Today’s article continues from last week’s edition, and in this article, the author presents the analysis of other key macroeconomic soundness indicators in a very concise manner.
Table 1 below shows a comparison of the growth of real Gross Domestic Product (GDP) from the period 2011-2018. It shows that during the period 2011-2014, real GDP grew by 15% or an average annual growth rate of 4%. Conversely, real GDP for the period 2015-2018 grew by 10% or an average annual growth rate of 2.5%; thus, corroborating the argument that the economy experienced weaker growth during the last four years relative to the preceding four-year period, which spans 2011 to 2014.
The second table, which illustrates average market rate of the USD exchange rate, indicates that the domestic currency depreciated by 1.87% against the USD during the period 2011-2014, while for the period 2015 to August 2019, the domestic currency depreciated by 3.37%, wherein the average exchange rate increased by $7 compared to $4 in the preceding period.
From examining the first and second graphs below, it shows that International Reserves at the Bank of Guyana (BoG) fell from a high of US$751 million in 2013 to a low of US$536 million at the end of August 2019; the Bank’s gold reserve fell from GY$14.8 billion in 2013 to a low of $636.6 million at the end of August 2019; Government deposits at the BoG fell from a record high of $61 billion surplus in 2009 – which remained in a surplus balance up to 2014 at $21.4 billion – to a massive deficit of $64 billion as at the end of August, 2019; and the fourth variable in the first graph, which shows BoG foreign exchange intervention with commercial banks, revealed that the BoG has moved from a net sales position with commercial banks consistently through the preceding eight years up to the third quarter of 2017.
From the last quarter of 2017, this trend changed to a net purchase position – where it currently stands to date – wherein the BoG purchased US$365.82 million, or GY$76.3 billion to date. Further, the last graph shows the Balance of Payments’ position from 2009 – 2018, which revealed that the Balance of Payments once enjoyed three years of a surplus balance: from a high of US$234.5 million in 2009, US$116.5 million in 2010, and US$32.9 million in 2012, to a record highest deficit – in the last decade at least – position of US$132.2 million in 2018.
With respect to the $64 billion overdraft balance at the BoG, this is not just equivalent to one year’s worth of oil revenues, it is also where the true domestic public debt is grossly understated, given that this is in fact Government borrowings from the Central Bank. Therefore, the total domestic debt, which stood at $88.8 billion at the end of 2018, adjusted to include this overdraft balance in the Government’s deposit accounts. This will give rise to a real domestic public debt position of $152.8 billion, representing 36% of real GDP.
In the final analysis for today, the indicators outlined above are certainly indicators of a macroeconomic and fiscal disaster in the making; and this strongly validates the contentions to these ends: that is to say, the macroeconomic frameworks are certainly weakened relative to the period 2009 through 2014, and they continue to crumble rather worryingly.
By: JC Bhagwandin, MSc
Email: [email protected]
(The Author is an experienced Macro-finance and Research Analyst and a Senior Lecturer of BBA/MBA programmes at Texila American University, University of Bedfordshire, and the Association of Business Executives (ABE) programmes in Guyana. The discussions and analyses presented are exclusively his own, and do not necessarily reflect the opinions of this newspaper or the institutions with which he is affiliated.)