Finance Minister Winston Jordan yesterday warned that Guyana’s economy is being battered by global economic conditions and crucial remittances have also taken a hit.
“We in Guyana have not been spared the backwash of weakening global economic performance. For the first time in recent memory, the six pillars that have been the foundation of the economy’s upbringing, namely sugar, rice, bauxite, gold, diamonds and timber, have all suffered major setbacks. Even a seventh pillar, remittances, which account for upwards of 25 percent of GDP, have also recorded decline,” he said at the opening of the 47th Annual Monetary Studies Conference yesterday.
The three-day conference is being held at the Bank of Guyana and was organised by the Bank and the Caribbean Centre for Money and Finance (CCMF).
Jordan emphasised that remittances “are critically important for poverty reduction across the region and every effort must be made to ensure that the region continues to have access to that flow.” He said that a meeting of central bank governors later this week should pay attention to the impact of US legislation on remittance companies and devise ways and means to ensure continued access, supported by stringent regional regulation and supervision.
The minister also pointed out that one of the region’s main problems is the weakness of external accounts and average performance across the region has declined. He said that the average deficit on the current account increased from 8.6% of Gross Domestic Product (GDP) to 9.2% of GDP between 2013 and 2014. Only Trinidad and Tobago recorded a surplus of 4.8% of GDP in 2014 and even this was a decline from a surplus of 7% of GDP in 2013.
He said that while the International Monetary Fund has forecast marginal growth for the region, this is unlikely to be reflected in commodity producing countries which are expected to have slower growth compared to service-based economies. Nevertheless, Jordan said, low commodity prices and an improving US economy implies better growth prospects for most CARICOM countries.
Notwithstanding, there are still significant problems in terms of fiscal accounts and debt sustainability, he said. The minister warned that there is a need to strengthen fiscal accounts which is key to rebalancing external accounts. He said that service-based economies can take advantage of low fuel prices and while commodity producers may have lower debt burdens, lower commodity prices require a disciplined policy framework to shore up revenues and prevent similar sustainability issues from developing.
He said that the fiscal consolidation that this implies in some cases, requires increasing the efficiency of government expenditure programmes to weed out waste without compromising the level of services provided. He said in other cases, it requires significant adjustment of expenditure priorities and enhanced revenue collection so as to increase the fiscal space for undertaking growth-inducing projects.
The minister emphasised that the resumption of strong sustainable growth also requires an improvement in competitiveness which implies a range of actions in connected areas including the improvement of the business environment.
“Importantly, the region also needs to strengthen the legal and regulatory frameworks for financial risk assessment and mitigation to deal with any financial vulnerabilities which can threaten the resumption of sustainable growth in the Caribbean,” he said.
Earlier, Jordan challenged the participants to come up with recommendations that would ensure that the region will still enjoy access to the markets of the developed countries and ensure that banks will not be adversely affected. He make the remark against the backdrop of some countries being categorised as tax havens by the European Union and the threat by correspondent banks to sever or curtail services to the small financial institutions in the region.
The minister said that strategies are needed to lift the region out of its slow growth trajectory. “Emerging and developing economies registered slightly slower growth of 4.6 percent in 2014 and they are expected to slow further to 4 percent in 2015, with Latin America and the Caribbean recording the most significant deterioration in growth,” Jordan stated.
He also noted that the Caribbean Community is in a “stranglehold” of debt and debt service payments. Although this has been acknowledged at all levels, countries have not been able to significantly reduce their debt levels and an increasing share of governments’ revenues are being devoted to debt servicing, he said.
Meantime, Governor of the Bank of Guyana Gobin Ganga urged that the conference be used by policy makers to better prepare themselves to alleviate economic and market disruption though the insights shared.
He said that the theme of the conference raises the question of whether financial development does in fact “spur growth” or if it is an “inconsequential addendum” to the process of economic growth. He noted that some economists hold different opinions regarding the importance of the financial system for economic growth.
“Here in Guyana, the Central Bank has been fostering the development of the financial sector with the licensing of a Credit Bureau and mobile money transfer service. The bank is also in the preparatory stage of Basel II implementation and market conduct supervision along with other supervisory initiative that will mitigate the effects of adverse external, policies and shocks,” Ganga said.
Basel II are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.
CCMF Officer in Charge Dr Dave Seerattan said that the debates over the course of the conference will lay a foundation to form policy in the next few years.
