Tag: Mid year Report

Introduction
In the introduction to last week’s Business Page I pointed out that it was refreshing that the mid-year report was not only prepared within the statutory deadline but that the report was actually made public even before it was laid in the National Assembly which is presided over by the Speaker. That was certainly one step forward. Just one week later the Auditor General presented to the Speaker of the National Assembly the audit report for 2011within the statutory deadline. This was the first time that this was done under Mr Deodat Sharma as the Head of the Audit Office. And guess what the Speaker does? He not only drew comparison with what last took place twenty-one years ago, but then goes on to confuse his specially assembled audience over the timing of the submission of reports since that date. And to add vinegar, he announced that the report will be locked away until the National Assembly resumes from its prolonged recess. That certainly is not a forward step.

Last week as we reviewed the sectoral performance of the economy we saw the up-and-down performance of its major sectors even as it recorded overall growth. We also looked at the values of imports and imports and the change in the consumer price index which is popularly referred to as the inflation rate. Today we turn attention to other segments of the report and begin with revenues.

Revenues
Central government revenue for the first half of 2012 amounted to $64.9 billion. While representing only 44% of the budgeted revenue for the year, the collections represented a 5.5 % increase over first half 2011, primarily as a result of improved performance across several tax revenue categories. Tax revenue collections for the period amounted to $58.6 billion representing 90.4% of total current revenue collections or 2.9% over 2011.

Internal revenue collections for the half-year amounted to $25.9 billion compared to $26.5 billion in 2011, a decline of 2.3%, as a result of contractions of $582.2 million and $146.6 million in private and public sector corporation taxes respectively. The Minister attributed this decline to lower company tax rates, a bit of a stretch since tax rates were reduced not in 2012 but in 2011, and tax payments to June 30, 2011 would have taken the reduced rates into account last year.

A more realistic explanation lay in withholding tax collections which decreased by $624.8 million compared to first half 2011 due to arrears in dividend payments made in 2011 by a local company to its overseas parent company.

Customs and trade tax collections totalled $5.7 billion for the first half, representing a 19.6% or $930.9 million increase over 2011 half-year collections. The minister attributed this to a $900.6 million increase from import duties due to higher level of imports of most categories of goods particularly intermediate goods. Excise tax collections for the period amounted to $11 billion, a slight fall from 2011. Excise tax collections from motor vehicles amounted to $5.2 billion, an increase of $1.5 billion reflecting higher levels of vehicle imports.

Collections of value added tax (VAT) for the half-year amounted to $16.1 billion, an increase of $1.4 billion. VAT on imports of goods and services accounting for $611.7 million of the increase while VAT on domestic supplies increased by $831.1 million. Value-added tax for the full year was budgeted at $33.968 billion.

Tax evasion
Taxes collected from the self-employed amounted to a mere $1.8 billion to the revenues, compared to $1.5 billion for same period in 2011. As a percentage of tax revenues the self-employed – who dominate the professions, agriculture, fishing, car dealers, goldsmiths, artisans, contractors and most of the main shopping areas in all three counties – contribute less than 2.6% of the tax revenues of the country.

We have heard nothing recently of the so-called tax review committee announced by President Ramotar almost ten months ago, a delay that perpetuates a lop-sided, regressive tax-system in which the self-employed continue to treat taxation as a voluntary matter rather than be treated as the criminals that they are.

No Minister of Finance since 1992 has treated tax evasion seriously but all, including Dr Ashni Singh and his appointed Board of the Guyana Revenue Authority, continue to ignore the glaring statistics that show how serious and damaging the situation has become. Imports by the self-employed continue to rise by double digits, with bank deposits and import taxes not far behind. Yet the taxes the self employed merchants including our newest friends and the rest of the self-employed sector pay, move up only imperceptibly.

With all the inherent problems the GRA faces, it is quite remarkable that the taxes collected by it continue to rise. Whatever we may think of the nature of the tax system and the systemic corruption in some segments of the GRA, those of us who have to deal with the Authority on a day-to-day basis cannot help but admire – and feel a bit sorry for – the many hardworking staff who have to deal with a taxation public made up of so many groups of prominent tax evaders and money launderers.

Missing GRIF and other monies
In paragraph 3.34 of the mid-year report the Minister states that “based on developments in the first half of the year, total current revenue collections (net of GRIF inflows) are now estimated at $128.7 billion for the full year.” A review of Appendix E1 shows that while the sum of $18.4 billion was budgeted to be received, that amount has now been revised downwards to $1.975 billion. Since the Norwegian funds accounted for 15% of budgeted revenue for this year and since many of the LCDS projects were framed around the Norway funds, it was reasonable to expect that the Minister would say something of substance about the status of those funds.

