Introduction
Four weeks ago, I had substituted my scheduled re-visit of the Buxton Proposal and its recommendations, for a more comprehensive appraisal of the premier position, which I have accorded to the goal of poverty reduction in the spending of Guyana’s expected windfall petroleum revenues and earnings. That decision I feel makes great sense as it was as recent as January 9 this year when I completed a 13 weeks long series of columns on the Buxton Proposal. Today’s column wraps-up this discussion by focusing on some of the policy prescriptions in the Systematic Country Diagnostic (SCD) in so far as they relate to cash transfers.
For starters, the SCD shares my oft-repeated concerns about data availability on these matters in Guyana. Indeed, through inventive use of Guyana’s 2006 household survey and its 2017 labour force survey, the SCD was in a position to discern the economy’s susceptibility to the Dutch Disease. Low labour absorption in capital intensive mining along with weak non-mining economic activity and loss of real exchange rate competitiveness in this period clearly do not augur well for macroeconomic performance in the future of a petroleum-driven economy.
In last week’s column, I sought to expand on my rationale for prioritizing poverty by invoking Guyana’s commitment as a United Nations’ Member State and consequently its global commitments to the Millennium Development Goals, MDGs, 2000-15; the Sustainable Development Goals, SDGs, 2015-30; and the UNDP’s Human Development reporting.
Key Diagnostic/Prescription
For purposes of today’s column, the key diagnosis and consequent prescription, which flows from the SCD’s empirical analysis and modeling of Guyana’s economic performance between the mid-2000s and the mid-2010s is as follows. On the one hand, natural resources exploitation led economic growth struggles to transform depletable natural capital into “1] inclusive economic growth, jobs, poverty reduction, and 2] human capital and its accompanying enhanced productivity and innovation- driven growth.” As the SCD further reasons: “there are two dimensions of public spending [that] will determine how effectively the government translates its oil-revenue windfall into sustainable and inclusive growth” para, 3 P 59. The two dimensions are: 1] spending on human capital development and 2] spending on social protection and cash transfers.
The two spending priorities are deemed critical for ensuring that the citizens of Guyana particularly the poorest and most vulnerable among them are not left behind. These two dimensions are further developed in what follows.
Human Capital
Human capital refers to the education, training, knowledge, skills, capabilities, experiences, attributes, creativity, health and well-being of the workforce, along with their developed tools, techniques and organization. All the features listed above contribute to worker productivity along with facilitating innovation; two main inputs into economic growth and development.
Based on the above description of human capital, the World Bank’s SCD offered the prescription cited above to the effect that in light of the emerging oil sector’s modest projected effects on job creation and non-oil economic activity, government spending and distribution policies will largely determine how the rise of the oil sector impacts the long -term economic trajectory. Spending on human capital is focused on health and education in the Report.
It is not the purpose of this column to pursue the evaluation of Guyana’s human capital in depth. Indeed, the SCD has done so in some detail and in the process of so doing has made its low level of development apparent. Thus, low life expectancy and poor nutritional status at early childhood dramatize the comparative deficits in comparison to Guyana’s Latin American and Caribbean neighbours. Similarly, low human capital in education has constrained individual mobility within Guyana. What has become clear from the SCD is the need to prioritize government planning and spending in health and education. Of course, here it is not merely the dollar amount of government spending that is crucial, but its quality, efficiency, equity, and consistent application of best practices in its delivery.
From the above we can see the case has been clearly made in the SCD that low human capital will set constraints and limits to positive spillovers into the non-oil sector. And in the next section I indicate the SCD’s stance on the second of its two identified dimensions for recommended government spending.
Social Protection and Cash Transfers
As indicated above, spending on social protection and cash transfers are priority areas recommended by the SCD and therefore I posit consistent with the thrust of the Buxton Proposal; itself a cash transfer mechanism. I should make it pellucidly clear at this juncture that, my recommendation for the Buxton Proposal is not intended to indicate either an implicit or explicit rejection of any other spending priority proposal. The budget constraint attached to the Buxton Proposal makes this evident [that is a limit of ten percent of Government of Guyana annual oil revenues].
Based on its comparative analysis of oil-producing countries’ experiences, the SCD describes social protection as effectively: 1] the facilitation of re-distributive policies and 2] support against the adverse effects that accompany expansion of oil economies. It goes on to identify from this comparative evaluation a suite of five common types of social protection modalities practiced among oil producers. These mechanisms are: 1] universal direct transfers mechanisms; 2] targeted transfer mechanisms, to the poor and vulnerable; 3] targeted transfers, to those adversely affected by the oil boom; 4] subsidies and taxes; and 5] provision of government jobs.
Conclusion
Mechanism 1 is in effect a Buxton-type proposal. Indeed, the SCD describes it as “a universal direct cash transfer intended to eliminate perverse incentives that can undermine public expenditure efficiency in oil-rich economies”. Such schemes work best when the institutional framework and governance support them.
