Dear Editor,
On July 29, Stabroek News published a letter titled `Economy not on verge of collapse, outlook is for real economic growth in excess of 40 percent’ by Minister of Finance Winston Jordan. Mr Jordan was responding to a letter I wrote on July 22, 2020, and which was published by multiple newspapers and an interview I did with the Guyana Diaspora News in which I called out the Granger administration for its policy failures and for leading the economy into an avoidable disaster that would certainly be made worse by the novel COVID-19 pandemic. In his missive, the author laboured, albeit unsuccessfully, to defend the Granger administration and in the process has dug himself a deeper hole. Some of his contentions warrant a response for they are both dangerously misleading and in violation of financial logic and economic reasoning.
If any country, let alone Guyana, can deliver economic growth of 40 percent in a year without a national budget, without a parliament, without a legitimate government, at a time when the global economy is projected to contract by 5 percent, and the Latin American and Caribbean region is projected to contract by 10 percent, then this is the end of economics, government, and policymaking. I suppose we can finally get rid of these institutions because when we have them, we get annual growth not more than 5 percent. Is this seriously what the author wants Guyanese to believe? Or is there another perhaps uncommon explanation for this apparent economic miracle.
Perhaps the author should tell the public that the 40 percent growth that he is referring to is almost entirely the value of oil that will be produced this year by oil companies and has almost nothing to do with the rest of the economic sectors, job creation, household income, and poverty reduction. Both the World Bank and the IMF forecast economic growth of about 50 percent because of oil and gas production. These estimates, however, are based on many assumptions including the existence of a legitimate government, a parliament, and a national budget. The absence of these institutions not only undermine these projections, but it also spells unimaginable economic disaster and hardship for the country.
Without any evidence, the author claims that the economic growth of 2019 persisted in the first quarter of 2020. In my previous article, I pointed out that the Bank of Guyana March 2020 report does not have real sector data and the Bank could not say with any degree of certainty what is happening in these sectors. Instead, the author hopscotched around the COVID-19 pandemic citing that the first case was reported in March and several emergency measures were implemented and would have stymied economic growth since then. I must reiterate that while the first COVID-19 case was reported on March 11, 2020, the emergency measures were not effective until June 2, 2020. Therefore, COVID-19 has nothing to do with the distressed state of the economy at the end of the first quarter. No amount of hopscotching will change this fact.
The author claims that the government invested heavily in the agriculture sector and worked alongside the private sector to catalyze the manufacturing sector. However, the data shows a different story. Total allocations for agriculture in 2019 were less than 6 percent of the national budget compared to 12 percent in 2015. As a result, the agriculture sector shrunk from about 20 percent of GDP in 2015 to 16 percent in 2018 (the most recent data available). The infamous argument for closing half of GUYSUCO and leaving thousands of families jobless, against the express advice of the Granger-appointed Commission of Inquiry, is that the company is draining public revenues. But this argument falls on its face when you consider that the government increased funding for the Ministry of Presidency from about G$6 billion in 2015 to more than G$12 billion in 2019 and the Ministry of Finance from G$24 billion to G$36 billion in the said years. These decisions demonstrate that, far from the political rhetoric, agriculture and the livelihood of farmers were never a priority of the Granger administration.
Perhaps the most disappointing aspect of his missive is the reliance on the total import of consumption goods as a proxy for overall consumption. Why use a proxy when the Bank of Guyana report provides the actual and disaggregated data for consumption? Then again, poor choice of measurements and analysis appear to be a recurring challenge for the author. It is no secret that since 2015, the Granger administration has spent extravagantly. But whether that spending led to higher consumption in households is a separate question to which the answer is a resounding no. Total private consumption at the end of 2019 is the second-lowest in almost a decade; it declined by more than $63 billion or 12 percent from 2015. In other words, while the government spent lavishly over the last few years, that spending did not trickle down to ordinary families. The impact of the COVID-19 pandemic and the ongoing election crisis would undoubtedly make the situation memorably worse in the months, quarters, and possible years ahead.
The author argues that “the pandemic would have led to many households and businesses changing their spending priorities and patterns”. This statement epitomizes the poor understanding of the financial impact of the pandemic on families and businesses. It is the same poor understanding of taxation policies that have defined the Granger administration. Families are losing their jobs and income stream at an alarming rate; some families are already going with fewer meals per day and having to live with sickness because they cannot afford needed care. Unfortunately, the stories of these families are not reflected in the author’s 40 percent projected growth. Since taking office, the government increased the non-taxable income threshold from $600,000 to $780,000 – that undoubtedly put more income in some taxpayers’ pockets. But this policy did nothing for most families that are struggling to survive on income less than $600,000, who are living in poverty, are unemployed, or are underemployed. Unfortunately, these same individuals have to fork out monies that they do not have or from their limited income and give it to the government because of VAT taxes that were added to water, electricity, education (which was later removed), and other draconian increases in fees and service charges. These families, who are the most vulnerable in our society, were not made better off, they became burdened by these taxation measures while the government enjoyed “the good life” lifestyle.
To argue that the economy is well-managed while savings are depleted, and assets are depleting evade financial and economic logic and are understandably indefensible. Instead, the author settled for evading the issue and any responsibility for it entirely by stating that the downward trend in the government deposits accounts started in 2011 after deposits peaked at $68.7 billion in 2010. But this is also another failure that sits almost entirely with Granger’s leadership. It was APNU that controlled parliament since 2011 and parliament controls the public purse. Legitimately and constitutionally speaking (since we are outside of both realities) no public monies can be spent without parliament’s approval.
The question therefore is what did APNU do with its majority in parliament? It delayed the passage of the national budgets and repeatedly slashed allocations for critical public services like education and health under the Ramotar Administration. These decisions were not without consequences, they starved the economy of necessary and timely fiscal outlays which forced the then government to draw down on the savings. The Ramotar administration can rightfully point to its lack of control of parliament which stymied its policy agenda, public and private investments, economic growth, and growth in tax revenues. What is the Granger administration’s excuse for squandering more than G$100 billion in savings even as it collected about G$350 billion “more” in taxes than the previous administration?
I do agree with the author that we must refrain from making statements without providing context for readers. To the extent that I have fallen short of this ideal, I can assure the author it will receive my full attention.
Yours faithfully,
Dhanraj Singh
Economist and Executive
Director
Guyana Budget Policy Institute
