…says increased production costs will cause unemployment, could wipe out businesses
Even though the government through its Finance Minister Winston Jordan and the Central Bank of Guyana, through its Governor Dr Gobind Ganga, are steadfastly maintaining that there is no shortage of foreign currencies in Guyana, that the scarcity was contrived, more business institutions have come forth and outlined that contrived or not the increasing rate of the foreign currency is having a devastating effect on the sector.
The Guyana Manufacturing and Services Association (GMSA) is the latest body to add to the swelling claims of others that there are shortages of foreign currency in the market, thereby increasing the demand and consequent value for the same.
The GMSA however, has gone a step further to draw the correlating parallels that as the foreign currency goes up in value it means the local dollar is also deteriorating.
A weaker currency does not bode well for businesses in general, particularly those that are engaged in the manufacturing of goods and services.
All things being equal, the nominal rate of the foreign exchange pegged against the US dollar, would usually be around the rate of $200.00 US to $1.00 GYD.
The GMSA at its most recent Board meeting expressed its disappointment “at the rate of deterioration of the Guyana dollar and has estimated that the real exchange rate when available being used for the purchase of foreign exchange is $230.00 for the replacement of imported inputs into the sectors.”
Deliberating on the “woes of the manufacturing sector” the GMSA outlined that their “ability to keep prices stable will be limited and guided by this new rate. The burden of the changes in the VAT regime will also cause production costs to move upwards.”
The GMSA said that it is “encouraging all of the sectors to implement cost cutting exercises and have noted that some entities have started to rationalize employment.“
Moreover, the Association noted that “the rise in the price of the U.S. dollar will have far reaching effects on our country as a whole both socially and economically.”
The Bank of Guyana had come up with a series of new regulations to closely monitor the local foreign exchange markets, following reports of shortages in the market and allegations of foreign currency hoarding.
According to the circular seen by this publication non-bank cambios must reduce the spread between the buying and selling rates on foreign currency transactions to no more than G$3. This means that if a cambio dealer purchases currency at G$210, then the dealer cannot sell it for more than G$213.
Contentions were raised about the regulations which the Opposition had deemed illegal and a retrograde move that would among other things, have the deleterious effect of leading to even more tightening of the money in circulation and will also trigger hoarding.
Dr Ganga had said that despite stern warnings from authorities, businesses are suspected to be hoarding foreign currencies, and commercial banks and cambios are claiming shortages in order to cause customers to resort to paying exorbitant rates for foreign currencies, even purchasing elsewhere in light of the “contrived scarcity”.
Opposition Member of Parliament (MP) Irfaan Ali had said that government was interfering, and reversing over two decades of financial reforms.
The Government “is overstepping its boundary and threatening the stability of the most important market in Guyana,” he posited, while adding that such interference would not be taken lightly by the International Monetary Fund (IMF) and that a reaction should be expected, since rates are supposed to be market-determined from a capitalist perspective.
Jordan recently announced that the foreign exchange reserves at the Bank of Guyana are in excess of US$600 million.
However, commercial banks and cambios across the country continue to turn away customers, claiming a shortage of the US dollar; and based on the findings of investigations by this media agency, popular cambios are turning away regular patrons who are interested in purchasing foreign currencies.
This has resulted in businesspersons and the average Guyanese being forced to buy foreign currencies at exploitative rates.
The GMSA has urged “the Bank of Guyana and the Government of Guyana to take steps to stabilize the value of the Guyana Dollar immediately by injecting funds into the system as we believe that the rate is being driven by the simple Economic formula of supply and demand.”
“This situation has the potential to further increase unemployment and at worst wipe out Companies” said the GMSA.