Absent from revenue projections too are monies from the Lottery and the proceeds from the disposal of state assets by NICIL for sundry purposes.

Current expenditure
On the expenditure side total non-interest current expenditure to June 2012 amounted to $43.8 billion, an increase of 14.3% over the same period in 2011. This sum represents 41% of the budgeted expenditure for 2012.

The several types of expenditure where there were increases in 2012 over 2011 included statutory pensions and gratuities which had a 38% increase (no explanation offered); total other charges which increased by 11%; and subsidies and contributions to local organisations – mainly Guyana Power and Light Inc – which increased from $5.8 billion in half-year 2011 to $10.3 billion (77.6%) in the corresponding period in 2012. Old Age Pensions and Social Assistance payments in 2012 amounted to $2.4 billion compared with $1.98 billion in the corresponding half year in 2011.

While the late presentation and passing of the 2012 budget may have been responsible for a number of categories of expenditure to be lower than those for 2011, their greater significance lay in the percentages which the half-year 2012 expenditure bear to the full-year budget. Not unusually, the entire amount of $$3.7 billion for revision of wages and salaries remains unspent.

If we look further at the item Other Charges, which includes several categories of expenditure, we note that only $26.3 billion was spent up to June 30, representing 37% of what is projected for the full year. Principal among the items which had disproportionate spending in the first half of 2012 are expenditure on Materials and Supplies which represents 34% of full year projections; Rental and Maintenance of buildings18.7%; Maintenance of Infrastructure 14.5%; Transport, Travel and postage 34.3%; Utility charges 32.8%; Other Goods and Services 33.9%; Other Operational Expenses 30.1%; Education Subvention and Training 38.8%; Rates and Taxes and Subventions to Local Authorities 3.9%; and Pensions 42.5%.

The situation is no different with the capital expenditure side of the accounts.

Sectoral Capital Expenditure
What we may see and need to fear is that there will be a mad rush to spend in the second half of the year with continued negative consequences for quality and value for money as well as controls over public expenditure.

Source: Mid-Year Report 2012

Deficit and debt
The overall deficit before grants is projected at $43.5 billion, almost certainly the largest budget deficit in the country’s history, measured by absolute amount as well as a percentage of revenue. Even after projected grants of $16.8 billion, the country will need financing of $26.6 billion which will have to come from borrowings. By June 2012, the external debt had increased to US$1.3 billion, 7.6% more than the amounts owing at December 31, 2011. During the first half of 2012, external debt service totalled US$20.4 million, an increase of 10.8% compared to the same period in 2011.By December 31, 2012 the combined external and domestic debt stock will exceed the psychological US$2 billion threshold.

Conclusion
It is evident that the economy’s growth rate in 2012 was lower than in 2011. But perhaps because the Minister had projected for lower real growth in full year 2012, he concluded his report with some reassurance, if not confidence, that the performance of the first half of the year “augurs well for the remainder of the year.”

But acknowledging the events in Linden, his final words were directed not at his colleagues in his government or his ministry to implore them to exercise greater and better management, but at all national stakeholders to “ensure the preservation of the environment that is so critical for a continuation of this favourable performance, not just for the remainder of the year but into the medium term.”

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.

Crazy columnist
This columnist has not gone mad, at least not yet. I am just mesmerized that Dr Ashni Singh who Manzoor Nadir of the PPP/C/TUF rates as one thousand times better than Peter D’Aguiar as Finance Minister, has finally met the statutory deadline for the annual mid-year report. (For the younger among us Peter D’Aguiar, the first and only [T]UF member trusted with the portfolio of the finance ministry was used and discarded by Burnham.) Singh’s achievement about the report vindicates the surprise I openly expressed last year to the now forgotten call by the Economics Affairs Committee of the National Assembly for an extension of the deadline for the report. Au contraire, Dr Singh proves that he could comfortably live with a shorter period!

More than being timely, the 2011 mid-year report, according to the President, who has traversed the globe in a shorter time than Jules Verne could have imagined, is among the best performing economies in the world with an annualized growth rate of 5.9% and an unemployment rate within striking range of the USA, according to Manzoor Nadir.

The remarkable growth comes, not from the powerful narco-sector of the economy as the doomsayers would have us believe, but mainly from the politically sensitive sugar and rice sectors which prove that even agriculture responds to election year politics. Indeed it shows what any MBA 101 course – citing the Ministry of Agriculture as a case study – would tell us: politics triumphs over incompetence.

Sugar and rice and all things nice
According to the Minister, in the first half of 2011, the Guyanese economy achieved real economic growth of 5.9 per cent with the non-sugar sectors growing by 5 per cent. It was sugar and rice however that were the star performers. Suggesting that after billions of dollars we can get back to the performance levels of 2004, sugar production in the 2011 first crop was 106,871 tonnes, a 30.5 per cent increase over the first crop of 2010, with a little help from an extension of the crop period. While this may affect the quantity of cane available for the second crop, the government seems optimistic that the full year 2011 target of 298,879 tonnes is achievable, perhaps with a procrustean extension of the year.

