Dear Editor,
Guyana narrow economic base has once again exposed its vulnerability to a combination of domestic and external shocks. The year began on a high note with the flow of first oil and the high expectation of the arrival of nirvana. However, less than three months into the year this premature optimism was quickly shattered as the economy now enters the most unprecedented economic, political and social crises.
Guyana’s economic performance was always dependent on the production of a few primary commodities whose fortunes fluctuated on the vagaries of the world market. With oil production coming on stream the economy was projected to grow by 85.6% this year followed by a growth rate of 8% in 2021 and 3.2% in 2022 respectively. The steep decline in projected growth explains the volatility of output. The problem is compounded by the narrow economic base and that the national income account has not been fully rebased to factor in oil production. Oil prices started trending downward in the first quarter and by middle of this month it was negative US$37. Meanwhile, the World Bank late last month revised Guyana growth rate downward to 51.7% in 2020 with the spread of the Covid-19 pandemic and a decline in commodity prices. It is expected to be further revised downward as the declining trend continues with the impact of the Covid-19 pandemic, decline in terms of trade, and the political uncertainty drags out as manifested by the continued attempt to unleash electoral fraud in Guyana.
The latest issue of the World Economic Outlook predicts that global growth will be a negative 3% this year with the world economy already in a recession. This will have a devastating impact on commodity prices especially oil and minerals. Based on the futures market the average petroleum spot price per barrel is projected at US$35.60 this year and US$37.90 next year painting a rather gloomy picture since the break-even point for oil production in Guyana is around $35 per barrel. However, food and gold prices are looking positive. The price of gold is expected to top the US$3000 per oz mark as Central Banks and investors scramble for gold as a safe haven investment away from fiat currencies and bonds. The raw sugar futures price moved upward by 12% in February due to lower production in Brazil, India and Thailand along with the low sugar stock, and a decline in demand for fructose corn sweetener. The APNU+AFC government’s decision to close three factories and dismiss over seven thousand sugar workers can be viewed as the most atrocious economic policy ever. With Britain’s imminent exit from the European Union the market for Guyana’s sugar would have been even more lucrative not to mention the protected Caribbean sugar market. Guyana is self-sustainable in food production thanks to rural farmers as a large number of countries that are dependent on food importation have to grapple with numerous obstacles and food shortages.
The output level will be lower after full incorporation of the impact of the present multilayered crises in Guyana. Lower production and prices will further impact negatively on the IMF estimated current account deficit of US$1483 million equivalent to 22.7% of GDP in 2020. Moreover, remittances have been miniscule currently due to the pandemic in western countries. This is a source of large transfers to the economy that averaged over US$200 million in the past years.
Despite a projected GYD 48.1 billion flow in oil revenue the fiscal deficit would have been GYD 20.3 billion in 2020. The lower oil prices will not only affect the fiscal imbalance but also the gross international reserves.
During the last two years government has financed its fiscal spending by accumulating domestic debts and widening of the overdraft on the consolidated fund. Domestic debt has been rising at a fast pace in the last two years as Guyana’s overall debt to GDP has breached the 55% debt to GDP threshold ratio. It should be noted that both the high external and primary deficit were responsible for the crises of the 80’s that led to the massive devaluation of the Guyana dollar. Further, the IMF (2019) pointed out that government spending on capital stock had an efficiency ratio of 41%, the lowest in the region due to weakness in budgeting, planning, implementation and procurement of capital projects. It is therefore not surprising that projects in Guyana will hardly last half of its shelf life. This is a direct cost on hard- earned tax payers dollar and tantamount to squandermania.
Finally, never before has the prediction for the future been so gloomy and blurred as the economic and Covid-19 crises continue with no clear indication for an early end. Limited diversification of Guyana’s economic base has fuelled the rapid transmission of domestic and external shocks to the economy. The economic and social crises have delivered a devastating blow to Guyana’s economy. This process is further complicated by the most notorious and glaring attempt to rig the national election, if this process is not halted Guyana will sink as the poorest country in the Western Hemisphere with a reversal of any economic and social gains.
Yours faithfully,
Rajendra Rampersaud
