The People’s Progressive Party/ Civic (PPP/C) government yesterday tabled a $329.5 billion budget for the year 2020 projecting Gross Domestic Product (GDP) growth this year within the range of 48.4% to 51.2% but with the country’s overall deficit to increase to 6.5% of GDP.
The deficit represents 8% of projected non-oil GDP.
In 2019, the overall balance of payments registered a deficit of US$48.9 million, lower than the deficit of US$132.2 million in 2018 due to an increase in the capital account surplus, which offset an 11.5% expansion in the current account deficit to $29.9 billion.
Minister of Public Works, Juan Edghill, who presented the budget on behalf of President Irfaan Ali, stated that while the total revenue collected in 2019, $240.6 billion was $23.6 billion above that of 2018 there was still a widening of the current account deficit driven by an increase in total expenditure while the revenue increase was due mainly to tax collections.
Specifically 93.9 % of the 2019 current revenue, amounting to almost $226 billion, resulted from tax collection with non-tax revenue totaling $14.6 billion, 21.1 %, or $3.9 billion lower than the $18.5 billion collected in 2018. It was explained that non-tax revenue declined largely due to reduced profits from the Central Bank and lower transfers from statutory and non-statutory bodies while the $27.5 billion growth in tax revenue is attributed to greater collections from all tax divisions.
“Internal revenue, customs and trade, VAT and excise tax … increased by $15.9 billion, $2.9 billion, $4.6 billion and $4.1 billion, respectively,” Edghill explained.
In a clear attempt to justify his government’s reversal of several APNU+AFC tax measures, Edghill also explained that the growth in internal revenue was driven largely by withholding taxes, personal income tax and corporation tax from the private sector, which grew by $9.5 billion, $3.4 billion and $2 billion, respectively.
“Higher VAT collections was largely the result of growth in revenue from domestically supplied goods, which grew by 14.4%, or $3.3 billion. Growth in collections of excise tax is attributed mainly to higher collections on imports of petroleum products and motor vehicles. These grew by 10.5%, or $2.8 billion, and 17.7 %, or $1.2 billion, respectively,” he stressed.
Meanwhile, the increase in expenditure in 2019, $27.8 billion more than in 2018, was attributed to increased spending on personal emoluments, other goods and services, and transfer payments. These non-interest expenditure items grew by $16.6 billion, from $191.1 billion in 2018, to $207.7 billion in 2019 with personal emoluments growing by $9.1 billion.
Expenditure on interest payments remained stable at $8.5 billion, while capital expenditure grew by $11.2 billion, when compared with 2018, to reach $66.3 billion.
The Minister went on to note that in the first half of 2020, Guyana’s real economy is estimated to have grown by 45.6 %.
Overriding
According to Edghill there are two main overriding priorities in Budget 2020: bringing under control the spread of COVID-19, and opening up the economy and restoring economic activity to some level of normalcy.
“Reversing the downward trend is a priority,” he stressed, adding that Budget 2020 embodies a no-nonsense, no frills, no fluff, people-centred, pro-poor, results-oriented approach to launch this nation back on its positive development trajectory.
Presented under the theme “Our Plan for Prosperity: Pro-tecting our People in a COVID-19 Environment; Strengthening Democracy and the Rule of Law; Incentivising Economic Growth and Job Creation; and, Enhanc-ing Welfare”, the budget includes a slew of tax relief measures for the business sector which were announced on Monday By President Irfaan Ali.
VAT and duties will be removed from machinery and equipment to allow for the recapitalisation of the mining, forestry and agriculture sectors. Tax concessions will be granted for all terrain vehicles (ATVs) for mining, forestry, agriculture and manufacturing and VAT will be removed from fertilisers, chemicals, pesticides and key inputs in the poultry sectors. The poultry sector will also be reverted to a zero-rated VAT status.
Further there will be no more VAT on hinterland travel.
