Against persistent and widespread claims by the business community for at least the past six months that the economy is doing poorly, the government has just as obdurately insisted that such is not actually the case. What are the facts?
Part of the problem is that in Guyana, our business community is still dominated by the retail trade as it was during the colonial era. And since the government has announced that its collections on the VAT has decreased it implicitly conceded that the merchants are correct since most VAT is collected at the retail level. But is the government ‘off’ in its assessment of the state of the economy?
It appears that like the old tale from India about six blind men touching various parts of an elephant and reaching totally different conclusions as to what the “object” was, the government may also be correct. The point is that while retail sales are substantial, they do not exhaust what the overall economy turns over. For instance, the government announced last week that the production of gold in the first quarter of this year has surpassed the comparable period last year by an incredible 104%.
222,500 ounces of gold was produced between January to April, 2016 and most importantly, local small and medium size miners contributed a substantial portion of that $60B worth of production. When this figure in compared to the contractions in other parts of the more visible and traditional economy such as sugar, rice and timber, it easily offsets any possible reduction of the Gross Domestic Product (GDP) of the country. And this is the metric the government is obviously looking at.
It is also very certain that at least for the next few years, the price of gold will definitely at the worse remain at the present levels in the mid US$1350/oz or more likely go upwards in the wake of the roiling of the international financial markets cause by Brexit. Even though the immediate seemingly catastrophic effects in markets have stabilized and returned almost to pre-Brexit levels, gold continues to rally upwards, as it traditionally does in times of crisis.
And until the exit of Britain from the EU is negotiated and finalized – a process that by the most optimistic estimate will take five years – gold will continue to be a safe haven as a store of value. Even if its price does not return to the historic highs of US$1800/oz, the profitability to mining companies at the present level will encourage investment in gold mining companies and operations and raise our overall production and our GDP.
But the complaints by the businessmen about the lethargic economy from their perspective cannot be ignored by the government. Just as when oil starts flowing, the experience of other resource rich countries has shown that the “Dutch Disease” – stagnation of the economy overall even though revenues are flowing in from one resource – is a real possibility. Other sectors of the economy – especially manufacturing – must be supported and encouraged by the government using all monetary and fiscal tools at its disposal.
And in the short term, consumer confidence must be restored since their activity in the economy spills over in so many areas. A tax cut for businesses and increased salaries to public servants might be a good place to start.