announced by Senior Minister of Finance Dr Ashni Singh in Budget Speech 2010. But I do draw attention to that speech and specifically paragraph 4.146 in which the Minister announced that the Bureau of Statistics had completed the technical work required “towards the rebasing of our National Accounts framework as well as updating the basket of goods and services underlying computation of our Consumer Price Index (CPI).” As if to lend some authority to that work, the Minister announced that this was done “with external assistance and support.” The National Accounts presented by the Minister are now “rebased to 2006 prices” and are introduced from January 2010, along with the new CPI.

Of course, the Bureau of Statistics has not distinguished itself for its independence, nor has its professional image been helped by the government and this Minister in particular. Business Page of February 7, 2010, under the caption ‘Budget 2010 – Looking back,’ noted that the Minister would be ahead of the bureau if, soon after he announced his statistics on GDP and CPI, the bureau gave those numbers its blessing. There is no prize for guessing that what was feared, actually happened. The official website of the Stats Bureau has now endorsed the Minister’s numbers. Perhaps the bureau would also explain how VAT collections declined by 3 % while the sector to which it most applies – distribution – is reported to have grown by 6%. And why all the hard-to-measure sectors, like transportation and rental, reflected growth. Are we so dumb as to take these at face value?

Singular control
It is fortunate for Dr Singh, but less so for the country, that directly or indirectly, he either influences or controls the spending (as keeper of the Consolidated and Contingencies Funds), the record-keeping (the Accountant General Department) and the measurer (the Stats Bureau). In addition, he has the potential to influence the auditor (the Audit Office). Each of these entities is headed by an employee on contract, which is not an arrangement conducive to demonstrations of independence.

This column supports rebasing which is recommended by the UN and is done routinely across continents. But it would have been useful if we had used the expertise of the University of Guyana in the exercise and done it with some form of consultation, explanation and information. With so much of the information on consumer spending empirical, anecdotal and incapable of precise measurement, it would have been helpful to have the widest possible engagement on its construction, but this is simply not this Minister’s style.

The justification for rebasing is simple enough. As the Minister explained, up till 2009, the base year for Guyana’s National Accounts was 1988. He further explained that as the years progressed, there was increased likelihood of errors in measuring the level of growth and other components of the National Accounts.

This is because the prevailing price and cost structures in the base year become progressively less relevant for calculating volumes of output and for estimating value added. Also of relevance, is what is called the industry cycle as new products, technologies, and industries take the place of, or add to, those prevailing in the base year.

Never was so good
The Minister announced that the results have been predictable and that as a result of the rebasing to year 2006, the estimated weight of agriculture, fishing and forestry and of government has declined, while the weight of mining and quarrying, manufacturing, and services has increased. The rebasing has resulted in an upward revision in the estimates of nominal GDP. (See table and chart extracted from the Minister’s data.) Prior to the rebasing being brought into effect, Guyana’s GDP at market or purchaser prices for 2010 would have been estimated at $268.5 billion, but with rebasing, this has increased by 69% to $448.1 billion.

Adjusted for the rebasing, this is how the economy’s performance appears for the years 2006 to 2010 projected.

But rebasing has other consequences. In addition to the economy being larger, it means that other figures, like the amount of debt to the size of the economy, are better, while tax to GDP or government spending as a fraction of the economy, are lower. Based on his rebased numbers, Guyana is now one of the least taxed countries in the region, despite having the highest corporate tax rates and the most punitive system of personal taxation. It is true that many major sectors – like sugar, bauxite and forestry – make only a small contribution to the tax revenues of the country. Rusal and BOSAI enjoy generous tax concessions in bauxite while Barama’s capacity to make losses and still survive goes down in the business folklore of Guyana, and perhaps the world.

The private sector’s understanding
The concept of transfer pricing, one of the most common forms of exploitation by multinationals, clearly does not apply to Guyana. And what seems not to be understood by our captains of industry – who are also the beneficiaries of tax concessions and a liberal interpretation of the tax laws – is the difference between the nominal rate of tax and its effective rate.

