Introduction
Two fundamental considerations take pride of place in the substantive evaluation of Guyana’s government budget, 2011 and therefore provide a logical starting point for my forthcoming columns. The first consideration is the integrity of the data, information, calculations and statistics which inform the three principal tasks of the budget, namely: 1) to review the economy for the period of the previous budget (in this case 2010) 2); to indicate the outlays and revenue measures for the budget period (2011); and 3) to estimate the impacts on the performance of the economy of the proposed measures and targets.
The second consideration is the requirement to contextualize the budget in terms of the size of the government after taking into account all of its activities. Because government activity is at the cost of citizens’ share of the national economy Guyanese should consider three options, namely: is the overall activity of the government too much, too little or, just right?
Both of these considerations will be addressed at the outset.
The integrity of the national accounts data
Last September-October 2010, I devoted several Sunday columns to the discussion of the indication in the 2010 Budget of using the re-based national accounts data from this year. To remind readers, up until 2009 the national accounts were calculated on the base of 1988 prices. The 2010 Budget stated that henceforth it will present the national accounts calculated from the base of 2006 prices.
Several reasons were offered for the rebasing exercise. These included 1) that the 1988 base had become out-dated and did not reflect the present day sectoral structure of the economy; 2) that Caricom countries had jointly committed to update the statistical base year for calculating their national accounts; and 3) that with technical assistance the Bureau of Statistics had enhanced its capacity to utilize the more updated editions of the United Nations System of National Accounts, which is the operational manual used by all UN members.
Rebasing and updating national accounts calculations are periodically undertaken by governments around the world. Where governments are trusted, the rebasing is taken as an exercise done in good faith. In Guyana, because of long-standing distrust of government produced statistics the 2006 re-basing exercise has been viewed with deep skepticism.
After I wrote two articles on the re-basing, a flood of readers contacted me. The first article had revealed the enormous increases in the dollar values of components of the national accounts, which resulted when the three methods for calculating the national accounts were applied.
Indeed the rebasing exercise had three discernible effects. First, it showed that GDP calculated at current basic prices and current purchaser prices are now between two-thirds and three-quarters larger than the same measures using 1988 prices. Second, the rates of real GDP growth for the three years for which comparable data are available 2007-2009 differed. On balance the 2006 series showed a higher growth rate over the three years, although this rate fluctuated more than for the 1988 series. The third effect is that significant differences have been revealed in the sectoral composition of national output.
Two pertinent observations were made in those articles. One is that the rebased data “put in disarray the usefulness of long-term economic series beyond 2009 if these are calculated from two different base periods.” How serious this is, is revealed in the fact that any economic calculation which utilizes the rebased national accounts as either the numerator or denominator results in gross distortion.
The other observation was: “It is a sad commentary on the confidence persons repose in the official statistics when those who have contacted me have questioned the integrity of the official motives behind (the rebasing) and go on to hint that the government is up to some scampishness and/or is manipulating the economic data for political purposes.”
The Economist Intelligence Unit (EIU)
Pertinently, the EIU report of April 2010 challenged the veracity of the economic growth figures presented in the 2010 National Budget. It observed: “We believe that the government’s official estimate of real growth of 2.3 percent for 2009 significantly overstates economic performance.” The EIU went on to give an estimate of 0.9 per cent for 2009.
Proposal: National Assembly Budget Office
To permanently erase this confusion and the perennial questioning of the integrity of the budget’s data I put out an urgent call for the establishment of an independent non-partisan statutory professionally-staffed budget office, located in the National Assembly. The budget office should be mandated, among other functions, to provide independent 1) economic analyses of budget measures; 2) economic evaluations of budget measures; 3) assessments of the state of government finances and the estimates; 4) assessments of trends in the national economy; and 5) periodic reports on fiscal policy. This would be for the benefit of all legislators in the National Assembly. It is expected that professional staffing of the office would become the fountain from which the National Assembly’s research departments would be developed. In democratic environments, it is taken for granted that the government would do its very best to present budget information fairly and with no deliberate intent to mislead either the legislature or the general public. Where the data may be genuinelyambiguous, great care is usually taken to provide the basis for budget statements, prescriptions and judgments. A budget office as proposed here would place the National Assembly on a more equal footing with the executive on matters related to the economic and financial affairs of the nation.
Precedents
There are several precedents around the world in all continents, which support this call. Recently the United Kingdom introduced an Office of Budget Responsibility (2010) for similar purposes as those I have identified. A few years ago (2006) Canada established a Parliamentary Budget Office for similar purposes. Of course, the best known agency of this type is the United States Congressional Budget Office established in 1974.
That office produces an Annual Economic and Budget Outlook together with such reviews as an analysis of the presidential budgetary proposals for the benefit of the entire Congress and the general public. It does not however, make policy proposals.
Next week I shall continue with the discussion of this proposal and hopefully go on to start the discussion on the government’s size; is it too big, too little, or just right, and why?
