Minister of Finance Winston Jordan yesterday presented a $300.7 billion budget for 2019 and projected GDP growth at 4.6% in the year before first oil.
Presented under the theme “Transforming the Economy, Empowering People, Building Sustainable Communities for the Good Life”, the Budget which is the fifth to be presented by the APNU+AFC government, is a 12.6 % increase over last year’s $267.1 billion budget. It projects a real economic growth of 4.6% in 2019 amid steady growth in the global economy and stable commodity prices.
According to Jordan this expansion will be broad-based as all major sectors are projected to expand. Meanwhile the real growth for 2018 has been revised yet again to 3.4%.
Total revenue in 2018 is anticipated to reach $216.9 billion, $15.0 billion above the budgeted $201.9 billion and $21.8 billion or 11.2 % higher than collections in 2017 however the budgeted deficit of $10.1 billion has worsened to a latest forecast of $15.8 billion, for 2018 a deterioration from the deficit of $13.0 billion recorded for 2017.
According to Jordan, these outcomes resulted mainly from lower sugar production by GuySuCo, and higher acquisition costs for fuel by Guyana Power and Light Incorporated (GPL) and Guyana Oil Company (GuyOil), in 2018. Overall, between the budgeted and revised positions for 2018, revenue of the Public Enterprises declined by 2.8%, to $120 billion, while the total non-interest expenditure grew by 8.2% to $126 billion.
Notable too is the reduced deficit of the non-financial public sector which is expected to improve to $45.3 billion, or 5.7 % of GDP for 2018, lower than the budgeted deficit of $47.0 billion or 5.9 % of GDP.
Jordan told the House that this was realized because of “lower levels of capital expenditure in the public sector, which was $8.1 billion below the budgeted amount of $75.6 billion.”
“This will be due largely to lower spending by public enterprises of $7.4 billion while increases in public sector revenue and grants by $1.9 billion and $1.2 billion, respectively, further contributed to the lower deficit,” the Minister explained.
The deficit on the overall balance of payments is projected to widen to US$180.7 million at the end of 2018, from a deficit of US$69.5 million at the end of 2017. The current account is expected to deteriorate to a deficit of US$463.8, million in 2018, compared to a deficit of US$297.3 million in the previous year. However, the capital account is anticipated to strengthen to a higher surplus of US$283.0 million, from US$228.0 million, over the same period.
“Despite positive prospects for net current transfers, the current account is expected to weaken due to the worsening of the merchandise trade and services accounts …as a result of an increase in total payments for merchandise imports, together with lower total earnings from merchandise exports. The [lower earnings] are largely on account of lower receipts from gold and sugar exports. The downturn in gold export earnings is anticipated to be as a result of lower declarations. Lower earnings are also expected from rice exports, which, together with gold and sugar, will not be offset by receipts from all other exports,” he said.
When he presented the 2018 budget Jordan had said real growth in the economy for 2018 was projected at 3.8%. However this was revised twice; first at the end of the first quarter when the outlook for the year was revised to 3.4%, given the lower-than-expected performance in gold and sugar. By the end of the first half of the year, economic activity had picked up in several other sectors, resulting in robust half-year growth of 4.5%, and an upward revision of the projected annual growth rate to 3.7 %.
Since then the growth projection has again been revised to 3.4%, an improvement on the 2.1% recorded in 2017 following several similar revisions. Jordan had claimed that mining and quarrying and an expected recovery in other sectors would result in a 3.8% growth but by mid-year, an economic growth rate of 2.2 % was achieved and real growth projection was revised downwards to 3.1% on account of expected weak performance in the mining and quarrying sector. Additionally at the time of the 2018 budget the new projection for real growth of the economy, in 2017 was 2.9 %.
Jordan explained to the House that the Agriculture, Fishing and Forestry sector is projected to grow by 1.1 %, in 2018 despite the severe contraction of 25.2% in sugar production. At the time of the 2018 Budget the Minister had anticipated a 0.7 % contraction in this sector. GuySuCo he explained, last evening, is expected to record a production low of 98,000 tonnes by the end of 2018.
Commendable strides
The rice industry meanwhile continues to make “commendable strides”. The introduction by the Guyana Rice Development Board (GRDB) of a new and higher yielding variety in time for the second crop of 2018, as well as improved practices and domestic prices are expected to result in growth of 0.2 % in total production for the year, 617,353 tonnes or an increase of 2.5 % had been the original projection.
