The Irfan Ali Government has just laid its first “full year” budget before the National Assembly – and the Guyanese people. Since the administration has another four budgets to go before the end of its term, we should be able to get a sense of what is in store for us within that time frame from this inaugural effort. While the Government has followed tradition and consulted a wide cross-section of the society through their institutions, a budget should not be a series of disjointed ad hoc measures.
Rather, it should be a comprehensive plan that takes into account a forecast of revenues into the Government’s coffers and how it will be spent to satisfy the objectives the Government has set for itself. One of the problems of the now departed PNC-led coalition Government was that they never articulated a clear and coherent plan for the development of the country through their budgets. But while a budget should be “visionary”, this certainly does not mean that it should be some airy-fairy dream, but rather should take into cognizance the ground realities.
As far back as the 19th century, then British PM Gladstone had pointed out that budgets: “are no longer affairs of arithmetic but in a thousand ways go to the root of prosperity of individuals, the relations of classes and strength of kingdoms”. Very broadly, the objectives of a budget in a free enterprise economy fall under six headings: The various objectives of government budget are: the reallocation of resources among the various sectors; reducing inequalities in income and wealth through redistributive policies: stabilising the economy: managing public enterprises; fostering economic growth and reducing regional disparities. In the case of Guyana, the PPP Government had to take into consideration the COVID-19 pandemic, which has curtailed economic activities in every country in the world.
We can start with the revenues that the Government is expecting to generate to cover its historic $383.1billion spending. We have to appreciate that while Government expenditures are designed to improve the public welfare, the revenues come mostly from taxes that lighten the pockets of individuals and businesses. Last year, for instance, we were informed that 98% of the Government’s revenues came from taxes, which means that the average citizen’s spending power was severely diminished. Unlike the PNC coalition – which was clearly a “tax and spend” Government – the Minister of Finance declared that not only would there be no new taxes, but that a host of taxes that fell on citizens and businesses have been curtailed. This was to deal with both the ravages of the pandemic in restricting income and the need to stimulate business activity in a bleak global economy.
In the event that Government expenditures exceed revenues, the shortfall or “deficit” (9% projected) is usually covered by governmental borrowing from domestic and external sources. Fortuitously, we now have income accruing in our Natural Resource Fund (NRF) – presently some US$208M – that can be tapped. However, the legislation governing the use of the Fund – which is lodged at the NY Fed – needs to be amended, and the fund would therefore not be immediately available. But the Minister projects that the oil production is now at its optimum output from Lisa 1 and revenues from oil – with prices rising – should be significantly larger. The projected growth of the economy at 20.9% includes total oil production and not just our 14.5% share and ought to be factored in with that caveat. However, the non-oil economy is expected to grow by 6.1%, which is very significant in light of the COVID-19 challenges and last year’s 7% contraction.
In its allocative function, the budget caters for some $2B to be spent on recapitalising the sugar industry; in its distributive function, in addition to the removal of VAT on basic foodstuffs and data, there are a welter of measures to assist the lower income citizens. As far as stabilising the economy, the inflation rate has been targeted at a mere1.6%.
(To be continued)