Last week, the temperature in several parts of Europe reached an all-time record high of 42 degrees Celsius, triggering massive wildfires in France, Spain, Portugal and Greece and causing thousands of residents to flee their homes. There can no longer be any denying that the soaring temperature, invariably described as the “heat apocalypse”, is linked to global warming and climate change caused mainly by increases in greenhouse gas emissions through the burning of fossil fuels. As of last Monday, the concentration of carbon dioxide (CO2) in the atmosphere was 419.04 parts per million, representing a 47 percent increase since the beginning of the Industrial Age and an 11 percent increase since 2000.
Here in Guyana, we are so preoccupied with and excited about the prospects of oil revenues overflowing the Treasury that we seem oblivious of the dangers ahead as regards the adverse impact the extraction and burning of fossil fuels has on the future wellbeing of the planet. The 11 billion barrels of crude oil discovered off Guyana’s shore, when extracted and burnt, will release approximately 4.751 billion tons of CO2 into the atmosphere. Despite this, the Government is aggressively pushing oil companies to produce as much oil as possible before the deadline for the Paris Accord on climate change reaches for switching to renewable sources of energy, even if it means sacrificing of longer term gains.
The Government argues that a larger share of oil revenues earlier would not benefit the country as it could introduce added inflationary pressures on the country’s economy. This is no doubt a reaction to calls from a wide cross-section of society for a renegotiation of the agreement with Exxon’s subsidiaries to enable the country to obtain a better share of its oil wealth. However, careful and prudent management of our oil revenues as well as making wise decisions on how they are to be used, are unlikely to result in inflationary pressures. For example, additional oil revenues could be used to eliminate of the public debt which stood at G$415.153 billion at the end of 2020, equivalent to US$1.991 billion; while annual interest charges of over G$6 billion, equivalent to US$28.8 million, could be avoided. The rest of the additional revenue (or part thereof) could be set aside for future generations. Regrettably, the Macro-economic Committee to advise the Minister on the Economically Sustainable Amount and the Fiscally Sustainable Amount that can be withdrawn from Natural Resource Fund, has been dispensed with under the new legislation.
The Public Accounts Committee (PAC) is currently considering whether to combine the years 2019 and 2020 in an attempt to clear its backlogged examination of the public accounts. However, Government members are insisting that these two years be examined separately on the grounds that: (i) a caretaker government was in place during the period January 2019 to August 2020 following the successful vote of no confidence and as a consequence, there is a need greater scrutiny of the related accounts; and (ii) there was no approved budget for 2020 until after nine months into the year. The PAC Chairman responded by stating that the Government’s statement implies that the examination of previous years’ accounts was not undertaken with the desired level of rigour and scrutiny.
The 2019 Estimates were presented to the National Assembly on 26 November 2018 and were approved before the end of 2018, days before no confidence vote was taken. The related Appropriation Act detailed the amounts to be withdrawn from the Consolidated Fund to meet the expenditure on government services. However, in view of the caretaker status of the then government, we had emphasized the need to exercise caution in relation to the incurrence of expenditure. In this regard, we had suggested that for current expenditure the one-twelfth rule should apply; while for capital expenditure, no new projects should be initiated. The then Minister of Finance had agreed with the suggestion and indicated that a circular would be issued to this effect.
Article 219(1) of the Constitution requires the Estimates to be presented to the Assembly within 90 days of the commencement of the fiscal year. (This is unlike Jamaica where such Estimates are presented to and approved by the legislature before the commencement of the fiscal year.) However, the 2020 Estimates were not presented to the Assembly until 9 September 2020. The situation is not dissimilar to what happened in 2015 when the Estimates were presented on 10 August 2015. The PAC is currently examining the combined years of 2015 to 2018. While we are not supportive of the Committee combining a number of years during the examination, it appears inconsistent for the PAC to scrutinize the years 2019 and 2020 separately when it did not do so in respect of the years 2014 and 2015.
It was in 2015 that withdrawals from the Consolidated Fund in excess of what the Constitution allows were made; while for 2014, the then Administration restored certain parts of the Estimates that the Assembly had specially disallowed. Withdrawals from the Contingencies Fund that did not meet the criteria set out in the Constitution and the FMA Act were also made. When judicial review was sought, the Chief Justice ruled that the Government had violated the Constitution. We had stated that the extent of breach of budget laws that led to the impeachment and removal of Brazilian President Dilma Rousseff pales in comparison with what happened in Guyana in 2014 and 2015.
If there is a need for greater scrutiny of the 2019 and 2020 accounts, the need was greater in respect of the years 2014 and 2015. However, the then PAC combined the years 2012 to 2014 in its examination, and there were significantly fewer sittings of the Committee compared with previous years. In fact, the examination was completed in 12 sessions, in contrast to 2010-2011 which took 52 sessions. This had led us to express the hope that the desired level of thoroughness/comprehensiveness so vitally necessary to ensure the proper accountability for the use of public resources, was in no way compromised. As regards 2015, the present Committee chose to include it in its combined examination of the years 2015 to 2018.
