Early news
The early news that has emerged from the new administration about the financial condition of Guyana is not good and one fears that it is likely to worsen as the stories about the condition of different parts of the economy unfold. The Minister of Finance reported very early, albeit tentatively, that the main account of the government − the Consolidated Fund-was “overdrawn.” Even before the meaning of those words could sink in, more trouble was found in the public sector with the coffers of GuySuCo empty and with the company not knowing how it would meet its liabilities, including the NIS and credit union contributions of its workers. Why should one be interested in, or even be concerned about, the condition of the Consolidated Fund (CF) and GuySuCo? This article explores the reasons that Guyanese should pay attention to the information already disclosed about the CF and GuySuCo. It reveals the irrationality of the previous administration when it came to managing the resources of Guyanese taxpayers and the undue burdens that it had them bearing.
Cash sales
The discourse will start with the Consolidated Fund (CF). Government receives money from many sources. It collects taxes, royalties, rents, fines, and tolls from households and businesses, and moneys from the sale of passports and state properties. The government also receives money from bilateral and multilateral sources. The money from the different sources are brought together or consolidated into one package. This package is referred to as the Consolidated Fund. As such, the CF is really a reflection of the total sum of money that is collected or received by the Government of Guyana and is akin to a cash sales account that is used in private retail business to accumulate revenue from the sale of different products. The official account is kept at the Bank of Guyana. The government uses the money to meet expenditures on the goods and services that it provides to the public. These goods that are normally referred to as public goods include, inter alia, things like roads, schools and other public infrastructure that enable households and businesses to conduct their activities. They also include the services gotten from public school teachers, the police, the electricity companies, and the public health facilities among others. The constitution permits the government to keep money in other accounts, but the CF is used as the principal means of managing the public resources of the nation.
Overdrawn account
The CF is in the red. This means that as a bank account the government has been taking out more money than it has been putting into the CF account. Since there are multiple sources of revenue, there could be any number of causes for the slower income receipts. Tax and non-tax revenues are not among the causes. The 2014 budget statement indicates that the problem has nothing to do with tax or even non-tax revenues since those increased 119 per cent from 2006 to 2013. It was reported that a primary reason for the overdrawn account might be the willingness of the CF to bail out the Gold Board which appears to be experiencing a liquidity problem. The impression that one gets from media reports on the risk management strategy of the Guyana Gold Board is that it was not an effective one. The Gold Board is obligated to buy gold from local producers. It pays cash and therefore requires a high level of liquidity. What appears to be the case is that the Gold Board was buying gold at a higher price than it was able to sell it. In an effort to sell at a higher price than it bought gold, the Gold Board found itself holding inventory instead of cash while waiting for the market to turn in its favour. This created a liquidity problem. It should be kept in mind too that the mere fact that the CF is overdrawn means that the government itself had to create debt in order to meet whatever commitments it gave to the Gold Board and others.
The link between the Gold Board and the Consolidated Fund is an interesting one in itself, given the independent profile that was projected by the Gold Board and the borrowing authority that it has. Like so many other public entities that do not want to put money in the CF, the Gold Board has always touted its independent authority. That independence has been guarded jealously. The independence also gives it the right to maintain a fund to carry on its business and the authority to borrow money to meet any of its obligations. Therefore, the Gold Board could have borrowed money from a third party to meet its payments to gold producers. Instead, the Gold Board ended up imposing itself on taxpayers by obtaining money to pay its bill from the CF. It is not clear how much of the deficit in the CF could be attributed to the poor risk management strategy of the Gold Board, but it is clear that the placement of excess money from the Gold Board into the CF, when possible, would not have hurt its independence since it has been turning to the CF for help anyway.
Important enterprise
While the CF is the most important account of the government, GuySuCo is its most important enterprise. Recent estimates indicate that GuySuCo employs about 16,000 persons and contributes about four per cent to domestic output. The CF and GuySuCo might be two different animals, but they are linked by the obligations that GuySuCo has to the government. Like all other enterprises, GuySuCo is required to pay taxes on its income and the taxes on that income are supposed to go into the CF. In addition, the government is the principal shareholder of GuySuCo and this means that whenever GuySuCo makes a profit and declares a dividend, the money that is due the government must go into the CF. Given what we heard about the $16 billion debt of GuySuCo, the CF has probably seen no money from this entity in a long time. Instead, GuySuCo has been a perennial drag on the hard-earned money of the taxpaying public.
Peculiar situation
Despite its importance, one must wonder also about the philosophy surrounding the management of GuySuCo. Like the Gold Board, GuySuCo has found itself in a rather peculiar situation. For several years now GuySuCo has been selling sugar at a price that was below its cost. This approach to business seems to be a conscious policy of the PPP/C administration since this upside down economics is the net effect of the risk management strategy of the Gold Board. It should be recalled too that the previous administration built the Berbice Bridge with taxpayers’ money and then surrendered it to a private group with no benefits flowing back to the taxpayers. It must be kept in mind too that the PPP/C administration had a plan to sell two-thirds of the equity of the US$60 million Marriott to a foreign investor for US$8 million. The pattern of the PPP/C’s economic strategy is clear: buy or build high and sell low, and it did so at times under the guise of private-public partnerships.
In the case of GuySuCo, the impact of this type of behaviour on the taxpayers of Guyana is hard. In the first instance, the taxpayers gave annual subsidies to GuySuCo which it took. What GuySuCo consciously did was transfer about three times the amount of the subsidies to consumers overseas. When Guyanese take account of the money that they get from the European Union (EU), GuySuCo still ends up transferring twice as much taxpayers’ money overseas. Under these conditions, GuySuCo is doing absolutely nothing for Guyana since also it is taking a portion of its foreign earnings to pay the subsidies of foreign consumers. Without a restructured GuySuCo, it is impossible to see how the government could reduce VAT and pay higher wages to public servants, both of which have the potential to help the economy grow faster and stronger.
The insult to Guyanese does not stop there. By using workers’ NIS contributions in the operations of the business, not only did it starve NIS of money, it, in effect, threatened the benefits to current and future employees. GuySuCo if it used the NIS money in its operations also used it to subsidize foreign consumption of Guyana’s sugar. The reckless reallocation of the money of Guyanese by the PPP/C administration and enterprises under its control renders NIS incapable of meeting its obligations and hurts the taxpayers of this nation. The new administration has to take a tougher position on such misconduct and apply the provisions of the law to save the insurance programme.
Radical change
It also has to take a pragmatic position on the sugar industry. This administration should not continue the malpractice of holding the majority of the population to ransom. The contribution of sugar to the economy has fallen significantly. Gold, other agricultural crops and rice have all surpassed sugar in importance to the Guyana economy. At the same time, gold, rice and bauxite bring in far more foreign exchange than sugar. The better performing industries are primarily privately owned. Guyana therefore should not be trying to keep the sugar industry in the format that it currently exists. It must undergo radical change if this country is to move forward since GuySuCo can hardly qualify as a “going concern”. The taxpayers did their part on May 11 and it is now up to the government to do the rest.
