On Friday, 12 February 2021, the Minister responsible for Finance presented to the National Assembly the Estimates of Revenue and Expenditure for the fiscal year 2021. The presentation was made within the 90 days deadline set by Article 219(1) of the Constitution.
Prior to 2015, the Estimates were presented close to this deadline. Taking into account the general debate that followed and the detailed consideration of the Estimates by the Committee of Supply, it was not until the end of April that the Estimates were finally approved. Budget agencies therefore had eight months to execute a 12-month programme, particularly in relation to capital expenditure. This practice to a large extent explained the tendency towards the acceleration of expenditure in the last quarter of the year to exhaust budgetary allocations. In the circumstances all sorts of irregularities took place, including significant breaches of the Procurement Act; overpayments to suppliers and contractors; defective work performed; short or non-supply of goods/services; drawing cheques close to the end of the year for the procurement of goods/services and the execution of works although full value was not received; and failure to pay over to the Consolidated Fund all unspent balances. This does not suggest that these irregularities did not continue through the years 2015 to 2020.
In 2015, a Budget Transparency Action Plan was developed and implemented with effect from 2016. One of the items relates to the early presentation and approval of the Estimates prior to the commencement of the fiscal year. For the years 2017, 2018 and 2019, the Estimates were presented to and approved by the Assembly before the commencement of the fiscal year. However, in view of the political situation that the country was faced with following the vote of no confidence in the Government, the 2020 Estimates were not presented until September 2020. It is therefore completely understandable that for 2021 the Estimates could not have been tabled earlier.
Now that the situation has been normalized with a functioning legislature in place, the hope is that the 2022 Estimates will be presented to and approved by the National Assembly before year-end, as there are obvious benefits to be derived from an early budget. By that time, the Public Accounts Committee (PAC) should be able to bring its examination of the public accounts and reporting to the Assembly up to date so that the Assembly can benefit from the Committee’s findings and recommendations during the consideration of the Estimates. Indeed, it would seem undesirable for the Assembly to approve of the Estimates for any one year in isolation of a detailed consideration of how well the Executive has performed in the preceding year in the utilization of funds that Assembly had approved, especially as regards the achievement of the planned outputs, outcomes and impact. The PAC’s last report was in respect of years 2012-2014.
The current attempts to remove the PAC Chair because of certain alleged irregularities in his capacity as a former Minister, if not resolved quickly, is likely to stymie the PAC’s efforts to bring its work up to date. It is good that the matter has since been referred to the Integrity Commission, the competent body to deal with breaches in the Code of Conduct for public officials. However, the life of the Commission expired as of yesterday. It is hoped that the Authorities will act with expedition to appoint the members of the Commission to avoid any undue delay in the execution of the Commission’s mandate.
In today’s article, we highlight the performance of the economy in 2020 and budget proposals for 2021, as contained in the Minister’s budget speech.
Real GDP growth
In 2019, Guyana recorded a Gross Domestic Product (GDP) growth of 5.4 percent, with non-oil growth accounting for 4.3 percent. The projected total growth for 2020 was 26.2 percent while non-oil growth was expected to decline by 1.4 to 4.3 percent.
The actual growth for 2020 was 43.5 percent while the non-oil growth declined by 7.3 percent. This performance must be viewed against the backdrop of the stalemate over the 2020 elections as well as the severe impact of the COVID-19 pandemic, which would have had a significant adverse impact on the economy. The International Monetary Fund had projected a contraction of the global economy in 2020 by 3.0 percent, the worst since the Great Depression of the 1930s. Leaving aside the oil-related growth, Guyana’s performance in 2020 was significantly below the global average. Except for rice, the mining and quarrying, and electricity water sectors, all the other areas of the economy have shown a decline in growth.
Balance of Payments
This is the net effect of trade in goods, services and capital between a country and the rest of the world. A positive balance means that the value of exports exceeds that of imports. It has the benefit of boosting production and hence employment. On the other hand, a negative balance indicates that the country is a net consumer rather than a net producer. If this negative balance persists, it has the effect of increased borrowings and hence the country’s indebtedness. It can also put pressure on the country’s exchange rate.