Take our commercial banks for example. The nominal rate of corporation tax that applies to banks is 45%. Yet, according to their most recent reports, these banks paid an average of 26%, within the range of 14% and 39%. And the shareholders pay no tax on the dividends. Quite what the President of the Georgetown Chamber of Commerce therefore means when he suggested that his Chamber was not too concerned about Budget 2010 since tax reform is on the horizon, is anyone’s wild guess.

But let us for one moment accept the Minister’s new numbers. It means that tax evasion by the business community is taking place on a scale previously unimaginable and/or the incidence of loss-making and tax exempt operations is much bigger than we think. The Auditor General (ag) simply ignores the law that requires him to do an annual audit of concessions under the Tax Holidays Act. But there is no ambiguity or uncertainty that the workers are taxed at close to 50%, taking income tax, VAT and NIS into account. On the other hand, the business community as a whole probably bears tax at less than 10%! Yet, the Minister of a government that claims working-class roots could not see it fit to reduce the personal tax rate of 33⅓%, or increase the measly US$175 per month personal allowance.

Know only mistrust
While I know a little about taxation, I confess that economics is not my field, and I therefore called several entities to help me understand the re-basing. The Minister of Finance Dr Ashni Singh, as usual, did not take my call; the head of the Stats Bureau, also as usual, was out of the office and at the Ministry of Finance, while relevant academics at the University of Guyana claimed no participation in the exercise by the Stats Bureau.

With mistrust everywhere it is sad, but not unexpected, that official statistics and reports of transactions are not well regarded by Guyanese. Think of the ‘now you see them now you don’t’ state-owned properties that are sold off; or of the conflicts of interest among important state institutions; or of the violations of the constitution and the Fiscal Management and Accountability Act; or of the incestuous relationships between the politicians and some members of the business community; or of the government’s unwillingness to entertain MP Raphael Trotman’s Freedom of Information Bill. It would be hard not to be cynical and distrustful.

And those who care only about the bread and butter or rice and curry issues, are hardly likely to be impressed by the announcement that her/his personal GDP has jumped to US$2,308.50 but s/he still cannot find a job, or is in receipt of a pension of $6,600 per month. And even for those who have jobs, their food basket costs easily exceed their income. These issues do not seem to matter to the Minister of Finance or his Bureau of Statistics.

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Budget Focus 2008

2007 was the year of Cricket World Cup, the single largest sporting event ever held in Guyana. It was an event on which billions were spent by the Government of Guyana and the private sector, yet there has been no analysis of the returns and the extent to which expectations were met. Significantly, visitor arrival numbers were about 12% above the preceding year. With World Cup done, we do have tourism and infrastructure assets but the Stadium for example, which may have cost close to $10Bn to build, will have to be maintained at substantial annual cost.

Budget 2008 which had been planned for earlier in the year became a casualty of both the Lusignan (January 26) and Bartica (February 17) massacres. In the latter case the presentation was set for February 18th but the massacre on the evening before forced a cancellation. It was presented four days later on February 22.

Despite the extra days and the gravity of the situation only one paragraph on the Bartica massacre appears to have been added to the Budget Speech. The work of the Government and the nation must of course go on but the events of the weeks preceding the budget should have impressed on the Minister the pressing issues confronting the nation – crime, the increasing threat of flooding, inflation and the brain drain. To the extent that he dealt with any of these it was how many billions the Government was going to spend.

The ability of the economy to withstand the pressures of crime and spiralling prices will be tested in 2008 as Carifesta returns to Guyana. This and other significant events such as local government elections, the completion of the Berbice Bridge and the Skeldon Modernisation Project were the backdrop against which Minister of Finance Dr. Ashni Singh presented a G$119Bn budget – 8.5% higher that the latest estimates of 2007.

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