Dear Editor,
Dr. Gampat letter dated 25/01/25 entitled “Budget 2025 could as a result of its overemphasis on spending lead to macroeconomic instability” is contradictory and not completely factual gives much food for thought. For instance, he stated that growth is an indicator of economic prosperity but that statement needs to be qualified in the case of Guyana for three major reasons: “less than 15 percent of oil revenue comes to the foreign local FX market, even though imports of the non-oil economy have soared 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 persistence shortage of FX is likely to continue in the future”.
First, the economic activity of the oil company cannot be limited to only to the payments of 2 percent royalty and the 50 percent split in profit oil that is equivalent to 12.5 percent. There is other economic activity that the economy benefited from like the backward linkages from local suppliers like the shore-based facilities, the banking sector, insurance, transportation, legal indirect link to commerce and other local suppliers that have a positive impact on the economy but not considered.
Dr. Gampat stated that imports of the non- oil economy soared while exports stagnated – in fact non-oil exports increased by 16 percent to US1.8 Billion in 2024 and is expected to increase to 2.2 billion or 20.7 percent in 2025 with rice and gold being the major performers in non-oil exports. His arguments that BOG withdrawing more forex from the market than it injects is unsubstantiated. Last year the Bank sold more than 300 million forex to all commercial banks while the Gross International Reserve of US 1 billion was accumulated by transfers from royalties, GRA, gold, and government external borrowing, further all oil import payments are made by BOG.
Dr. Gampat stated that “Government plans to spend a smaller share of TCGE on capital expenditure and more on nebulous category of “Other Charges”. However, a close reading of his published table shows the opposite with capital expenditure $ 737.68 billion and other charges being $ 416.57 billion. Moreover, higher expenditure in health $143.2 billion and education $175 billion is justified for higher human capital development. This is the means by which an economy becomes competitive and per capita income growth is sustained with higher standard of living without putting any pressure on BOP or fiscal balance.
The fiscal deficit to non-oil GDP of 14.4 percent was considered alarming by Dr. Gampat but the IMF considered a 15 percent deficit to non -oil GDP to be quite manageable and the same could argued on Guyana’s debt to GDP ratio that declined to 24.3 percent in 2024
Guyana is endowed with untapped natural resources in mineral, agriculture, forestry, fishing that can provide the basis for sustained economic growth. Sustaining the agricultural sector for higher growth would require more investment in physical infrastructure, human capital, and adoption of new technology. This would increase the food supply in both the domestic and regional chain. Lessons of best practice has shown that Malaysia and Indonesia have successfully promoted the development of agro-industrial subsector using a combination of subsidies and infrastructure investment to counter the effects of Dutch Disease.
Finally studies after studies showed that the two binding constraints to a vibrant manufacturing sector in Guyana is the poor quality of human resources and unreliable power supply, therefore an investment expenditure in the gas-to-shore project that can provide a long-term solution to unreliable electricity is most welcome.
Sincerely,
Rajendra Rampersaud
