…. predicts deep austerity cuts in 2018 as G$ depreciates further
Finance Minister Winston Jordan recently confirmed Government was in fact collecting less revenue and the economy was essentially being held together using the collection of debts.
This situation is predicted to get even worse and Chairperson of the Public Accounts Committee (PAC), Irfaan Ali, in a recent interview with an entity in this media group following the Minister’s damning revelation, said “Guyana should expect a further decline in revenue, especially from VAT and Income Tax.”
According to the economist, and former Government Minister with responsibility for the commerce sector, “as businesses continue to down size, and consumers spending decrease, not only will per capita employment recede but concurrently, overall labour force participation rate will drop substantially as firms continue to experience downward nominal wage rigidity.”
Ali, a People’s Progressive Party/Civic (PPP/C) Member of Parliament, saidb the relatively slow growth in inflation of 0.6 per cent registered during the first quarter of 2017 will likely increase to double digits, as price rigidity becomes common.
“Out of fear of overheating the economy, the Government will be forced to implement austerity measures in 2018,” Ali said.
The David Granger Administration has already begun signalling minimal austerity cuts meant to stem wastage from the Government’s coffers but according to Ali, by next year the cuts will deepen further.
“Key social sectors will experience a shortfall in budget allocation, which will further fray the social and economic fabric,” he told this publication.
According to the former Minister with responsibility for industry and commerce, “Another area of great challenge will be to maintain foreign exchange stable.”
He said given the current external debt of US$1.160 million as of 2016, “a depreciation of exchange rate relatively to the US dollar by a paltry G$10, will cost taxpayers, in present value, an additional G$11.6 billion in foreign debt.”
He posits “the possibility of this outcome is highly probable given the imminent shortage of foreign exchange.”
According to the former Minister, “when the sugar industry is obliterated, on average Guyana will lose over US$114 million in foreign exchange annually.”
According to Ali, in the long run, to stabilise the exchange rate, Government will turn to import substitution, hence, “further stoking inflation for goods and services. In the economic pantomime, the villains would be hyperinflation, depreciation of exchange rates, high debt-to-GDP ratio, and burgeoning non-performance loans.”
Ali’s arguments have since been supported by former Alliance For Change Executive, Business Consultant Sasenarine Singh.
He recently surmised that one of the most important indicators of the state of an economy is the overall fiscal balance since this indicator assesses a Government’s financing requirements and fiscal vulnerability.
The recently concluded IMF report had found that the 12 is expected to remain low at around 2.6 per cent by year-end but the fiscal deficit or the national debt is projected to widen up to 7.2 per cent of GDP in 2017, due in part to delay capital spending from 2016.
It had found that the macroeconomic outlook is positive for 2017 and the medium-term, according to the IMDF which projects growth for the next year as upping a few marginal points up to 3.5 per cent in 2017, supported by an increase in public investment.
According to the findings of the review team, the total expenditure by the David Granger-led coalition, the A Partnership for National Unity/Alliance For Change (APNU/AFC), increased by 2.8 percentage points of nation’s GDP, however that increase was lower than budgeted due to delays in capital expenditure by the Administration.
Such a distressing situation it was that the world decided to turn to turmoil.
Real economic activity locally expanded by 3.3 per cent in 2016. This was as a result of subdued agricultural commodity prices, adverse weather and delays in public investment.
“Despite slower-than-expected economic growth, fiscal revenue increased owing to improvements in tax administration and higher mining royalties.”
Growth is projected at 3.5 per cent in 2017, supported by an increase in public investment, continued expansion in the extractive sector, and a recovery in rice production. Again the IMF has pegged its responses on the public investment programme. Such a problem it is that the Government recently intervened.
Minister of State Joseph Harmon recently reminded that “assessments, adjustments and achievements in relation to the Public Sector’s work programme was the main focus at this month’s ministerial conference as the Government commences preparations for the new budget cycle.”
He was at the time speaking at a conference convened at State House, for the heads of Government agencies including Permanent Secretaries, Heads of various agencies and high-level technical and financial officers in a bid to assess and review, Ministry by Ministry, the status of Public Sector Investments Projects (PSIPs).
According to the IMF, Government is woefully behind in its spending.