Introduction
Last week’s column wrapped-up the series of nine successive contributions arguing for the adoption by Guyana and Caricom, of the United Nations (UN) Post-2015 Development Agenda and the Sustainable Development Goals (SDGs), as their long-term planning and policy frameworks. Those columns are based on a paper of mine, which is available on request: “Guyana and UN Endeavours of Ambition: The Post-2015 Global Development Agenda, and the SDGs, 2015-2030”.
In that column series, I referenced the anemic long-term growth of both Guyana and Caricom as major factors driving my recommendation that the SDGs should inform their planning and policy frameworks. As I intend in the coming columns to devote attention to matters concerning Guyana’s development, I will start today with the observation that, the poor quality of Guyana’s economic data severely constrains robust analysis of its economic performance.
Measurement error
In an earlier column in the just concluded series referenced above, I had observed: “As the former UN statistician (Ramesh Gampat) has recently reminded us in the Stabroek News letter columns, between 1960 and 2014 Guyana’s economic growth was somewhat lower than 2 percent per annum” (SN September 20, 2015).
This description was purposefully non-specific, since I do not believe that the Guyana data could withstand the burden of greater precision. But, Gampat had in fact claimed: “During the forty-five years from 1960 to 2014 … Guyana’s economy grew by a pathetic 1.9 percent (sic)”. (Gampat, SN, September 15, 2015)
Gampat’s estimate is, unfortunately, based on a weak GDP dataset. Ignoring this limitation, his letter has nonetheless provoked several exchanges, without any of these directed to the data quality used in the estimation!
Indeed, those exchanges discussed such weighty matters as: 1) comparing Guyana’s long-term economic performance to Singapore’s and other Caricom members states 2) the merits and de-merits of “trickle-down” growth 3) economic growth, inequality, and instability 4) environmental consequences of GDP growth and, 5) most weighty of all, general economic growth theory!
The most recent contribution to these exchanges (Desmond Thomas, Stabroek News, October 1, 2015) had sought to bring to the fore, the core concern, which is: what should be the appropriate development strategy for Guyana? Regrettably, immediately following this question, he prefaces his reply with the statement: “Ruling out significant measurement error …” (ibid).
Ruling out measurement error cannot be done. To begin, there is error in the basic data presentation. Gampat refers to “the forty-five years from 1960 to 2014”. Readers cannot be certain if this is a typo (1960 for 1969!) or an arithmetic error. Except for Desmond Thomas, who cited the correct number of years, 54, other letters repeat the error without comment!
For readers’ convenience, four other significant results were also reported by Gampat: 1) Guyana invested, on average, 26.7% of its GDP during 1960-2014 2) the correlation between Guyana’s investment and growth is weak (0.06); correlation is not causation and, 3) a “quick” regression shows a 10 percent increase in investment in Guyana, causes growth to rise by 0.5 percent and, 4) private and foreign investments, as well as the sectoral concentration of the investment, have differing impacts on growth.
De-mystifying Guyana’s GDP
The basic dataset underlying Gampat’s presentation is Guyana’s National Accounts (GDP), as reported for the past half century and more. I shall argue in this section and continue next week that, the quality of Guyana National Accounts (GDP) dataset, cannot bear the strains of robust economic analysis. Principally, I shall demonstrate this through the example of the recent rebasing of its National Accounts (GDP) series in 2006. I will illustrate the weakness of 1) Guyana’s GDP dataset over such a long time span and, 2) the suspect motivation behind the 2006 re-basing.
Guyana’s GDP is the market value of all final goods and services produced within a given period, usually a year. As this column has indicated repeatedly, this value is arrived at on the basis of an internationally agreed System of National Accounts (SNA).
The SNA manual is jointly published by the UN, IMF, World Bank, European Commission and the Organisation of Economic Cooperation and Development (OECD). In Guyana we use SNA 1993, but there was an international agreement that by the end of 2014, the majority of countries would be using the revised SNA, 2008.
There are three broad approaches to computing the National Accounts series. One is the income approach, in which GDP is calculated as the sum of employees’ compensation, gross operating surpluses of enterprises, gross mixed income and taxes, less any government subsidies provided to production and/or importation.
A second is the expenditure approach, which is the sum of all final expenditures, changes in inventories, and exports of goods and services less imports of the same.
And, the third approach is the value-added or production approach. Here GDP is the sum of the gross value-added for each industry, at basic prices (that is, plus taxes and less subsidies on production). Thus, the GDP combines into a single value (without double counting) all the production or output undertaken in Guyana over a given period. The sum would be the same, for whichever approach is computed.
The National Accounts is an indispensable tool for economic planning and policy formulation. However, over long-periods of time, the structure of any economy changes; new sectors rise in importance, and old ones recede.
As this happens GDP measures will not always reflect the “true” structure of the economy. Statistical offices are therefore required to rebase periodically, the sectoral composition of the SNA they are applying.
This challenge is addressed next week. As we shall see, the question has been raised: was the last rebasing exercise (2006) an attempt to manipulate the official GDP findings?
