Commentary and Analysis
Introduction
The Budget was the first by Dr. Ashni Singh and the first since the PPP/C was returned for a fourth successive term since 1992. The 2006 general elections defied all the predictions of violence and its attendant consequences for businesses. Anticipating such disruptions, businesses were reluctant to invest prior to the elections.
However buoyed by the peaceful elections, businesses in their response to Ram & McRae’s 2007 Business Outlook Survey expressed unprecedented confidence for 2007 while Clive Lloyd, writing in The Economist ‘The World in 2007’ predicted that the World Cup 2007 would bring a ‘massive windfall for the Caribbean.’
There is therefore a huge potential dividend from these events and the massive private and public expenditure for the Cricket World Cup which can hardly be regarded as reflected in the 4.9% projected growth rate – a mere 0.2% more than the growth in an elections year.
This would be one occasion when achieving a projection would be a major disappointment.
Guyana’s economic condition is however of a more fundamental nature and goes back to the way the country is governed. Focus now looks at some of the major issues.
Constitutional Commissions
Seventeen years after the same mantra about macro-economic stability, we still learn about the economy we would like to create. Guyana’s problem however is less one of economics and more one of governance. Key provisions of the Constitution are violated or ignored by the very persons who take an oath to uphold and defend it.
Following Herdmanston, it was agreed that new constitutional structures need to be established not only to prevent abuses but to foster peace and development. Here is a list of the various constitutional bodies that are yet to be operationalised:
The Rights Commissions (Human Rights Commission, Indigenous People’s Commission, Women and Gender Equality Commission, Rights of the Child Commission);
The ERC is partially composed. To be complete, it requires the addition of the chairpersons of the other rights commissions. This is in addition to the ERC not having the Ethnic Relations Tribunal;
The Local Government Commission;
Public Procurement Commission;
The four Standing Sectoral Committees have been established. However, the crucial and vital Standing Committee on Constitutional Reform is not composed according to the provisions of the Constitution (i.e. to include members of civil society); nor does it function as it was designed to do by the CRC.
Strict respect for the Constitution is the foundation on which a successful Guyana economy can be built.
The Judiciary
While the Government dithers on the judiciary, that important arm of the state suffers from a serious crisis of confidence among the population. The impasse over the appointment of a Chancellor since the departure of Ms. Desiree Bernard to take up an appointment as a judge of the Caribbean Court of Justice has revolved around President Jagdeo’s refusal to accept that the most senior judge, Justice Claudette Singh, ought rightfully to be appointed as the Chief Justice. In the books of the Government however she committed the venal and unforgivable sin of ruling against the PPP/C on an elections petition.
Accountability
Even as the Minister gave impressive sounding numbers he must have realised that there have been serious lapses in the presentation of reports including the Auditor General’s Report on the national accounts for the year 2005 and those of the Guyana Revenue Authority for 2004 and 2005. The Minister would also not wish to repeat the failure by his predecessor to publish a mid-year report on the economy as required under Fiscal Management and Accountability Act.
He would also be aware that the Government has failed to table the annual reports of the various state entities as required by law. That tabling is extremely important as they make those documents into public records.
The Minister must be aware that leader of the Alliance for Change (AFC) has been trying to get a Freedom of Information Bill tabled in Parliament. He has an excellent opportunity to show his independence and professionalism by joining with the AFC in co-sponsoring the Bill. After all, this is one of the campaign pledges by the PPP/C.
Corruption
Perceptions of corruption have stuck on this Administration not only in international league tables but among those who have to deal with various arms of the Government. The Government’s rejection of the uncomplimentary ranking of Guyana by Transparency International as being one of the more corrupt countries in the world (ranked 121 out of 163 in 2006) seem to have had no effect and separate independent surveys done among the business community reinforce the conviction that corruption is indeed prevalent.
The National Insurance Scheme
Attention has been consistently drawn to the state of the National Insurance Scheme, the last Actuarial Study for which was done as at December 31, 2001 and which showed that the Scheme’s viability was under stress and required certain urgent remedial action. Not only has that not been done making the commencement of the 2004 Study all the more difficult, but the Minister in language that was both ambiguous and misleading sought to assure the House by reference to a ‘review of the functioning of the Scheme as well as its investment strategy’.
In fact, the terms of reference of the Reform Committee are yet to be determined and the TUC has confirmed that no meeting of the Committee has yet taken place. The statement by the Minister, whose portfolio includes the NIS and therefore imposes on him a duty to know the facts, suggests that the Government is not taking the NIS too seriously and is content that its cash inflows allow it to meet its cash obligations.
One of the fundamental problems of the NIS is that of governance, the lack of autonomy of the Board and the political control which can be exerted by the Government through Dr. Roger Luncheon who has chaired the Board since 1992. Until the issue of governance including the appointment of members of the Board is addressed Ministers of Finance would always have difficulties speaking about the NIS.
The labour movement needs to press for urgent action on the state of the NIS and for the commencement and acceleration of the 2004 Actuarial Review if we are to avert a crisis in the Scheme.