In principle, the PAC should examine one year at a time. For example, the audited public accounts for 2020 were issued some ten months ago. There is no reason why the Committee should not have completed its scrutiny of these accounts and issued its report to enable the Ministry of Finance to issue its Treasury Memorandum setting out what actions the Government has taken or proposes to take in relation to the findings and recommendations of the PAC. However, the work of the PAC has been stymied by the backlogged accounts to be examined. We had suggested that the Committee takes a two-pronged approach with the full Committee scrutinizing the most recent audited accounts; while at the same time a sub-committee is tasked with examining the backlogged years. Regrettably, this suggestion did not find favour with the PAC. The PAC needs to reflect on what useful purpose is being served by examining the accounts of these backlogged years, especially those that are over three years old. The audited public accounts for 2021 are expected to be finalized in two months’ time, which will add to the backlogged accounts to be examined.
In today’s article, we look at one of the most recent reports that assessed the state of Guyana’s economy. We refer to the Bank of Guyana Quarterly Report and Statistical Bulletin covering the first quarter of 2022. The other report, which was issued last month by the International Monetary Fund under the Article IV Consultation, will be the subject of another article.
Performance in the various sectors of the economy
The economy recorded a mixed performance in the major sectors. There was significant growth in the forestry sector while the mining and quarrying sector, bauxite, sand and stone as well as gold declarations recorded some positive growth. The manufacturing sector also recorded increased production; while with the removal of all COVID-19 restrictions, there was positive growth in the services sector.
In relation to oil production, there was a slight decline despite the start-up of production by the Liza Unity FPSO1 vessel. Both rice and sugar experienced declines in production by 53.1 percent and 47.7 percent, respectively. The significant decline in rice production was due to the effects of flooding in 2021; while sugar production decreased due mainly to mechanical problems at the Uitvlugt Estate factory that produces 25 percent of sugar output.
The report, however, did not mention the actual GDP growth during the period under review, especially the non-oil GDP growth which one suspects to be in the negative.
Inflation
The inflation rate at the end of March 2022 was 1.7 percent due mainly to increased prices in fuel and food items. In particular, food prices increased by 2.4 percent; housing by 1.5 percent; transport and communication by 1.3 percent; and education, recreational & cultural services by 1.0 percent. While we do not wish to question the accuracy of Guyana’s inflation rate, according to Trading Economics, Guyana’s inflation rate is 6.63 percent. (See https://tradingeconomics.com/ country-list/inflation-rate.) We also note that in Canada inflation in June was 8.1 percent, the highest in 40 years, compared with 8.6 percent in the United States and 8.2 percent in the United Kingdom. In Trinidad & Tobago, the inflation rate was 5.1%. The global inflation rate is forecast to reach 7.9 percent in 2022. (See https://www.euromonitor.com/article/global-inflation-tracker-q2-2022-energy-dependent-countries-under-pressure#:~:text=Under%20the%20baseline%20scenario%2C%20global,higher%20inflationary%20effects%20in%202022.
Balance of payments
The overall balance of payments recorded a deficit of US$132.0 million, compared with a deficit of US$55.1 million for the corresponding period last year. This was due to a higher current account deficit, despite an expanded capital account surplus.
The current account deficit was US$280.0 million, compared with a deficit of US$64.4 million for the previous year, on account of higher payments for both factor and non-factor services. The non-oil current account also recorded a deficit of US$233.7 million, 143.6 percent higher than the end-March 2021 deficit of US$95.9 million. This resulted from a higher non-oil merchandise trade deficit of US$345.6 million, compared with US$212.7 million a year ago.
The capital account reflected a surplus of US$144.1 million, compared with US$22 million at the end of March 2021. This was due to higher inflows to the private sector via foreign direct investment, despite outflows attributed to oil cost recovery by the oil and gas sector.
Exchange rate
The Bank’s weighted exchange mid-rate remained unchanged at G$208.50 during the first quarter of 2022.
Public debt
The total public debt, which comprises both external and local debts, increased by 4.0 percent to US$3,248.6 million, compared with the position as December 2021. Domestic debt increased to G$389.469 billion, or US$1,868 million, due to the increase in the issuance of Treasury Bills to finance Government’s operations.
The external debt decreased to US$1,383 million due to a decline in both multilateral and bilateral debt. However, higher debt service payments to both categories of creditors were recorded. External debt service payments increased by 3.3 percent, mainly due to increased principal payments as well as higher interest payments to multilateral creditors.
Domestic debt service payments decreased by 17.4 percent as a result of lower principal repayments on Treasury Bills, particularly, the 182-day Bill. Total domestic principal and interest payments amounted to G$24.004 billion and G$325.2 million, respectively. Domestic debt service payments accounted for 44.8 percent of government revenue.
International reserves
The Bank of Guyana international reserves amounted to US$678.8 million, equivalent to 1.2 months of import cover.
Outlook for 2022
The economy is projected to record real oil GDP growth of 49.6 percent while the non-oil economy is estimated to grow by 7.5 percent. According to the report, ‘[t]his significant growth is expected to be mainly a result of expansions in all major sectors of the economy, as all COVID-19 restrictions have been lifted, and the economy has been fully reopened. Additionally, output of oil is expected to greatly increase with the introduction of the Liza Unity’.
The end of year inflation rate is expected to be 4.1 percent.
The overall balance of payments is expected to show a surplus. This is due to an anticipated surplus in the current account arising from increased oil exports as well as higher export prices for gold and rice. However, the capital account is expected to reflect a deficit as a result of the outflow of oil cost recovery by ExxonMobil’s subsidiaries.
The total public debt is expected to increase to US$3,573.2 million due to increases in both domestic and external debt. The growth in domestic debt is expected to arise from the issuance of Treasury Bills to provide fiscal support; while the increase in external debt will reflect greater obligations mainly to multilateral creditors. Debt service payments are also anticipated to rise.