The Balance of Payments has three components – the Current Account, the Financial Account and the Capital Account. The Current Account essentially reflects transactions in goods and services for short-term consumption. The Financial Account records foreign ownership of domestic assets as well as domestic ownership in foreign assets. An increase in the former adds to the balance on the Financial Account, while an increase in the latter has a reverse effect. The Capital Account reflects transactions of a capital nature, or investments, which have long-term implications.
The Current Account reflected a deficit of US$1.803 billion at the end of 2019. This deficit was projected to reduce to US$831.6 million in 2020. The actual deficit at the end of 2020 was a $651.7 million. One the other hand, the Capital Account at the end of 2019 reflected a surplus of US$1.767 billion with a projected surplus of US$810.6 million at the end of 2020. The actual surplus at the end of 2020 was US$720.9 million.
Taking the above into account, the Balance of Payments Account reflected a surplus of $60.6 million at the end of 2020, a significant improvement over 2019.
Inflation
Inflation was 0.9 percent, compared with 2.1 percent in 2019.
Interest rate
Interest rates remained low throughout 2020. For small savings, the rate was 0.91 percent, while the lending rate was 8.96 percent. The 91-day, 180-day and 364-day Treasury Bills attracted rates of 1.54 percent, 1.0 percent and 1.0 percent, respectively.
Exchange rate
The official exchange rate between the U.S. dollar and the Guyana dollar remained stable at G$208.5.
Revenue and expenditure
A fiscal deficit of G$90.5 billion was recorded in 2020, representing 9.4 percent of GDP. In 2018 and 2019, the fiscal deficits were G$19.4 billion and G$17.4 billion, respectively. Current revenue amounted to G$227.4 billion while Central Government expenditure was G$325.5 billion, inclusive of capital expenditure of G$76.1 billion.
On several occasions, we bemoaned the fact that the Government continued to record large fiscal deficits. In fact, during 28-year period from 1992 to 2020, there were only four occasions when a fiscal surplus was recorded: 1994, 2006, 2010 and 2011. Further analysis revealed that during the period 1992 to 2013, the total recorded deficit was $103.525 billion, giving an average annual deficit of $4.706 billion. In contrast, during the period 2014-2020, the total recorded deficit was $248.087 billion, giving an average annual deficit of $35.441 billion – a more than seven-fold increase. These deficits have resulted in the cumulative increase in the overdraft on the Consolidated Fund held at the Bank of Guyana from G$26.136 billion at the end of 1992 to an estimated G$262.327 billion at the end on 2020.
Public debt
By Article 222 of the Constitution, the public debt of Guyana and the servicing of that debt are a direct charge to the Consolidated Fund. The Fiscal Management and Accountability Act defines it as the indebtedness of the State. Public debt is generally taken to mean those debts contracted by Central Government that are to be serviced from the Consolidated Fund and do not include the debts of the Bank of Guyana and other of parastatal organisations.
The total public debt at the end of 2019 was U$1.689 billion, the external portion accounting for US$1.305 billion. It was projected to rise to US$1.762 billion by the end of 2020. According to the Minister, the actual public debt was $US$2.592 billion, an increase of US$903 million or 53.5 percent. This amount includes: (i) US$2.4 million in publicly-guaranteed debts; (ii) Central Government accumulated overdraft at the Bank of Guyana; and (iii) an outstanding liability of US$67.5 million or G$14.1 billion relating to the Government-guaranteed bond issued by the National Industrial and Commercial Investments Ltd. According to the Minister, this guarantee has been classified as domestic debt because the Government was required to meet the debt service obligations under this bond in 2020.
In our article of 14 September 2020, we had estimated the overdraft on the Consolidated Fund at G$262.327 billion as at 31 December 2020, equivalent to US$1.258 billion. In order to compare the total public debt at the end of 2020 with that of 2019, we need to deduct from the figure of US$2.592 billion, amounts totalling US$1.328 billion (US$2.4 million + US$67.5 million + US$1.258 billion). This gives an amount of US$1.264 billion, a reduction of US$425 million over the recorded public debt at the end of 2019. This does not appear to be correct, considering that some new debts were contracted by the APNU+AFC Administration during period January to July 2020, not to mention those that might also have been contracted under the New Administration. If, on the other hand, the figure of US$2.595 billion is correct, some of the debts might have been written off or repaid. A clarification from the Ministry of Finance will therefore be most welcome.
To be continued –