Despite these measures the majority of growth in 2020 is expected to be driven by the petroleum sector since the non-oil economy has so far contracted by 4.9 %, with significant declines recorded across many major industries.
The contractions have been attributed to both the protracted General and Regional Elections and the introduction of several emergency measures in the second quarter to curb the spread of COVID-19.
“These measures saw restrictions being imposed on the movement of persons and operation of non-essential businesses, which, in turn, led to a reduction in household income,” Edghill explained, adding that a surge in COVID-19 cases in August halted a phased relaxation of these measures.
According to the minister the need to constantly monitor and readjust emergency measures in response to the spread of COVID-19 amplifies uncertainty surrounding the economic performance of various industries therefore different forecasting scenarios have been used to peg real growth within a three percentile range while the non-oil economy is expected to contract by between 1.4 % and 4.3 %.
The overall balance of payments is expected to register a lower deficit in 2020, of US$21 million, compared to the US$48.9 million in 2019 due to a projected improvement in the current account deficit, which should offset an anticipated contraction in the capital account surplus.
Specifically the capital account surplus is projected to drop by 54.1 percent or US$956 million, to US$810.6 million, mainly due to a decline in medium and long-term capital while the current account deficit is expected to contract by 53.9 percent or US$971.1 million, to US$831.6 million.
Crude Oil
The reduced deficit in the current account is expected to result from higher export earnings, lower import payments as well as higher net unrequited transfers.
The exportation of Crude Oil in particular is projected to drive a 58.4 percent increase to US$2.5 billion in export earnings while continued growth is projected in the export earnings of rice and paddy, and gold, of 10 percent and 15.8 percent, respectively.
“These are expected to offset an anticipated decline in export earnings from the other sectors. Import payments are projected to reduce by 22.6 percent, to US$2.3 billion, while net unrequited transfers are projected to increase by 20.1 percent, to US$698.1 million, attributed to higher expected net inflows of worker’s remittances,” the minister stated.
He explained that the agriculture, forestry and fishing industries which contracted by 4.1 percent as a result of lower production in the other crops, livestock, forestry and fishing industries is projected to decline by between 0.1 percent and 2.3 percent in 2020. This is despite growth in the industries such as sugar which expanded by 10.4 percent at the half-year and is expected to grow by between 10 percent and 15.4 percent. In the rice industry, second crop production is anticipated to result in growth of between 2 and 3.5 percent.
“Expansion is also expected in the livestock industry, which contracted by 2.3 percent at the half-year [but] is expected to rebound in the second half to realise growth of between 0 percent and 2.4 percent in 2020. Similarly, the other crops, forestry, and fishing industries are expected to see improvements in the second half of the year: other crops is forecast to contract by between 1 percent and 3 percent, better than the decline of 4.7 percent at the half-year; forestry is projected to contract by between 11.8 percent and 15 percent, an improvement over the half-year contraction of 20.8 percent; and, fishing is projected to contract by between 3.5 percent and 10 percent, above the contraction of 12.1 percent at the end of June,” Edghill announced.
In the extractive industry, petroleum is expected to fuel massive expansion offsetting significant contractions in the bauxite mining and other mining industries.
Edghill noted that at the half year the sector had already expanded by 343.7 percent and is expected to expand by between 320.6 percent and 324.3 percent in 2020.
He explained that erratic production due to mechanical faults has made it challenging to project the outturn for petroleum but the daily rate of production is expected to be just under 87,000 barrels of oil well below initial projections of more than 100,000 barrels.
Also expanding is the gold mining industry which recorded a 2.1 percent growth at the half-year. While the two large-scale companies Troy Resources and Guyana Goldfields, together reported a 36 percent decline in production, from 2019, the output of small and medium scale miners, in response to higher prices, is expected to bolster production, pushing growth to fall between -2 percent and 0.7 percent.
Finally with the bauxite industry facing reduced global demand for its output and the stoppage of mining by one company, RUSAL, a contraction of 42.3 percent was recorded at the half-year. This industry is expected to contract by between 40 and 51 percent in 2020.
