Dear Editor,
Guyana’s oil export led growth model leaves important gaps in Government financing that could pose sustainability threats for whichever Government is in office. One has to go back to fundamentals and ask if the engine of growth makes any contribution to the Central Government’s current or capital budget, beyond its 2 percent Royalty that Guyana is entitled to.
Royalty payments should go into the Consolidated Fund as current tax receipts from the Oil Industry.
Import taxes, value-added, import duties on Goods are duty free on the input side. On the output side, profits made on the sale of crude oil are also waived at zero percent. So too are the internationally recommended windfall profits tax. There is zero support to Government’s infrastructure projects/contracts from the country’s taxes.
A regular Export-led growth economy should generate current tax revenues to support current expenditures. As of end-2023, Guyana’s current tax revenues were G$ 366,615 million. Its current expenditures were G$ 369,990 million. If oil profits were taxed at a reasonable rate comparable to neighboring Suriname, Guyana’s Current Tax Revenues would exceed its Current Expenditures and generate a Surplus to help fund its Capital Expenditures on roads, bridges, and buildings, etc.
Guyana is left with no alternative but to use up its National Resource Funds (NRF), to build roads, bridges, wharves, sea defenses, buildings, and other infrastructure in health, education, public transportation, etc.
The NRF should be a true savings Fund that lends money to Government or the private sector to be paid back, while earning interest income for Guyanese as their ‘dividends’ or patrimony from oil wealth. In Kuwait, for example, my student told me that their nationals receive income from birth.
Guyana’s Capital Expenditures in 2023 were G$421,819 million. Transfers from the NRF, Guyana’s cash savings, amounted to only G$208,422 million. This forces Guyana to borrow to fill its infrastructure spending gap, instead of using its profits tax that now goes to the oil companies. Guyana pays their taxes due on profits. The Export-led growth model praised by international bankers, does not generate tax revenues to allow Guyana to create a self-sustaining economy on account of that 2016 Petroleum Agreement that grants zero profits tax on accelerated production of crude oil.
Sincerely,
Ganga Persad Ramdas