As Guyana heads into the elections on March 2, 2020, this columnist shall dedicate today’s article and the forthcoming weeks – towards conducting a series of analyses on the proposed economic plans and policies by the various political parties. This will be done as their respective manifestos become publicly available.
Today’s article is a repackaged version of a direct exchange between this analyst and one of the contesting Presidential Candidates of a political party recently in an open forum. The policy of contention herein is one where the party is proposing to reduce the cost of fuel by 75% — while suggesting that proceeds from oil revenues will be used to achieve this outcome. In the first three years, oil revenues will not be more than US$300 million, and this will only come into fill a void, where Guyana has lost some US$2 billion in foreign exchange over the last five years from productive sectors.
Thus, having perused the party’s manifesto, the proposals therein seems quite ambitious, well-intended and in good spirit. In defending the policy after having challenged the financial sensibility, the Presidential Candidate sought to present an academic lecture on what is a manifesto in that it merely presents the party’s intention. Intentions of whatever economic plan is presented, in hindsight, ought to be grounded in realism and pragmatism.
That is to say, for example, the current administration made many fantastic promises during the 2015 elections campaign, only to be told that when they got into office and actually saw what they inherited, cannot be fulfilled. Let’s take one example. The coalition government campaigned and promised to raise the income tax threshold to $100,000 as soon as they get into power. After five years, the income tax threshold is still at $65,000. This, they suggest, was only determined when they got into power and did further analysis.
Now, this excuse is ludicrous and nonsensical at best and here is why. It is an unfounded fallacy to think that they or any political party contesting elections, do not know what resources they are going to have available, financial resources – that is because all the national accounts and public financial information are available publicly, and not only available publicly but also presented and deliberated upon in the National Assembly where all the opposing political parties have access.
Here is what the Government inherited in 2015. As of March 2015, the Central Bank had US$608 million in international reserve which was well above the minimum benchmark of 3 months’ worth of import cover. As of the end September 2019, the Bank of Guyana (BOG) reserve is less than 3 months cover, the lowest in the last decade of 1.5 months’ worth of import cover (this is dangerous).
In the last decade, there were several years where the international reserves were well over four and six months’ worth of import cover in some instances, as of March 2015, Government deposit account balances at the BoG were surplus of $15+ billion, and for the first time in a decade, those deposit accounts are in close to $80 billion deficit – that is more than one-year’s oil revenue already spent. The legality of this operation is also questionable. Hence, to suggest that oil revenues will be used to achieve 75% reduction in fuel cost is far from attainable when there is a fiscal mess to clean up, that will take five years to revert to a sound and sustainable macroeconomic framework.
Therefore, on this premise, it is utterly unacceptable to accept from any contesting politician that they do not have the resources to conduct some analyses to inform their proposed policies. It would appear that the party and its technical team appears to be, from their responses and policies, absolutely disconnected and oblivious of the history of Guyana – thus, suggesting no attempt whatsoever was made to conduct any research and analyses to inform their proposed policies. Moreover, the author hastens to enlighten the Politician that the Amaila Hydro Project was blocked by the Opposition which is now the Government because of the high investment cost. Now, the same Government who blocked it then is reconsidering the hydro project. At the same time, the longer the project takes to come to fruition, the cost will go up obviously when you consider the time value factor for money (inflation). Currently, the cost is some US$1 billion which is about $208 billion or about 26% of GDP. This is with conventional development financing and some equity from the Government. Let’s make sense of US$1 billion. Over the last five years, the Government has spent over $1.12 trillion dollars, which is twice what the previous administration expended in a five years cycle.
The average expenditure by the previous Government in a five years cycle was about $486 billion, less than ½ trillion. What is there to show for $1.12 trillion in five years save and except for a few roundabouts, overhead-passes, repair some roads and bridges here and there? Absolutely nothing (consult the audit report). The sum of $1.12 trillion is close to US$5 billion – this could have built five hydropower facilities by now and that would have reduced the cost of energy significantly and help to push an industrialised economy (the financial modelling for this project can be re-examined to arrive at an optimum financing structure). This would be more economically sensible in the long run than subsidising 75% of US$500 million (fuel imports) that’s about $80 billion to subsidise fuel, which would be about US$2 billion in five years that the party is proposing to subsidise in fuel, using US$500 million as the total fuel import bill.
It is imperative that proposed policies and economic plans need to be guided by evidenced-based analyses. There are sufficient studies and data available to do so.