Rice too has done well with first crop rice production of 207,514 tonnes, 23.3 per cent higher than the corresponding period in 2010 and the highest first crop in the industry’s history. Taking part credit for the sector’s performance, the government claims that the growth in production was attributed mainly to significantly improved drainage and irrigation as a result of government investments, the development of a new and more tolerant rice strain by the Guyana Rice Development Board, higher yields and, most importantly, a higher acreage of paddy planted.

I witnessed some damage to rice along the Essequibo but the Minister of Finance was confident enough to revise the 2011 full-year growth in the industry from 4.9 per cent to 12 per cent.

Grow more pig tail
The Minister reported increased overall production levels in the livestock industry by 2.7 per cent, with increased production “evident” in areas of poultry meat, table eggs, mutton and beef while pork production declined. When one boasts of such sterling performance words like “evident” tend to raise doubts about the reliability of the data. Two other comments before we move on: while the Minister was exulting about sugar, the supermarkets were complaining to the press that they were getting no supplies, a matter about which the Guyana Sugar Corporation appears to have had no knowledge. The second is that while we have an active Grow More Food campaign run by the Ministry of Agriculture, the supermarkets which are springing up at just about every corner of Guyana stock mainly foreign items. My friend Raymond likes to complain that he cannot get local pig-tail and cowheel and is forced to buy those items which are imported from Canada. That surely makes no economic or policy sense and some explanation would normally be warranted.

The fisheries sector seems to be in some decline and recorded a negative growth of 2.2 per cent during the first half of the year, compared with a target of 0.4 per cent over the production performance of 2010. As a result the industry is now projected to contract by 4.7 per cent in the full year.

Green and gold
The forestry sector had a negative growth in the industry of 30.3 per cent as a result of contraction in the production of logs, lumber and roundwood. As a consequence, the sector is now projected to contract by 19.9 per cent by year end compared to an earlier projected contraction of 1.4 per cent.

There are two significant segments to the mining and quarrying sector – bauxite and gold and diamonds. Production of bauxite in first-half 2011 reached a total of 815,505 tonnes, an increase of 38.6 per cent compared to the same period in 2010. However because of the composition of the industry’s output, a higher proportion of lower grade to higher grade product, converts into a sub-sector growth of 13.8 per cent.

Total gold production in the first half of 2011 was 163,413 ounces, an increase of 14.9 per cent over 2010 which was itself an outstanding year. With the incentive of ever higher gold prices, gold production for the year is now projected to reach 320,000 ounces. On the other hand the diamond sub-sector declined in the first half by 19%.

Manufacturing and water
Mainly driven by, but not entirely on account of sugar and rice, the manufacturing sector is recorded as having grown by 10.6 per cent, Given that rice and sugar were expected to grow significantly in any case, it is not clear why the target for the year has been revised upwards from the budgeted 7.7 per cent to a now expected 9.4 per cent.

Owing to significant investments in the electricity and water sector by the government, the sector is estimated to have grown by 2.6 per cent for the comparative half-year. With more planned government investments, the Minister has revised upwards the sector’s projected annual growth rate 0.4 per cent to 2 per cent.

The Minister reported that while the wholesale and retail sector had been projected to grow by 4.4 per cent, the actual for the first half of the year was 21.7 per cent, attributed to him as “buoyed by the growth in sugar, rice and light manufacturing which have fuelled the availability of supplies, increase in imports of food for final consumption, beverages and tobacco, fuels and lubricants, textiles and fabrics, and building materials.” This is a truly remarkable growth and suggests a level of spending power that many would consider beyond the economy’s capacity.

Complementing the other sectors of the economy, the information and communication sector is estimated to have grown by 5.5 per cent in the first half and as a consequence the 2011 budget projection of 5 per cent is retained. Similarly, the Minister estimates that at the end of the first half, the finance and insurance industry had recorded a growth rate of an incredible 16 per cent, with much of this driven by expansion in activity by the commercial banks. Of all the substantial claims made, I would say that this “estimate” is more than mildly exaggerated.

To complete the story of sectoral growth, the education and health and social services recorded estimated growth of 3 and 3.4 per cent respectively for the first half. In his 2011 Budget Speech the Minister did not announce the growth projected for these sub-sectors but in his mid-year report he announced that their budget growth projections for the full year have been revised to 1.5 per cent and 1.9 per cent, respectively.

Next week we will look at the balance of payments and some of the monetary environment in which the economy performed.