The growth in the other crops sector is projected to reach 5.0 % significantly more than the initial projection of 2.3 % as increased production of traditional and other non-traditional crops has resulted in the volume of exports of fruits and vegetables expanding by 5.9 % at the end of the third quarter, growth which is expected to continue to rise in the last quarter.
Additionally, the livestock sector which was projected to grow by 2% is set to record a significantly larger 21.1% growth.
“Production as at the end of June [grew] by 29.1 %, when compared with the same period, in 2017. The absence of chicken shortages, thereby negating the need to issue import licenses thus far, in 2018, testifies to Guyana being on the right path to self-sufficiency in chicken production. Higher beef, pork and mutton production, as a result of better breeds and enhanced practices, also contributed to growth in this sector at mid-year, and are likely to lead to similar gains in the second half of the year,” Jordan told the house.
On the other hand the fishing industry which will contract by 1.9%, in 2018 saw mixed results at the half year. In spite of the contraction in output of shrimp, tuna and aquaculture, an expansion in total finfish production resulted in growth in this sector of 5.6% at the end of June. An increase in the number of artisanal vessels will see finfish production reaching higher levels in 2018, when compared with the previous year however this performance, is expected to be overshadowed by declines in production in the other categories of fish.
Similarly growth in the forestry sector has been severely affected by poor roads which along with poor weather conditions disrupted the transport network. A promising performance up to September, 19.3% higher than the same period, in 2017 is now set to be a disappointing 0.2 %.
The mining and quarrying sector which Jordan had projected to rebound in 2018, expanding by 5% is now expected to contract by 2.3 % in 2018, despite remarkable growth expectations for the bauxite and other mining sub-sectors.
Gold declarations
“The expected expansion in the mining sector is anticipated to be curtailed, in 2018, by a decline in gold declarations by small and medium scale miners, who accounted for over 64 % of all declarations, in 2017. As a result, gold declaration will contract by 13.1 %, in 2018, despite an expected expansion in the declarations of large scale miners by 4.3 %,” the Minister explained.
The bauxite industry however is projected to grow by 26.3% in 2018 even as uncertainty still surrounds the fate of Rusal‘s operations in Guyana, with the US extending the sanctions deadline on the company to December 2018. Other mining is also expected to expand in 2018, by 46.6% driven by growth in the declaration of diamonds, sand and stone, with the increase in the latter two due to an expansion in construction.
In the financial sector the inflation rate is estimated to increase to 2%, slightly below the projected 2.4 % while the exchange rate with the US dollar which stood at $208.5, in October has recorded a 1% depreciation when compared with January 2018.
“In contrast, the Guyana dollar appreciated against major currencies at commercial banks over the period. The market mid-rate of the Guyana dollar to the US dollar remained broadly unchanged at $212.8, in October 2018, when compared with January 2018. However, the Guyana dollar strengthened against the British pound, by 2.3 % to reach $270.9, and the euro, by 3.6 % to reach $230.9, when compared with January 2018,” Jordan explained.
The Minister also noted that for 2018, the ratio of total public debt-to-GDP is projected to decrease by 2.6 % to 44.4% relative to 47.0 % at the end of 2017.
Specifically the total stock of public debt is projected to grow by about 0.8 %, from US$1.67 billion, in 2017, to US$1.68 billion, at the end of 2018. At end-2018, the external debt stock is projected at US$1.3 billion, higher by 4.6% or about US$56.5 million than the previous year however the external debt-to-GDP ratio is projected to decrease from 34.9 %, in 2017, to 34.2 %, in 2018, reflecting improved growth performance.
External debt service is projected to increase by 27.2% , from US$60.8 million, in 2017, to US$77.4 million, in 2018, primarily due to: higher principal and interest payments to the Inter-American Development Bank (IDB), International Development Association (IDA), Caribbean Development Bank (CDB), China Exim-Bank, Venezuela (PDVSA) and Republic Bank of Trinidad and Tobago; and higher interest rates and exchange rate depreciation.
“In spite of this, our external debt servicing obligations remain manageable, with only some 7 cents of every dollar earned by Government going towards debt servicing,” Jordan maintained.
