Mr Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic financial and development matters.
Pay Hike
Despite the announcement by the administration of a 6 percent pay hike retroactive to January 2009, Guyanese approached the 2009 Christmas season with caution and care. The announcement was no doubt timed to make the administration look like Santa Claus and to leave Guyanese feeling that it was the sole bearer of good tidings and cheer during the festive season. News reports indicated that Guyanese were reluctant to part with their money all year and had been late in getting to the stores this Christmas. The reasons for the delay in shopping might have been caused by the lack of resources as much as with uncertainty about the future.
Indeed, the political stunt of the administration might have come too late in the year to excite Guyanese into spending the new cash and into believing that Santa Claus had left the North Pole early enough to enable Guyanese to have had a merry Christmas. It is not easy to tell since Guyanese are not in the habit of publicly sharing details about their personal financial lives. But, it is easier to understand the motive for the pay hike. It appeared as nothing more than a cynical appeal to Guyanese to be of good cheer.
Missed Economic Goals
Guyanese would recall that the administration had projected real growth of about 5 percent in the 2009 budget. The administration was confident about a budget that many of us had realized could not achieve the growth target that the administration had set, mainly because it was not focusing on the right priorities. Those who cared about the Guyana economy and the plight of the Guyanese people were concerned too that the administration was putting far too much money into its own hands — an additional 8 percent — and far too little in the hands of the workers, consumers and investors. The private sector accounts for nearly 80 percent of the Guyanese economy with consumer spending being the biggest driver, accounting for as much as 60 percent of its income.
According to the Bank of Guyana in its 2009 half-year report, Guyanese would be lucky if the economy grew by as much as half of the 4.7 percent real growth that was predicted. The administration knew that too and the pay hike was part of the game plan to get the economy to reach the scaled down ambition of 2.8 percent real growth so that it could say that it expanded the economy and expanded the income of Guyanese.
The ultimate hope of the administration was that Guyanese would have been induced by the spirit of the season to spend the “back pay” and help stimulate the economy and permit it to avoid another embarrassing year of missed economic goals.
Attitude of Skepticism
After all these years, the administration still does not realize that it is up against an attitude of skepticism among Guyanese who have been conditioned by years of deprivation, economic uncertainty and insecurity to be careful with their money and other resources. There is no doubt that Guyanese spent some of the fresh cash that they received. They most likely also watched the edges of their money since the administration, the single most important employer, appeared stingy in giving them frequent access to realistic increases in pay at the times that they need the additional money most. Proof of this skepticism shows up in the surging deposits of individuals in the commercial banks and in their expanding cash inflows to the non-bank financial institutions.
The level of savings of individuals in the commercial banks grew by 108 percent from 2000 to 2008. In 2000, Guyanese individuals had an estimated G$57 billion in the commercial banks. By 2008, that money had expanded to G$118 billion. As of September 2009, deposits by individuals stood at G$127 billion.
At the same time, individuals had an estimated G$28 billion in the non-bank financial institutions in 2000. Despite the collapse of Globe Trust earlier in the decade, Guyanese individuals had an estimated G$71 billion in the non-bank financial institutions at the end of 2008, representing a 150 percent increase in savings.
Phenomenal Growth
Related to the habit of saving is that of borrowing. The outstanding debt of Guyanese households stood at G$9 billion in 2000. By 2008, that debt had almost doubled to G$18 billion. Mortgage debt to the commercial banks has grown much more significantly between 2000 and 2008. It grew by over 600 percent from G$3 billion in 2000 to G$21 billion by the end of 2008. This phenomenal growth in mortgage lending was undoubtedly aided by the special reserve policy and tax concessions given to commercial banks to induce them to make more real estate loans available to Guyanese. Money owed by Guyanese to the non-bank financial institutions also increased significantly, by 176 percent, between 2000 and 2008.
The foregoing information helps to develop a picture of the financial challenge of Guyanese and possibly offers an insight into why they approached the Christmas shopping season with trepidation. Their personal sacrifices have resulted in them achieving a positive net worth despite facing tough economic circumstances. The net worth of Guyanese individuals measured by their relationship with the financial intermediaries in Guyana is informative. Net worth expanded from G$51 billion in 2000 to nearly G$90 billion in 2008. Debt, on the other hand, increased by nearly 200 percent during the same period of time. As a result, in the space of eight years, Guyanese individuals found that the growth in debt had outstripped their equity by a rate of two to one.
Over Leveraged
With a debt to net worth ratio of one to one, Guyanese are under pressure. Guyanese cannot be pleased with this financial status. A heartening observation is that the bulk of the money borrowed is being used for good investments. Guyanese are using the money to further their education or that of their children. They are also using the money to acquire real estate, an asset that, once properly managed, tends to increase in value over time. These observations suggest that if the analysis is expanded to include the fair value of other assets such as houses, household assets and personal property such as motor vehicles, the net worth of Guyanese would be improved, even though the circumstances among individuals would remain highly variable.
Unfolding Evidence
One interesting phenomenon from the analysis is that, while Guyanese have been saving most of their money in the commercial banks, the unfolding evidence points to individuals owing more to the non-bank financial institutions than to the commercial banks. This observation is intriguing but could hold the key to a strategy for expanding loans to small businesses and underserved sectors of the economy. The data need to be dissected further to confirm this observation; if it does, it could offer the best reason for Guyanese to be of good cheer and to have a Happy New Year.
