Part 3
As indicated in my column last Sunday, this week I will consider the third item listed under the second of the four groupings that I have proposed for categorizing the challenges and threats facing near to medium term macroeconomic stability in Guyana (this item is termed big government). Afterwards, I shall turn to discussing the third grouping of challenges and threats, which I label as socio-political.
Big government
For starters I should make it clear to readers that, although presented here as the third item classed under the second grouping of challenges and threats facing near to medium-term macro-economic stability; those posed by big government are by no means of lesser importance than the two previously considered formidable items under this grouping (disruptions to the overseas marketing of sugar and the uncertainties attached to the external sale of forest services).
I should remind readers also that, when I considered the 2011 Budget last year, I had addressed one of the most frequently repeated questions readers have raised with me, which is: ‘From an economic perspective, is the size of the Guyana Government too big, too little, or, just right?’
Of note, the basic facts are that public sector expenditure (current and capital) was as high as 58 per cent of GDP in the 2010 National Budget; rising to 61 per cent in the 2011 National Budget. For National Budget 2012, it stood at a projected grand total of $334 billion, which is more than two-thirds of estimated GDP for that year (all GDP values expressed here are at current basic prices using the rebased national accounts series).
Observations
Two observations are crucial at this stage. First, as I have repeatedly stressed in these columns the values of government expenditure cited above significantly understate their full value, as they do not capture the amount of government’s tax expenditures or tax giveaways. Tax expenditures are the taxes the government foregoes under the tax laws of Guyana, in the form of exclusions, deferrals, deductions, exemptions, preferential rates or special credits given to designated individuals and businesses. The total value of these tax expenditures I have previously estimated as likely to be about the same total as the actual amount of tax revenue raised.
Second, the trend in government expenditures during the 2000s has been markedly upward. Thus between 2000 and 2003 total public sector expenditure averaged about $111 billion.
This rose substantially to $170 billion for the years 2004-2007. For the next four-year period, (2008-2011), the total further increased, reaching $236 billion before rising even further in the National Budget 2012 to $334 billion as indicated above.
From the above information, it can be clearly observed that during the 2000s, total public expenditure had trebled in value! Writing on this topic earlier this year (April 29) in this National Budget 2012 series of SN columns, I had observed: “The expanding size of government in the Guyana economy has reached a level that now puts it in the top decile of global economies, for which there are comparable data.”
Put into more popularly recognizable numbers, these figures mean that, on average, the Guyana Government is spending nearly a billion dollars (that is, one thousand million) a day for current goods and services and investment activities, or about $6.5 billion per week. If the money the government is spending came out of thin air or from outer-space, this would be good for Guyana’s development. But the harsh reality is that, unless the government prints money, it can only spend out of what it takes from its citizens and foreigners in the form of taxes and loans. This high level of annual expenditure is equivalent to about $420,000 for each man, woman and child living in Guyana!
Without delving deeply into the litany of stalled projects, missed deadlines in public initiatives, the misuse of public resources, the exposed and unexposed corruption, waste, and mismanagement it is clear that 1) the all-round technical, managerial, human, and institutional capacity of the Guyana state is very limited; 2) the oversight and regulatory mechanisms in place are extremely deficient and weak; 3) good governance as a norm of public management is so limited in its application that big government stands as a humungous albatross on the back of the economy. This inexorably drags economic performance downwards into a stultifying and underperforming regimen of habitual failure and mediocrity.
That big government constitutes a significant set of risks confronting the near to medium-term macroeconomic stability of the economy needs no special pleading. To persons familiar with economic practice in Guyana, the mere realisation of how big in fact big government is provides enough evidence to dramatize the challenges and threats this poses.
In wrapping up this discussion, readers should be advised that, as I have previously pointed out, I do not hold either a philosophical or principled objection to big government per se. The judgement expressed here is particular and specific to the revealed nature and capacity of the Guyana government; nothing less and nothing more.
Moving on
At this stage I intend to move on to identify the items falling within the third grouping of challenges to macroeconomic stability and threats. These are labelled as socio-political. For ease of identification and purposes of brevity I have reduced these items to two, which are, namely, 1) income/consumption poverty, inequality, and vulnerability, and 2) the socio-political aftermath of the November 28, 2011 National and Regional Elections.
Next week I shall continue the series, beginning with the first item listed above.