And finally on the NIS, the statistics on contributions contradict the statements from the Government on employment numbers.
Statistics obtained from the National Insurance Scheme (NIS) show the number of active
Commentary and Analysis
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employees registered by the Scheme in 2005 at 117,230, compared to the all time high of 127,079 in 1996. Even more significantly there was a significant drop in the number of active self-employed contributors, 7,365 in 2005 compared to 16,424 in 1997, and practically no increase in the number of employers submitting contributions for their employees.
It is either our statistics are wrong or there is massive evasion of the NIS laws as well, the latter being more likely given the number of high profile names published as defaulters. Surely the Minister would want to ascertain the real situation before committing himself to spending billions on training when he does not have sufficient data on his training target.
VAT and Excise Taxes
The implementation of the VAT is one of the major challenges being faced by the Minister. During the election season VAT was taken off the front burner which was a blessing indeed. But now those problems have to be confronted and dealt with not at the level of the GRA but at the political level.
It is a serious error to confuse VAT with tax reform as this government has done. The system is rife with inequity, exemptions, favouritism and inadequate administration. It has perhap
s escaped attention that the GRA has revenue that exceeds Guysuco, Banks DIH and DDL combined. Yet its governance structures do not match any one of these. The Board, the membership of which is appointed almost entirely by the Minister of Finance, has been largely silent in all the public discussions on VAT.
Even at this late stage the Government has to find a way to deal with tax reform even if that means fundamental changes to the new taxes. There is still the issue of all those items that were charged at 0% or 10% under Consumption Tax that are now taxed at 16%. The piecemeal approach taken by the Minister ought not to continue.
He can still call in the stakeholders and listen to their pleas and advice.
Casino Gambling
The Minister did not once mention casino gambling even as he spoke of the new kinds of tourists that the country will be trying to attract. While the President was prepared to defy the National Assembly on the sexual orientation issue in response to the religious community, he has now rushed through the National Assembly, and against the pleas of all the religious leaders, legislation that will allow for the granting of licences for the operation of casinos.
The informal and illegal segments of this economy account conservatively for about 40% of ‘business’ activities. We have no exchange controls, non-bank cambios operate as a law unto themselves, the Government continues to promise anti-money laundering legislation and the casino gambling legislation by the Government is weak, contains no safeguards and delegates all powers to political appointees.
As if the objections of large segments of the population, a weak or non-existent regulatory framework, the experiences around the Caribbean and widespread criminality in the society were not enough, we have no real legislation to deal with financial contributions to political parties. The experiences from the region and around the world suggest that casinos can take criminality to a new level and whole political classes can be bought out.
The outlook
How realistic are the objectives set in the Budget? This is the Minister’s first full year at the helm and he should not be judged by the standards of his predecessors. He is only one among many and he cannot be held accountable for the performance of his colleagues although he needs to use the purse strings to keep them in line.
The Budget is largely a statement of spending proposals and that itself should make its achievement relatively easy given the modest growth projections. One threat will come with the wage negotiations for public sector employees in the light of the inflationary price spike following VAT’s introduction. Unless there is an immediate reversal, there will be intense pressure on the Government to make compensatory wage increases not only for those represented by the Public Service Union but by teachers and the unions in the sugar industry.
Conclusion
The Budget did not address most of the serious issues facing the country, the Minister preferring to look at or define a rosy picture. That may be acceptable politically but does not allow for the solution of problems. He ought not to ignore for example, that on the Global Competitiveness Index, Guyana was ranked 111 out of 125 compared to our CARICOM counterparts Suriname at 100, Trinidad at 67, Jamaica at 60 and Barbados at 31. To show where we really are in the rankings, it is useful to note the identity of the countries which were ranked below Guyana, namely Lesotho, Uganda, Mauritania, Zambia, Burkina Faso, Malawi, Mali, Zimbabwe, Ethiopia, Mozambique, Timor-Leste, Chad, Burundi, and Angola.
In the Country highlights, this is what the report stated:
“A lack of sound and credible institutions remains a significant stumbling block in many Latin American countries. Bolivia (97), Ecuador (90), Guyana (111), Honduras (93), Nicaragua (95) and Paraguay (106) achieve low rankings overall and, in particular, are among the worst performers for basic elements of good governance, including reasonably transparent and open institutions. These countries all suffer from poorly defined property rights, undue influence, inefficient government operations, as well as unstable business environments. Perceived favouritism in government decision-making, an insufficiently independent judiciary, and security costs associated with high levels of crime and corruptionmake it difficult for the business community to compete effectively.”
The Index, albeit simple in structure, provides a holistic overview of factors that are critical to driving productivity and competitiveness, and groups them into nine pillars. This is where Guyana stands out of 125 countries on those pillars:
While this Budget is a disappointment given the huge expectations which the country held out for the Minister, he has been in the job for just a matter of months. He will soon find out however that a Budget has to address the real issues and not simply be a spending list.
