BOG 2017 First Quarter Report: Ali predicts double-digit inflation by year-end

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…dubs first quarter’s performance “anaemic”

In providing an analysis of Guyana’s economic performance for the first quarter of 2017, Opposition Member of Parliament (MP) and point man on finance Irfaan Ali slammed Government for its lack of economic alertness, stating that the growing disappointment and economic hardship among citizens will continue.

Opposition MP  Irfaan Ali

Ali described the first quarter’s performance as “anaemic,” explaining that with the exception of rice and gold which grew, sugar, forestry, poultry and bauxite contracted by 33.8 per cent, 21.9 per cent, 8.5 per cent and 17.7 per cent respectively, as stated in the Bank of Guyana (BOG) 2017 First Quarter Report.

In relation to rice, even though the report outlined an increase in production by 51.5 per cent, when compared to 2013, 2014 and 2015, the amount is significantly less. Gold, on the other hand, recorded a paltry 0.5 per cent increase when compared to 2016 during the same period.

The former People’s Progressive Party/Civic (PPP/C) Government Minister said the terrible output of the sugar industry illustrated the ‘callous and spiteful’ stance taken by the ruling Administration to completely defeat the industry.

In quoting figures from that same report, Ali said although total production for the first quarter stood at 25,711 tonnes during the first quarter of 2017, only 15,801 tonnes were exported. Approximately US$8 million in foreign currency was obtained from these sales, US$1.2 million more than what was recorded for the same period in 2016.

“The achievement, however, was significantly less when compared to US$13 million and US$13.1 million for the year 2015 and 2014, respectively,” Ali stressed.

Shifting his attention to the forestry sector, the Opposition MP said that this sector continued to battle serious issues, which in his opinion are linked to the imposition of 14 per cent Value Added Tax (VAT) instituted on lumber, and what he described as the dormant construction sector.

At the end of March 2017, the forestry sector exported 22,400 cubic metres, 3293 cubic metres less than what was exported in 2016 during the same period. In monetary terms, foreign currency has contracted by US$1.7 million with respect to 2016. When compared to 2015, the amount lost in foreign revenue is even more startling at US$5.6 million.

Bauxite production, on the other hand, during the first quarter of 2017 stood at 361,000 tonnes, 21.5 per cent less than what was recorded during the same period in 2016. When compared to 2015 and 2014, this output level diminished even further by 6.6 per cent and 28.8 per cent respectively.

High inflation

Further, Ali pointed out that the level of inflation was determined by the change in prices of key commodities that make up a household basket and as outlined in the 2017 First Quarter Report, inflation increased by 0.6 per cent, of which the price of food and housing, which includes fuel and power, increased by 0.4 per cent and 0.2 per cent respectively.

According to the report, the cost of transportation, communication, education, recreation and cultural services all contributed to the higher inflation rate.

Ali noted that during 2016 and 2015, the country recorded a deflation of 0.5 per cent and 2.6 per cent respectively. This trend, according to him, continues with the price of commodities increasing by 1.7 per cent, linked primarily to higher prices for fuel and food.

Balance of Payment

The US$8.7 million deficit recorded during the first quarter of 2017, from a surplus of US$14.7 million for the same in 2016, according to Ali, speaks to the fact that traders were stocking up their inventories before the list of incoherent policies adopted by this Administration came into effect.

This sudden surge in imports is linked primarily to an increase in consumer goods by $3.2 billion, fuel and lubricant by $5 billion, and other intermediate goods by $5 billion when compared to the corresponding period in 2016.

In retrospect, this sudden impulse can be explained by the ubiquitous lack of confidence facing consumers, Ali pointed out, adding that the crippling of traditional sectors coupled with an inevitable depreciation of purchasing power of the local currency have certainly created an economic panic. In fear, he noted, the economic situation might further exacerbate, consumers responded by gobbling up foreign currencies to procure goods and services abroad.

The continuous mundane performance of traditional sectors, he stated, will further emasculate the rigorous and vibrant economic cornerstone the PPP/C once engineered. The impact will be felt by every Guyanese, concatenated through lower income for working families; higher borrowing cost for housing, education and the expenses of everyday life; lower value of savings and rising unemployment.

Compounding this, Ali added, will be a surge in inflation, an inevitable outcome of the additional tax measures introduced this year. By the end of the year, it is anticipated that inflation would be stoked to double digits causing businesses to downsize their operational activities.

Ali, in his assessment, said that on the exogenous side of the equation, economic hardship will be exacerbated as the interest rate of the US dollar is likely to increase. Moreover, political turmoil in the Middle East and the withdrawal of the United Sates from the Paris climate change agreement will likely increase the price of oil, he added. “The implication would be detrimental for our economy. The increase in interest rate would place added burdens on the country to service its external debt.”

Compounding this phenomenon, he added, would be a hike in fuel prices, along with a depreciation in the Guyana dollar, hence, making it more expensive for us to import. As businesses become insolvent, the stability of the banking sector will be greatly challenged as toxic loans will spiral out of control.

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