Guyana’s economy is projected to expand by 4.4% this year, following growth of 3% last year and even as Value Added Tax (VAT) collections dropped for the first time since its implementation in 2007.
Unveiling a national budget of $230 billion in the National Assembly yesterday, Minister of Finance Winston Jordan praised the APNU+AFC government’s stewardship of the economy since winning last year’s May 11 general elections even though deflation was evident.
“Mr Speaker, having emerged from the disruptive year that was 2015, the clear expectation is that 2016 will be a year of recovery, a platform to put the economy on a higher growth path to realise the good life. Accordingly, a growth rate of 4.4% has been set for 2016,” Jordan said. He added that non-sugar growth is projected at 4.3%.
In his maiden budget speech on August 10 last year, Jordan had projected an overall real economic growth rate of 3.4%. Yesterday, he told the House that this target appeared under threat at mid-year, when real economic growth was recorded at 0.7%. “However, buoyed by accelerated activities in the rice, sugar, gold and construction sectors, as well as renewed optimism and confidence by the business community, during the second half of the year, the economy rebounded to record real growth of 3%,” he said.
The minister told the House that total revenue collected by central government last year was $161.7 billion, 11% more than in 2014. He attributed this to the rebound in economic growth in the latter half of 2015, increased transfers from statutory and non-statutory agencies and the closure of several dormant government bank accounts.
This year, central government’s current revenue is projected at $173.3 billion, an increase of 7.2%. “This growth will be driven by the expected buoyancy of tax revenue, arising from tax efficiency, enforcement and administration measures that will be announced later,” Jordan said.
Tax revenue last year amounted to $142.9 billion, an increase of 5.2% over 2014, which was driven primarily by increased collections of personal income taxes (11.1%), company income taxes (4.7%) and property taxes (33.6%). “Low compliance by self-employed individuals continued to be the main factor why this category lags behind other areas of income tax collection,” Jordan said.
For last year, excise tax collections amounted to $33.3 billion, an 18.1% increase over 2014 while Value Added Tax (VAT) collections amounted to $35.4 billion, a 5.2% decline. In 2014, VAT collections amounted to $37.5 billion. The combined $68.7 billion for VAT and excise taxes collected last year falls short of the $69.5 billion projected by Jordan in his 2015 budget speech. The drop in VAT collections was the first since the introduction of the tax in 2007.
“One reason for this was the increase in the number of zero-rated items introduced in last year’s budget,” Jordan said.
‘Substantially lower’
The minister added that notwithstanding the increased revenue in 2015, the Guyana Revenue Authority (GRA) remitted an estimated $47.1 billion. “While this figure is substantially lower than the $55.6 billion remitted in 2014, strenuous effort will be exerted in 2016 to monitor concessions that are granted,” Jordan declared.
As it relates to the forecast for an increase in revenue, Jordan said tax revenue is projected to increase by $7.6 billion, or 5.3%, while non-tax revenue is estimated to grow by $4 billion, or 21.7%. “Value added and income taxes are projected to grow by 9.9% and 5.3%, respectively,” he said.
“The higher revenue from VAT will be as a result of closer scrutiny of import declarations, domestic manufacture and trading activities. Simi-larly, income tax compliance, especially among the self-employed, is expected to rise due to greater enforcement by the GRA. Both customs and excise taxes are expected grow by 6.8% and 0.7% respectively,” he added.
The minister noted that total non-tax revenues doubled in 2015 as government began the phased transfer of the excess cash balances of statutory agencies to the Consolidated Fund. He disclosed that a total of $7.9 billion was transferred from several agencies, including the Guyana Geology and Mines Commission (GGMC) and the National Frequency Management Unit (NFMU). In addition, $1 billion was transferred from the Lotto Fund.
The minister said that this year, a total of $8.7 billion is estimated to be transferred to the Consoli-dated Fund. Further, royalty revenues are expected to amount to $3.9 billion in 2016 based on the projected output of mining companies Guyana Goldfields Inc. and Troy Resources Inc.
Meanwhile, he pointed out that total expenditure of the Central Government was severely curtailed last year. Non-interest current expenditure amounted to $141.2 billion, compared to $127.5 billion in 2014. Increases in expenditure were recorded in personal emoluments, 5.6%; other goods and services, 7.7%; and transfer payments, 18.3%.
Capital expenditure
However, there was a sharp reduction in capital expenditure, from $51 billion, in 2014, to $30.7 billion, in 2015. “These deve-lopments resulted in the overall deficit of the central government improving to 1.4% of GDP, in 2015, compared to 5.5% of GDP in 2014,” Jordan said.
For this year, total expenditure is expected to increase to $223.3 billion, or 25.2%. “This higher expenditure level will result from a significant growth of 70.2% in capital expenditure, consequent upon the implementation of several new projects that will aid in propelling economic growth. Personal emoluments, other goods and services and transfer payments will increase by 11.8%, 10.5% and 25.1%, respectively. A small increase of 4.6% has been budgeted for interest payments,” Jordan said.
