The situation in which foreign currency was in short supply earlier this year, in particular the US currency, has led financial experts to believe that Guyana could at any time face another foreign currency crisis. Former Junior Finance Minister Juan Edghill believes this reserve at the Central Bank could be further depleted through sizable spending for international travel by Government officials.
The former minister said he has no doubt that, when Budget 2018 is presented, this particular line item would see a huge increase; but if measures are not taken to reduce Government’s international travel, it could lead to another crisis.
“The question has to be asked, however, what we are getting in return. Overseas travel is calculated in US dollars, and that is heavily affecting what is happening at the Central Bank,” he opined.
Edghill said demand for huge amounts of foreign currency to facilitate the travel of a Government consisting of 27 ministers and dozens of technical staff would lead to further depletion of the country’s foreign currency reserves.
Over the past year or more, Guyana has experienced a reduction in its income, especially since many products that earn foreign exchange have underperformed, resulting in less foreign income. While sugar is one of those products, forestry and other export goods have seen some decline.
Under these circumstances, the Opposition MP expressed fear that Government may want a more controlled approach to how foreign currency is utilized by members of the public. The former minister said once this happens, there would also be the possibility of foreign currency not being available to purchase certain items, as those could be categorized as luxury items.
Edghill believes the demand for foreign currency is causing businesses to dip into the foreign reserves to make foreign currency available locally. This, he explained, may be a prime reason why Cabinet has directed that the difference between the buying and selling prices of US dollars at cambios should not be more than Gy$3 dollars.
During April this year, commercial banks, claiming there was a shortage of foreign currency, had placed customers on a waiting list to effect payments to suppliers abroad. The converse situation had obtained for incoming transfers from abroad.
Central Bank Governor Dr Gobind Ganga and Finance Minister Winston Jordan had subsequently refuted these claims, and attempted to provide evidence that such a shortage was non-existent by illustrating the level of foreign currency reserves held by the central bank and commercial banks, both locally and abroad; which the governor had contended was sufficient.
However, the Bank of Guyana’s Statistical Bulletin report for the years 2015 and 2016 revealed that net foreign assets held by commercial banks increased by US$4 million, or 1.6 per cent, in 2016, in comparison to a decrease in 2015 by US $22.7 million; while a marginal increase was recorded in 2016, the composition of commercial banks’ net foreign holdings had evidently changed quite significantly.
The value of commercial banks’ investments in foreign markets in 2015 was recorded at US$204.3million, reflecting an increase of US$6.3million, or 3.1 per cent, in foreign investments. In 2016, however, commercial banks had increased their level of foreign investments by a whopping US$43.6 million, or 21.3 per cent.
This level of increase in foreign investments had in effect reduced the availability of foreign currency held by commercial banks to accommodate international trade emanating in the domestic market.
One of the main causes of this phenomenon was the significant increase of foreign investments by the local commercial banks coming down to the latter part of 2016.
Commercial banks had also found foreign investments more lucrative at a time when the domestic economy was experiencing a decline in economic activities.