The April 2010 EIU Country Report says that the failure by the private sector, up until the publication of the report, to issue “a formal reaction” to the country’s 2010 budget signals “a rising level of frustration with government policy and the widespread perception that criticism of the authorities will result in the loss of fiscal and other concessions.”
The EIU, a specialist publisher, serves as an influential source of political, business, social and economic country analyses for companies establishing and managing businesses across national borders. It proffers a less than upbeat picture of the overall economic climate in Guyana in what it says is a “not optimistic” outlook on the part of the private sector about the country’s “economic prospects” in the face of an operating environment “characterized by poor infrastructural facilities, high taxes, rampant crime and corruption – all of which impose additional costs on production.”
Significantly, the EIU Report also challenges the veracity of economic growth figures presented in the country’s 2010 budget, asserting that official figures provided by government on the economic performance of the country last year are “difficult to decipher.” The report says that while its published figures are based on data from the Bank of Guyana, “we believe that the government’s official estimate of real GDP growth of 2.3 per cent in 2009 significantly overstates economic performance.” Specifically, the report challenges the assertion made in the country’s 2010 budget by Finance Minister Ashni Singh that the economy grew by 2.3 per cent last year. “If confirmed, this would make Guyana one of the only countries in the hemisphere to record economic growth last year. The estimates stand in stark contrast to the Economic Intelligence Unit’s estimate of a full year real GDP contraction of 0.9 per cent,” the report says.
“According to Mr Singh the economy grew by 3.8 per cent in the second half of the year after a 1.4 per cent contraction in January-June, resulting in a full-year expansion of 2.3 per cent. However, there is little evidence of what was driving growth during the second half,” the report adds.
Noting that “the dramatic growth” that occurred during the second half of 2009 was attributed “almost entirely” to a 22 per cent increase in the volume of second sugar crop over the same period in the previous year, the report says that even if 2009 second crop sugar production figures were confirmed by the Bank of Guyana “this would imply only a 2 per cent year-on-year increase in total sugar production to around 233,000 tonnes, an insufficient amount to boost growth as substantially as claimed by the government,” the report adds.
Meanwhile, the EIU Report also raises questions regarding the veracity of official production figures for other commodities, including rice and gold, asserting that data for the first nine months of last contradicts government’s claim that production of commodities apart from sugar also rose sharply during last year.
In this regard, the report points to what it implies is an inconsistency between central bank figures indicating a year-on-year 13.2 per cent drop in rice production between January and June last year and official claims of a full year’s growth figure of 9.3 per cent, a claim which the report says implies “the second largest rice harvest in Guyana’s history in the fourth quarter despite severe drought conditions owing to the El Nino weather pattern.”
In the case of gold the report notes that official production figures indicate a 14.7 per cent rise in 2009 despite a 15.7 per cent year-on-year contraction in the first three months of last year.
And according to the EIU Report the official 4.4 per cent 2010 growth forecast is “highly optimistic” and well above its own forecast of an expansion of 2.4 per cent. The government’s forecast is premised on improvements in the performance of sugar and bauxite. It notes, however, that “despite the investment of over US$200 million in the sugar sector, including installation of a new state-of-the-art factory at Skeldon, sugar production failed to rise as rapidly as expected in 2009.”
In its overall assessment of the domestic economy the EIU Report notes that reduced spending on imports last year led to “a sharp reduction” in the country’s current account deficit despite a weakened export sector. The current account deficit, the report notes, narrowed to US$219.7 million last year owing primarily to a 23.2 per cent reduction in the trade deficit as a result of reduced global oil prices. This, the report says, led to an 11.7 per cent year-to-year contraction in the country’s import bill.
On the other hand, according to the report, Guyana’s export earnings “contracted by 4.3 per cent – a significantly better performance than most countries in the region – as export volume gains offset weak global prices for sugar, rice and bauxite.”
And according to the EIU Report data presented in the country’s 2010 budget points to “a significant strengthening” of the country’s capital accounts balance last year with preliminary figures indicating a year-on-year increase of more than 47 per cent to US$445 million “buoyed by a US$108.6 million allocation of Special Drawing Rights (SDRs) in late 2009 and a 13 per cent year-on-year increase in net private investment, driven by a net repatriation of portfolio investments.”
Meanwhile, the EIU is forecasting modest positive growth this year though it says that high unemployment and still depressed levels of remittances will result in continuing low levels of private consumption. The report also projects an increase in sugar production as the operations of the new Skeldon plant improves though it points out that “flooding and other weather-related hazards will remain an ongoing risk to agriculture, mining and other economic sectors.”