He told the House that central government’s deficit is projected at 4.7% of GDP in 2016. “While this is higher relative to the previous year, it is lower than the 2014 ratio. Mr Speaker, to repeat, this administration aims to promote robust economic growth in the context of a prudent fiscal policy, and this deficit-to-GDP ratio is in keeping with this goal,” he asserted.
Debt
In terms of debt, Jordan said that government continues to prudently manage the country’s public debt. He said that this has resulted in the total public debt to GDP ratio reducing from 51.9% in 2014, to 48.6% in 2015. By the end of 2015, the total stock of public debt stood at US$1.5 billion, a reduction of 3.6% from its 2014 level, he said.
He noted that a key component of public debt is the stock of external debt, which reduced by 6%, to US$1.1 billion at the end of 2015. “This was due largely to repayments of the oil debt under the Guyana-Venezuela Rice Trade Arrangement. In 2015, Guyana concluded negotiations for two debt compensation agreements with Venezuela, which reduced the oil debt by a further US$88.7 million. In September 2015, one debt compensation agreement was signed for the amount of US$44.9 million. The total external debt service payments also fell by 41% to US$98.4 million in 2015,” the minister disclosed.
He said on the other hand, there was an increase of 4.2% in the domestic debt stock, from US$379.8 million in 2014, to US$395.6 million. This increase was primarily due to higher issuance of Treasury Bills. The actual domestic debt service payment totaled US$8.5 million, an increase by 10.9%.
Meantime, as it relates to the balance of payments, Jordan said that there was an improvement in the overall deficit of the balance of payments, which contracted by 7.5% to US$107.7 million. “This was principally the result of a reduction in the merchandise trade deficit, occasioned by a 17.7% decline in imports, which was due to lower oil prices,” he said.
He also pointed out that increased export receipts of gold and “other exports,” by 6.7% and 9.4% respectively, ensured a small 0.2% increase in merchandise export earnings to US$1.2 billion. As expected, there were significant reductions in export receipts for bauxite (16.4%), timber (18.5%), sugar (8.1%), and rice (11.5%).
The minister told the House that the value of merchandise imports declined by 17.7% to US$1.5 billion, on account of reductions in all of the categories: consumption goods, 2.7%; intermediate goods, 25.4%; and capital goods, 15.1%. Net payment for services contracted by 16.9% to US$255.8 million.
He said that net current transfers decreased by 9% to US$416.5 million, reflecting lower inflows to the private sector in the form of workers’ remittances and other current transfers. These developments allowed the current account deficit to improve to US$114.2 million from US$385.2 million in 2014, Jordan said.
He added that the capital account surplus fell by 66%, largely the result of lower disbursements to the non-financial public sector. The overall deficit was financed from the gross international reserves of the Bank of Guyana and debt forgiveness. The gross international reserves were equivalent to 3.8 months of import cover at end 2015.
Jordan also said that reserves expanded by $12.3 billion to $138.2 billion with the performance being attributed mainly to an improvement in net domestic assets by $23.8 billion. However, net foreign assets fell by 8.3%.
Deflation
Meantime, Jordan also said that at the time of the mid-year review last year, the economy had already recorded deflation, that is a reduction in the general level of prices, of 0.2 per cent. “Prices were expected to remain fairly stable to the end of the year, premised on continued low level of prices of fuel and a range of consumer items, as a result of the removal of the Value Added Tax. Deflation persisted throughout the year and by end December, it had been recorded at 1.8%,” he said.
For this year, Jordan said that with the predicted increase in growth in almost all sectors, the level of inflation is expected to be approximately 2%.
In terms of balance of payments, he said that notwithstanding the projected expansion in the economy in 2016, the overall balance of the balance of payments is expected to improve considerably to a surplus of US$46.26 million, from a deficit of US$107.68 million in 2015. This improvement is premised on positive turnarounds in the current and capital accounts, he said.
The minister also projected that the deficit on the current account would improve by 19%, to US$116.86 million. “Merchandise exports are expected to earn US$1.2 billion, a small increase of 2.5%. Merchandise imports are projected to rise by 2.7% to US$1.5 billion. Net services is projected to fall from US$255.8 million to US$237.4 million, principally on account of a reduction in net non-factor services. After falling in 2015, transfer payments are targeted to rise by 4.9%. The capital account is anticipated to grow appreciably to US$163.1 million, from US$71.5 million in 2015,” Jordan said.
Jordan also said that the non-financial public sector performed creditably in 2015, recording a deficit of $1.2 billion – 0.2% of GDP – compared to a deficit of $36.4 billion or 5.7% of GDP in 2014. “This outturn would have been worthy of commendation had it occurred under normal circumstances. But this was not the case in 2015. The factors which contributed to this improved performance included the late presentation of the 2015 budget, the general compression of expenditure in the first eight months of the year and the low rate of implementation of the public investment programme,” he said.
For this year, the overall deficit of the non-financial public sector is targeted at $38.2 billion, or 5.5% of GDP.
The minister also disclosed that the combined operations of the public enterprises resulted in a surplus of $8.1 billion last year compared to a deficit of $1.5 billion, in 2014. This year, he said, the overall deficit of the public enterprises is projected at $5 billion, mainly driven by significantly higher capital expenditure.