Similarly, the other mining industries also saw a significant contraction at the half-year, by 56.8 percent, as a result of lower demand. However, the resumption of construction activities is expected see improved output in the second half, resulting in a less severe contraction of between 20 percent and 30 percent in these industries.
In the financial sector the December 2020 12-month inflation rate is anticipated to range between -0.23 percent and 0.07 percent, while the average 2020 12-month rate is expected to vary between 0.49 percent and 0.54 percent.
The money supply is expected to amount to $530.9 billion, reflecting year-on-year growth of 15.1 percent while total private sector credit at the end of 2020 is forecast to reach $265.7 billion, 4.8 percent above the position at the end of the previous year.
Total public sector credit is anticipated to reach $121 billion, growing by 54.3 percent year-on-year. These are expected, amid the recently announced COVID-19 measures, to encourage borrowing by the private sector, as well as the continued implementation of the Public Sector Investment Programme upon approval of this 2020 National Budget.
Additionally the Minister explained that in 2020, Central Government’s current revenue is estimated at $226.5 billion, 5.9 percent or $14.1 billion, below 2019 collections, as a result of lower anticipated collections from both tax and non-tax revenue sources.
Specifically tax revenue, in 2020, is estimated at $214.5 billion, $11.4 billion less than the $226 billion collected in 2019. This is on account of reduced economic activity and the introduction of measures by the GRA to reduce the burden on both businesses and individuals, amid the COVID-19 pandemic.
Non-tax revenues are also projected to decline by 18.3 percent, or $2.7 billion, to reach $11.9 billion in 2020, on account of lower collections of rents and royalties, fees, fines and charges, special transfers and Bank of Guyana profits.
Meanwhile total expenditure is expected to increase by 13.4 percent to reach $320.3 billion in 2020, when compared with 2019. This position is mainly the result of anticipated expenditure for COVID-19 relief, and a growing Public Sector Investment Programme, Edghill stated.
Capital expenditure is projected to increase by 8.8 percent, or $5.8 billion, to reach $72.1 billion, in 2020.
Expenditure on donor-funded projects is expected to grow by 19.6 percent, or $3.7 billion, and locally-funded projects by 4.4 percent, or $2.1 billion. Increased expenditure on donor-funded activities will be driven by the transport and communication and construction sectors, and the locally-funded PSIP, by the power generation and health sectors, as a result of a $10.8 billion loan to GPL, as well as COVID-19 related expenditure.
Government is also expected to pursue a debt management strategy premised on contracting development financing and meeting debt service obligations at the lowest possible cost, over the medium- to long-term, within acceptable risk parameters.
“This approach would engender the continued sustainability of Guyana’s public debt, which totalled US$1.79 billion at end-2019, a 1.1 percent decline compared to the end-2018 position of US$1.71 billion,” Edghill noted.
He explained that this decline was attributed to reductions in both external and domestic public debt.
External public debt decreased by 1.3 percent, from US$1.32 billion at the end of 2018, to US$1.31 billion at the end of 2019, mainly on account due to a US$50.7 million debt reduction granted by Kuwait, after the finalisation and signing of a bilateral debt settlement agreement in March 2019.
The domestic debt stock declined by 0.7 percent, from US$386.3 million at the end of 2018, to US$383.6 million at the end of 2019, mainly due to principal repayments under a National Insurance Scheme (NIS) Debenture and on Treasury Bills (T-bills).
The public debt to GDP ratio at end-2019 was 32.6 percent, representing a 3.2 percentage-point reduction compared to end-2018. This ratio, according to the Minister, is expected to decline further over the short- to medium-term, in view of Guyana’s robust economic growth projections.
In 2019, total public debt service payments amounted to US$84.4 million, marginally lower than the 2018 figure of US$85.4 million. Domestic debt service payments amounted to US$6.3 million while external debt service payments amounted to US$78.1 million in 2019, 0.6 percent higher than the previous year.
