Dear Editor,
In response to my letter of (25/01/25) Dr. Gampat carefully and selectively chooses the info to fashion his case. For instance, he selected the non-oil GDP as the approved metric to calculate the fiscal deficit and the import non-oil export gap. This, he claimed, contributed to the forex shortage. The pre oil era was quantitatively and qualitatively different from the current era. In 2020, the year oil production and exports began, overall conditions were extremely bad for the real non- oil sector. First, the economy was closed because of the COVID-19; secondly, there was uncertainty and unrest due to attempts to rig the elections and this was followed by adverse weather around the same period. Since most of the economic activities in the non-oil sector are labour intensive output was badly affected; further shocks to the domestic economy were compounded by external shocks, i.e., higher oil prices that moved from around US$30 per barrel to over 80 dollars. Shipping that is responsible for over 80 percent of world trade in goods was grounded and air transportation reduced. The oil sector was not affected since production was more capital intensive and export took place offshore utilizing the FPSO ships. It was only in the last two years that activity in the real non-oil sector began to recover to normalcy. Any baseline scenario must take into consideration the objective and subjective conditions of this period. Percentage movement alone does not give the full picture.
Dr. Gampat stated in the sixth paragraph of his letter that “BOG in pursuit of reserve targets and neglecting exchange rate stability caused the shortage of FX”. Is he arguing that the Bank should not pursue Reserve targets any longer? Gross International Reserve Target (GIR) equivalent to three months of imports target began when Guyana entered into a structural programme with the IMF in 1989 after experiencing a negative GIR of over US$500 million for years in the 80’s. The high volatility of commodity prices makes it especially challenging to maintain adequate reserves in the face of external terms of trade shocks. GIR provide the buffer for the Current Accounts of the Balance of Payments. Further the official exchange rate has been stable at GYD208.50 since 2018 after a slight depreciation of $2 Guyana dollars or around one percent. Despite the unmet demand that is inflated, the Net Foreign Assets of the Banking System was US $1,475 million at the end of 2024, an increase of 27.2 percent from 2020, commercial banks Net Foreign Asset was US$468.3 million an indication that there was adequate FX in the system. Dr. Ganpat stated that “during the eleven years from 2013 to 2023, the BOG purchased US $712.5 million from the market and sold US$ 273.2 million. This is a net withdrawal of US $273.2 million”. However, based on his numbers the net position should had been US$439.3 million (712.5-273.2) based on the calculation
Dr. Gampat stated that it does seem likely that imports by the oil economy are not captured by the data. However, the imports by the oil company will be captured by capital flows in the Balance Payments Capital Account under Foreign Direct Investment category. Despite the front loading of capital investments to address the infrastructure deficit, in 2025, the fiscal deficit is projected at 5.5 percent. This is below the 6 percent threshold that is considered sustainable. He further argued that I veered into extraneous stuff like power supply, health and education that had nothing to do with what he wrote. He was critical of the large expenditure in the budget. Therefore, I cited a few critical investments in the expenditure to show that the overall returns on the gas-to-energy project and human capital development will provide far greater economic and social returns in the future and will accelerate the transformation of the economy. Finally, over the medium-term Guyana had not experience any major macroeconomic instability I therefore remain positive that all targets will continue to be on track in the future.
Sincerely,
Rajendra Rampersaud
