….says they should take heed of IMF Report on cutting back on wasteful spending
Former People’s Progressive Party (PPP) Minister and Member of Parliament Irfaan Ali says the incumbent Administration should take seriously the recent International Monetary Fund (IMF) Report that has highlighted the need for Government to cut back on its wasteful spending.
The report Ali was making reference to is the 2018 staff report by the IMF on Guyana’s economy, where the international financial institution made two main policy recommendations, and where it underscored the importance of macroeconomic and financial stability.
On preserving macroeconomic stability, a policy that prepares an economy for growth by safeguarding it against external shocks, the IMF had cautioned the Government of continued expansionary fiscal policy. This involves increased Government spending.
According to the report, the IMF is extremely concerned how short-term fiscal deficit is being financed: primarily, by usurping domestic credit. Allocation of scarce resources to best meet the needs of the people through wealth generation and improved well being is crucial.
Ali told this media group that from 2014 to 2018, the trajectory, however, has been one that represents reckless spending.
Moreover, Government increased its dependence and reliance on domestic credit to fund short-term fiscal deficit. Statistics indicate that from 2014 to 2017, domestic borrowing increased by more than twofold, from $11.3 billion to $23 billion.
In 2018, it is further estimated to increase by another $11 billion to $34 billion. Hence, this huge increase, indeed, would crowd out private investment. The crowding out effect is the increase in interest rates because of higher levels of Government borrowing.
This, however, means the increase in Government borrowing leads to greater demand for loanable funds, increasing interest rates. When this happens, it’s more expensive for private companies to borrow and invest.
Meanwhile, according to the latest Bank of Guyana (BoG) Statistical Abstract, for the month of June, loans and advances from commercial banks to individual customers contracted by more than 6.5 per cent or $2.4 billion, during the first six months of 2018.
Central Government, on the other hand, recorded a huge increase in borrowing by more than 1600 per cent or $61.3 billion.
Ali, who is the economic spokesman for the Opposition said it is interesting to note, that the projected fiscal expenditure in 2018, when compared to 2015, is expected to increase by more than $75 billion or 39 per cent, in tandem with an increase in fiscal deficit by more than $33.7 billion or 375 percent.
“From 2017-2018, fiscal expenditure is anticipated to increase by $18 billion or 7.2 per cent, attracting a budget deficit of $9 billion. Of the two major components to fiscal expenditure, capital and recurrent, the latter, when compared to 2014, is projected to increase by $46 billion by the end 2018, in comparison to an increase of $8 billion by its counterpart, capital expenditure.”
He said another important point to note is the increase in recurrent expenditure, which, among others, represents expenditure on goods and services; wages, salaries, and other charges such as travelling, dietary etc. This makes up 84 per cent of total increase in fiscal expenditure, an indication that clearly speaks to what was described as the “gross misappropriation of funds.”
Ali said not only are significant amount of resources being squandered on goods and services that yields no wealth generation or improve standard of living for the people, but expenditure on capital items (goods that make products, provide services) has grown by a mere 15 per cent.
“And if one is to adjust for inflation and VAT (Value Added Tax), this amount would become significantly less. In other words, of every dollar spent by this Administration, less than $0.10 is spent on wealth generation activities for the people,” he pointed out.
The former Minister said there is ample resources to accommodate all projects initiated by the previous Administration that sought to address core economic issues at the grass-root level.
For example, Ali said by slashing all excess allocation from “dietary” and “national and other events” ($2 billion), to 2014 level, enough funds could be garnered to rehire and offer a 66 per cent increase in stipend to all 1972 dismissed CSO Amerindian Workers.
He said it could lend to an increase in the National Toshoa Council subvention by 221 per cent to $50 million, and provide each Amerindian village, across the country, with a $3.5 million cash grant to fund developmental projects.
Moreover, he said by removing all excess allocation from “security services” and “transport and travel” ($3 billion), the “Because We Care” cash grant programme not only could be fully re-instated, but each parent could now receive a 50 per cent increase in allocation to $15,000 for each child, attending primarily and nursery school.
Ali noted that there will still be an untouched $17 billion in employment cost, and $24 billion in other charges; adequate funds to address payment of severance for sugar workers and increased salary for teachers.