Bankrupted Treasury left by APNU/AFC will impact new Govt – Budget Institute
The Guyana Budget Policy Institute has expressed worry that the bankrupted state the A Partnership for National Unity/Alliance For Change (APNU/AFC) has left the treasury will make it that much harder for the incoming Government.
On Saturday, the Institute’s Executive Director Dhanraj Singh said that the new Government must immediately confront the challenge of the economic distress made worse by the coronavirus (COVID-19) pandemic.
Singh in a letter to the editor said that families across Guyana, particularly those living in poverty and on low incomes, are hurting and experiencing financial hardship, “unlike anything we have seen in the last few decades. The longer this continues the worse it will get and the more difficult it will be to resolve.”
He pointed out that at the core are a rapid drying up of consumer spending and consumption due to the loss of household incomes, jobless growth over the past few years, and the necessary lockdown to limit the impact of the pandemic. The pandemic-induced layoffs would further worsen the situation.
In the circumstances, he noted, a stimulus package would be the best option for Guyana to recover. In addition, Singh said that it is important to launch a large enough stimulus since an ineffective stimulus will only make matters worse. However, the state of the treasury is not encouraging.
“This is important considering that the state of the public treasury that the new Government will assume will leave it with no other choice than to rely largely on new debts to finance the stimulus needed. The main legislative mechanism to operationalise such a fiscal stimulus is the national budget.”
“Without a Parliament, there is no budget and therefore the most effective policy tool to respond to this crisis is not available to the Government. This further emphasises the importance and urgency of bringing the 2020 elections to an end and for speedy installation of the new Administration.”
The data generated from the national elections recount shows that the main opposition People’s Progressive Party/Civic (PPP/C) has won the elections with a total of 233,336 votes. This is 15,416 more votes than their nearest rivals, the incumbent APNU/AFC, which received 217,920 total votes. When one calculates using the Hare formula, it means that PPP/C would have secured 33 out of 65 seats in the National Assembly – and APNU/AFC would have secured 31 – and will form the next Government.
Singh stressed that the earlier a budget is implemented, the better. According to him, stimulus packages must be implemented as early as possible, must be directed to individuals and entities that spend additional resources and must err on the side of being larger instead of smaller than needed.
“Many families are without income and are currently surviving on whatever little savings they have while others are forced to make devastating choices like cutting the number of meals per day, rationing nutritious and healthy foods, forgoing needed medical treatment, abandoning or putting off important welfare and quality of life decisions. Some are teetering on hunger and homelessness while others are already found themselves in such inhumane conditions.”
Crises have profound human and economic costs, he said, adding that prolonged unemployment harms not only workers’ job prospects and lifetime earnings but also the health and well-being of them and their families. Poor, low-income, and low-skilled workers are the most vulnerable to these adverse effects.”
According to Singh, long-term unemployment and reduced demand for goods and services can erode job skills among unemployed workers. This will, in turn, reduce business investments and depress the country’s economy and its productive capacity, even after COVID is suppressed.
“What is worse is with each passing day, the financial hardship is painfully creeping up the income ladder to those families who ordinarily would be considered safe. Put differently, no one is protected from this crisis if it continues unabated or at the least without a timely and sizeable fiscal response from the Government. How the Government responds to this crisis, however, is equally important to the response itself.”
As the new Administration positions itself to activate Parliament, he said, contemplating a fiscal stimulus that puts income in the hands of families and businesses would be key to surviving the crisis, shorten its impact, restore economic confidence, and ultimately allow for adaptation to the new social and economic realities.
The last budget approved by Guyana’s National Assembly was one for the fiscal year ending 2019 which means that all expenditure for the first half of 2020 has been curtailed to a monthly one-twelfth of the previous year’s expenditure. No new spending was possible during the first half of this year, save for special circumstances as was with the advent of the coronavirus Task Force.
The new Government, however, will soon find out that Guyana as a country is, as is used in Guyanese colloquial parlance, “broke”. Not only has the country’s general reserves been depleted to $0, but the account is also now running an overdraft to the tune of hundreds of billions of dollars.
This situation is illustrated in the Bank of Guyana’s statement of Assets and Liabilities, published in the May 23 Official Gazette, revealing that the General Reserve is -$290,667,332. Additionally, Public Deposits have also depleted to below $0, also recording a negative balance of -$88,629,401,855.
Guyana’s Contingency Reserve account also reflects an alarmingly low amount of $2.3 billion. When APNU/AFC took office in May 2015, Guyana’s General Reserve had in its coffers just about $6 billion while the Contingency Reserve held $4 billion.
While oil revenues are expected to drastically boost Guyana’s revenue, the onset of COVID-19 has led to a drop in demand for oil and consequentially, a drop in prices. ExxonMobil, which is producing oil offshore Guyana, was also forced to announce cutbacks to its global work plans back in April.