Conversely domestic debt service is expected to decline by 28.7 %, from US$10.9 million, in 2017 to US$7.8 million, in 2018. This decrease is anticipated to be primarily due to the lower issuance of treasury bills and declining average discount rates. The lower issuance of both 182-day and 364-day treasury bills is also set to decrease domestic debt stock by about 10.1% from US$430.1 million, in 2017, to US$386.8 million, in 2018,
2019
For 2019 the Minister projects real growth of 4.6%, amid steady growth in the global economy and stable commodity prices.
“The forecast for 2019 continues to reflect positive growth, single digit inflation, a fiscal deficit of around 5% that will be underscored by increased prudence in expenditure management, greater efficiencies within revenue administration and the maintenance of a sustainable debt position,” he stressed adding that this expansion will be broad-based, with all major sectors projected to expand.
Jordan further explained that while Budget 2019 is presented with the knowledge that oil revenues are expected within the current cycle of the medium-term framework the indicative years presented in the Estimates of Revenue and Expenditure for Budget 2019, do not reflect the details of expenditure and revenue projected for petroleum as further analytical work is required.
“In 2019, Government will undertake critical work in rebasing the GDP. We will develop a fiscal framework, based on revenues from the production of oil, aligned to a medium-term expenditure framework that is derived from the costed Green State Development Strategy. This work will inform the medium-term projections from 2020 onwards,” the Minister stated.
Sectoral projections have forecast a 3.9% growth in the agriculture, fishing and forestry sector driven by growth across all industries.
The restructuring of GuySuCo and the recapitalisation of estates will see production increasing progressively over the next few years, the Minister argued noting that specifically, in 2019, output is expected to increase by 15.6% while rice output will continue to grow steadily, increasing by 2.7 % in 2019, as farmers continue to realise productivity gains due to better practices and improved varieties.
The other-crops sector is projected to grow by 4% as a result of farmers‘ willingness to implement improved practices and adopt new varieties, with the support of the National Agricultural Research and Extension Institute. The livestock industry too is expected to expand in 2019, by 2.3%, driven by improved practices and breeds, thanks, in large part, to the efforts of Guyana Livestock Development Authority while the fishing industry is forecasted to recover from a contraction this year, and expand by 1.9 %, in 2019, with the output of both shrimp and fish production improving as a result of better fishing conditions, compliance with standards to access external markets and increased vessels.
Further the forestry industry is also expected to grow by 1.9 %, driven by upgrades to hinterland roads and bridges as well as increased external demand for certain species.
Projections are also positive for the mining and quarrying sector which is expected to expand by 3.7 %, spurred by continued growth of 8.6% in bauxite, and 5.3% in other mining.
“This will be driven by increased demand as well as the coming on stream of the operations of a third company in the industry [while] gold declarations are forecasted to increase, with the industry expected to grow by 2.5%,” the House was told.
The largest sectoral growth is however projected to be in construction which is expected to benefit from both the private and public sector investment in the infrastructure. This sector is expected to grow by 10.5 % in 2019, partly in response to a significant increase in the public sector investment programme.
Inflation, meanwhile is set to be 2.5 % but government has committed to remaining mindful of the inflationary pressures that may arise, as the economy accelerates towards first oil and to if necessary, respond with appropriate measures to maintain a stable rate.
The overall balance of payments is expected to improve to a surplus of US$15.0 million against the backdrop of the capital account growing robustly, to a surplus of US$376.2 million, and the current account improving to a lower deficit of US$361.2 million.
“The higher projected surplus on the capital account is likely to result from higher net inflows to the private sector in the form of foreign direct investment. The improvement on the current account will be supported by a lower merchandise trade deficit of US$256.4 million, as total export earnings are projected to increase, amid higher commodity prices, and increased production, in 2019. For instance, export receipts from gold are projected to increase on account of higher declarations. In addition, total import payments are expected to grow marginally, by 0.8 %, also contributing to the improvement of the current account,” the Minister said.
This surplus, in 2019, is expected to see the accumulation of gross foreign reserves at the Bank of Guyana being equivalent to 3.0 months of imports.
Total revenue is anticipated to increase by 9.9 % to reach $238.3 billion in 2019 mainly from tax revenue of $223.6 billion. Non-tax revenue is expected to reduce to $14.7 billion while Central Government expenditure is expected to grow by 11.5% to $291 billion with recurrent expenditure anticipated to increase to $221.8 billion.
Central Government’s overall deficit is projected to be 5 % of GDP in 2019, below the budgeted 5.4 % of GDP for 2018.
