Introduction
Let me admit upfront, I agree entirely with Ramesh Gampat’s headline statement as reported in his SN letter of October 26, 2015: `While Guyana’s data is too weak to be subjected to rigorous analysis it allows for broad trends’. It is precisely for that reason, I deliberately chose “trend-like” language such as, “anemic growth”, “low growth of less than 2 percent” and “Guyana sclerosis” to describe its stagnant long-term economic performance. However, apart from poor data quality and lack of timeliness, which he has correctly singled out, I believe, as I shall argue today and continue next week, that, data manipulation and deception by the Authorities (local and international), have been equally at fault in making Guyana’s national accounts data too weak for rigorous analysis.
GDP, growth and living standards
Because, as was demonstrated last week, Guyana’s GDP, (similar to other economies) is defined as the sum of all goods and services produced in the country (including those produced by government; those produced for export and investment; as well as those produced by households and indeed all enterprises for market sale) over a given period, usually a year, without double-counting those products used as inputs for producing outputs, it is a truly comprehensive measure of the value of production in the country. If, from this comprehensive measure changes in the price-level are removed, we arrive at the real or constant price value of Guyana’s GDP.
If, however, price level effects are not removed from the measure what we arrive at instead is the nominal GDP. Resulting from this, when nominal GDP therefore, changes from one period to another, this can result from 1) changing output, 2) changing prices or 3) a combination of both. In the case of real or constant price GDP however, changes in that measure can only reflect changes in the volume of production. It is for this basic reason that, constant price changes in GDP, are universally treated as the best proxy indicator for economic growth in a country.
One further observation is worth noting: typically, in practice, this measure is further modified in order to eliminate the effects of changing population size. We can see why this is necessary: clearly for example, if for a given GDP the population in Guyana is measured at say 750,000, when it should be one million, it means that less is available per person, the larger the population and vice versa.
Such population effects can be eliminated by simply dividing the real GDP value by the size of the population for the given period in which it is measured. This is known as real per capita or per person GDP. The great advantage of this measure, is that changes in it not only reflect changes in economic growth or output, but it also provides a proxy indicator of living standards in a country!
Rebasing GDP
Our main concern in this week’s column however, is with the most recent rebasing exercise, which was conducted in 2006 on Guyana’s national accounts, as prepared by the Bureau of Statistics (BoS). In subsequent columns, I shall return to the obvious discussion of whether the GDP is intrinsically a good measure of growth and economic well-being and related matters. Let it be clear for now, however, it is certainly the commonest measure, and further, is most unlikely to change radically from this premier position.
Because of the dynamic nature of Guyana’s economy, it was argued back in the mid-2000s that the 1988 base year then in use for computing its national accounts had become outdated.
The claim was that, changes in the structure of production and consumption, the relative prices of goods and services, and the emergence of new products to economic prominence had made the measurement unrealistic. The decision was therefore taken to introduce 2006 as the new base year. The years 2007-2009 were utilized to construct a nominal and real GDP series based on the year 2006.
As noted last week, this decision to rebase the GDP came at the height of the blazing controversy over high investment rates and stagnant economic growth in Guyana. This economic contradiction was starkly evident in the then existing 1988 base year national accounts data.
Results and outcomes
By far the most important and dramatic consequence of the 2006 rebasing exercise, was that nominal GDP expanded substantially in size for the years, 2006-2010. For that period estimates were made by the BoS for GDP using both the 1988 and 2006 base year data. These dramatic effects are revealed in Table 1 below.
Table 1 clearly shows that, for the five years 2006-2010, the 2006 base year GDP measures yielded an increase in values of approximately 64 percent on average when GDP at basic prices is compared with its identical measure GDP at market prices based on the 1988 base year.
The range for these increases in values is relatively narrow, from 60 to 67 percent. Expressed as absolute values (or billions of Guyana dollars) the average increase 2006-2010 was as much as G$147 billion and the range in values is G$109 billion to G$180 billion.
The impact of these substantial increases in Guyana’s national accounts estimates was accompanied by significant changes in real economic growth, measured as changes in real GDP. This meant that, overnight as it were, all the concerns of stagnant growth, high national indebtedness, which swirled around Guyana’s economic performance disappeared! I shall explore these matters further in next week’s column.
