Dear Editor,
I have become deeply skeptical about the government’s receptiveness to comments and analyses by the Guyanese public and the Diaspora. Here I do not pretend to analyze Budget 2025: its internal consistency, synergies and linkages, how growth poles are nurtured, whether it is pro-poor or pro-growth or whatever. That is a useless exercise as the PPP Government has already decided what it – not the public – wants. Instead, I’ll jot down several issues that directly derive from or bear upon Budget 2025.
• Budget 2025 will spend G$1.1382 trillion (US$6.629 billion), surpassing Budget 2024 (G$1.145 trillion or US$5.496 billion) by G$236.288 billion or US$1.133 billion. That’s a 20.6 percent increase far more than real non-oil GDP growth (11.7 percent)
• The revised 2024 Budget is G$1.187 trillion (US$5.696 billion) or 3.6 percent larger than what was budgeted. That’s a common, perhaps strategic, feature of Guyana’s budgets: actual spending larger than budgeted
• How big is the Central Government? It will account for about 63 percent of current non-oil GDP, up from around 57 percent in 2024. Since Central Government spending is done in the non-oil economy and since more than 85 percent of oil GDP is siphoned off by oil companies, non-oil GDP is the appropriate metric
• The message of Budget 2025 is “A Secure, Preposterous, and Sustainable Guyana;” for 2024, “Staying the Course: Building Prosperity for All;” for 2023, “Improving Lives Today, Building Prosperity for Tomorrow;” for 2022, “Steadfast Against All Challenges, Resolute in Building Our One Guyana;” for 2021, “A Path to Recovery, Economic Dynamism and Resilience”
• Budgets from 2021 to 2025 convey a simple message: the PPP Government is building a prosperous, secure and resilient Guyana. Judged by economic growth, real GDP (oil + non-oil) expanded by 144.6 percent during these four years, an incredible achievement, made possible by the discovery and export of oil. The oil economy grew at 396.2 percent, the non-oil economy at 40.3 percent. Considered by itself, growth is an indicator of economic prosperity, but that statement needs to be qualified in the case of Guyana for three major reasons: less that 15 percent of oil revenue comes to Guyana; there are no indicators of how the prosperity is shared although there is some evidence of rising inequality; and the oil economy imposes a serious constraint on the non-oil economy: it does not inject much, if any foreign exchange into the local FX market, even though imports of the non-oil economy has soared and export stagnated. To compound the situation, the Bank of Guyana, pursuing reserve targets, withdraws far more FX from the
market than it injects into it. Hence, the persistent shortage of FX is likely to continue into the future
• Budget 2025 projects the overall economy will expand by 10.6 percent, the IMF by 14.4 percent, compared to 43.6 percent in 2024. Interestingly, the non-oil economy is expected to grow by 13.8 percent, higher than 2024 (13.1 percent). The slow-down mean that the oil economy will account for 74.4 percent of overall GDP, down from 75.1 percent in the previous year
• Government plans to spend a smaller share of TCGE on capital expenditure and more on the nebulous category of “Other Charges” (see table). However, the dollar amount of capital expenditure is larger (by 10.7 percent)
• Presentation of the Estimates makes it extremely difficult to tell what portion of capital expenditure goes to expanding the country’s capital stock and what portion is spent on “support,” such as furniture, miscellaneous, studies, “provision for buildings,” policies and planning, etc.
• Appendix III of Budget 2025 shows “Central Government Financial Operations,” which is an overall summary of revenue, expenditure and overall fiscal balance. As I have argued in “The Guyanese FX Market” (2024), the relative size of the fiscal deficit must be gauged in relation to non-oil GDP and not total (overall) GDP, which is the metric the Ministry of Finance (MoF) uses. Including oil GDP leads to a smaller relative size of the deficit than if gauged by non-oil GDP
• External grants, which counts as revenue, help to reduce the absolute size of the fiscal deficit. Since grants do not have to be repaid, the focus should be on the portion of “Overall Balance” that has to be funded (by borrowing abroad or domestically). This portion is known as “Overall Balance” after grants (Appendix III)
• The after-grant fiscal deficit is low, less than 6 percent of total GDP in 2023 and 2025, down from 7.3 percent in 2024. My calculations using total GDP are roughly the same as the MoF
• A more accurate and more alarming picture emerges if non-oil GDP is used. By this metric, the fiscal deficit rose from 13.5 percent in 2023 to a projected 14.4 percent in 2025
• How is the fiscal deficit financed? By borrowing. In 2023 and 2024, three-quarter of the deficit was funded by borrowing domestically. The current year radically changes that pattern: the government is projected to cover 94.3 percent of the red ink by borrowing abroad
• A quarter of Central Government expenditure was covered by drawdowns from the NRF in 2023, rising to 27.8 in the next year. For the current year, government is expected to remove a larger amount so that drawdowns will fund 37.1 percent of its expenditure. Even more alarming, Appendix V of Budget 2025 projects that almost all deposits into the NRF in 2025 will be withdrawn (deposits, US2,564.1 million, withdrawals, US$2,463.9 million)
• Guyana’s external debt stock (EDS) jumped from US$1,392.8 million in 2021 to a projected US$3,689.4 in 2025, a rise of 165.0 percent. The domestic (public) debt stock (DDS) expanded from US$1,731.5 million to 3,947.5 million during the same period, an increase of 128.0 percent. Total public debt (EDS+DDS) increased from US$3,124.3 million to US$7,636.9 million, a rise of 144.4 percent. The EDS, DDS and TPD are expected to rise by 27.5 percent, 64.8 percent and 27.5 percent in 2050 compared to 2024.
• A central reason for relying more heavily on external borrowing and the NRF is to contain inflation. On the other hand, external borrowing and NRF drawdowns could do the opposite: that is, constrain the government’s ability to contain inflation if the government uses drawdowns from the NRF to monetize the deficit. Money supply rose by 25.3 percent in 2024, up from 24.8 percent in the previous year. That money supply grew at more than twice the rate of non-oil GDP should be a cause for concern.
One clear take-away is that the level of government spending is unsustainable and risk unleashing macroeconomic instability.
Sincerely,
Ramesh Gampat
