Dear Editor,
I wish to express my deepest concern regarding the recent disclosure by the Ministry of Finance that the refurbishment or rehabilitation of the Ocean View Hotel will cost taxpayers in excess of $1 billion.
I am more so deeply perplexed on what is the justification for this exorbitant expenditure which was not even subjected to the correct legal procedures of tendering for the project. The justification so far is unclear though COVID-19 has been touted as regards the rationale. It has also been noted by some that the hotel in question is in receivership. While I have not been able to confirm this at the time of writing, if this is true, then this leaves much to be desired as there will certainly be a plethora of legal ramifications.
For example, if it is indeed in receivership, who is financing the $1 billion? If it is Government, then will the Government own the property? If the Government will not own this property, I have also noted that some persons are saying that the property will be rented? What would be the justification to rent a property for millions of dollars per month after injecting over $1 billion to refurbish? Editor, these are pertinent concerns which the nation needs forthright clarity from the Minister of Finance if he has not so done.
To put this into perspective, one would recall that the Specialty Hospital Project which was struck down by the Government when it was in Opposition in 2012 was estimated to cost some $1.2 billion. At that time, the then Opposition disapproved the project because they contended it was controversial. Notwithstanding, the project was good for Guyana and disapproving it was not the best solution.
Moreover, in view of the current political fiasco coupled with the COVID-19 pandemic, Guyana is now grappling with the effects – especially the economic impact on the economy. Businesses are shutting down, employees have been halved in some cases and the crisis would only worsen without a proper Government in place to address these issues. Regulatory relaxed measures have been forthcoming by the Central Bank on the monetary side, while little has been implemented on the fiscal side. In these respects, in the next nine months, Guyana is likely to experience its worst economic recession over the last two or three decades. As such, tremendous uncertainty lies ahead for the remainder of 2020 – also these events have only been compounded by a sharp dip in oil prices which means that the projected oil revenues for 2020 will drop from US$300 million to under US$100 million.
Countries around the world have responded to the crises engendered by the global pandemic – COVID-19, with appropriate economic rescue packages both on the monetary and fiscal side. The U.S government for example, recently approved a massive US$2 trillion stimulus package to address the impacts on the economy.
The question remains, however, are these measures sufficient to cushion the impacts of a crisis and for how long given the potential gravity of these crises? With this notion in mind, it is noteworthy to examine key economic indicators and contextualize some numbers under a few given scenarios. Assuming that COVID-19 is brought under some control over the next six to nine months and the political crisis is resolved within this time frame, the banking sector as of January 2020 has total liquid assets of $163 billion of which $93 billion represents the total reserves in the banking sector and $40 billion of this sum constitute excess reserves. Though the central bank has issued a directive to the financial institutions to not classify loans during this period as non-performing, the current state of the non-performing portfolio is close to some $30 billion. It goes without saying, therefore, that the existing portion of non-performing loans will only increase in value during a period of prolonged crisis. This $30 billion then, already eats into the $40 billion excess reserve – that is to say, the excess reserves in the banking system will evaporate in a period of nine months if the crisis period deepens.
Another good indicator to examine the liquidity strength of the banking sector is the loan to deposit ratio. This ratio shows a bank’s ability to cover loan losses and withdrawals by its customers. It also indicates whether the bank has adequate liquidity to cover loans in the event of an economic downturn resulting in loan defaults. The loan to deposit ratio currently stands at 56% (total loans of $254B /total deposits of $457B). An ideal ratio is about 80 – 90 % which means, if the local banking sector were to up this ratio to 90% – this will only translate to about $155 billion, provided that all things remain equal, to inject into the economy in the form of loans to cushion and/or stimulate spending and investment in the economy.
In terms of employment and income distribution, by looking at the last labour force survey, there were approximately 241,000 persons that make up the total employed workforce. If one were to take this number and multiply it by per capita income of US$4800, this will give an average of $250 billion in income distribution (at minimum wage) in the economy, which will work out to about $20 billion per month. Suppose about 25 percent of the working class are out of employment for the next nine months and/or earning reduced income perhaps by 50 percent, this would be about $180 billion or $125 billion in loss of income for the most vulnerable, working class people. Editor, this is only employment and the working class. We also have to consider the impacts on businesses which would need some kind of relief measures as well.
I have noted that some commentators have called upon the private sector to rise to the occasion and offer relief measures to the vulnerable. However, the private has already stepped up to the occasion in many respects but it cannot do this alone. The private sector pays billions of dollars in taxes and is the largest employer in the economy. This is a job for the Government which needs to roll out an economic stimulus package by simulating a number of scenarios.
If companies are not producing and the borders are closed, this means imports are down and exports are down, therefore, revenues are down. I anticipate that trade will be down by over 50 to 70% over the next nine months and companies’ revenues will be down perhaps by an equal or greater level than 70 percent. Hence, by factoring these variables into the equation, the country would need a stimulus package to the tune of over $500 billion alone aside from the normal national budget to manage the country and other developmental projects which is about $300 billion.
The 2020 budget, therefore, which may not come until November 2020 if the current deadlock with the elections continues, would have to be of a size almost close to a 100% of GDP – that is, $600 – $700 billion. Where are we getting this kind of money from? The Government deposit accounts at the Central Bank has racked up a deficit of over $80 billion which once stood at a surplus of over $15 billion in 2015. Oil prices will continue to be at record low levels as long as the global pandemic continues to keep countries in lockdown mode. If we factor the Central Bank deficit balance into the total stock of national debt, then this would bring the total stock of debt to over 60 – 70% of GDP and this does not consider the overdraft balance on the Consolidated Fund (CF) which stood at $137 billion up to 2017. I presume at this point the CF balance is perhaps close to $200 billion since the Finance Minister stopped reporting on the CF balance in 2017. Editor, these are recipes for bankruptcy and economic crises.
Editor, in summary, the dire need for a legitimate Government in place becomes more paramount to handle these matters. The Minister owes the nation clarity on the issues raised herein – on the $1 billion Ocean View hotel project. Greater and swifter efforts are needed for the crafting of an economic stimulus package. This is not the time for politics. All the politicians from all sides should have been working together on crafting an economic stimulus while quickly facilitating the national recount so that a legitimate Government can be installed quickly, a legitimate Parliament functioning and an Opposition to get on with the business of the country.
If we do not do this, the working-class people will suffer, businesses will collapse, people will starve, and the economy will crumble. The recovery will be a long haul if we do not fix our political economy quickly.
Yours faithfully,
JC Bhagwandin, MSc., Exec Ed.
MBA Lecturer, Consultant – JB Consultancy &
Associates