Capital flight for 2017 estimated at US$53M – analyst

…says int’l reserves could drop to US0M by 2019 if action not taken

By Samuel Sukhnandan

The Guyanese economy has been faced with a number of issues over the past two years and the current David Granger-led Administration has been blamed for the economic slowdown in the country, but more than that, the international reserves have declined significantly. The Half-Year Bank of Guyana (BoG) Report clearly supports the position that capital flight is in progress in Guyana.

Guyana-born US-based financial analyst Sasenarine Singh believes that this issue calls for the intervention of President David Granger, as he opines that Finance Minister Winston Jordan is incompetent and is lost on the new ideas to turn around this financial meltdown currently happening under his watch.
“It is very easy to destroy an economy, but difficult to build one and this is exactly what Jordan is doing by his uninspired management of the finance portfolio. Where are the sound plans to stimulate growth and develop the local economy? If this issue is not attended to soon, it could cause greater economic hardship for all the people of Guyana,” the financial analyst opined.
Singh continued, “The situation requires political intervention at the highest level, backed by an advisory presidential economic commission that can charter a new course for the nation. Jordan has had enough time and his performance clearly illustrates that he does not have the ability to solve this economic crisis. Because of his poor leadership, the current financial climate in 2017 in Guyana is now very disconnected from the reality in the world’s economy.”
The financial analyst told <<<Guyana Times>>> on Sunday that new ideas had to be brought to this critical issue and the President needed to know what was going on, and that was why he was recommending such an advisory body. Making reference to the BoG Report, Singh said that using figures coming out of that report and Professor Erbe’s Model, he calculated that capital flight stood at US$26 million for the first six months of 2017. Over the entire year, it will be approximately US$53 million. This, he said, is reminiscent of 1983-1984 under the Forbes Burnham Administration when Guyana was uncreditworthy and could not pay its bills.
Singh also reminded that capital flight was the rapid movement of large sums of money out of a country. “Capital flight is not a good indicator to international investors about the investment climate in a country. It also gives you a fairly good indication of the confidence the local Private Sector has in their local economy,” the financial analyst explained, noting that the financial figures would not be encouraging to potential investors, both local and overseas.
Further, he expressed worry over the fact that Guyana may find it difficult to get enough foreign inflow to pay its overseas debt between now and 2019, and because of this situation – as a last resort, there is the need to drain the international reserves. The BoG’s current account balance as of June 2017 was negative US$100 million. “This situation means that merchandise trade is not in Guyana’s favour. “Bottom-line, Guyana is not exporting enough to pay for its imports and the situation will get worse by the end of 2017 because of the politically-induced economic meltdown in the sugar industry. The bottom line is the overall balance deteriorated from an inflow of US$12 million for the first six months of 2016 to a massive outflow of $46 million for the first six months of 2017. Heaven help us when the 2017 figures arrive!”

International reserves
Over the past 12 months, Guyana’s international reserves have been depleted by US$55 million. Singh opined that running down international reserves for one year was not something to be too worried about, but when that becomes a trend, it could have serious implications for the economy.
“The problem is that since 2012 this has been the case. Guyana closed its foreign reserves at a healthy balance of US$825 million in 2012, and since then it has been downhill.” If this trend continues, Singh foresees that by 2019 reserves are going to drop to below US$400 million. The last time Guyana had such a balance was in 2008, when the economy was much smaller and easier to support.
Singh continued: “If you have a big economy with a small reserve, then you are in a dangerous position and will have an issue in settling your foreign payment which takes you closer to being uncreditworthy. Between 2008 and now, the economy has literally doubled, but the foreign reserves had stagnated. But the principle remains that your foreign reserves should be growing with the economy.”
He argued that apologists of the Government might want to say that at least the capital account improved, but when that boost in the capital account is mainly being driven by new borrowed debts, then such a declaration from these so-called apologists has to be classified as nothing but financial nonsense. “You should only be borrowing based on your ability to repay, based on the performance of your productive sector. But in Guyana, under Jordan, we are borrowing more when the productive sectors are overall in regression – even gold today has flattened out.”
In the last six months alone, the disbursements of new national debt from the international lenders were US$32 million.

Singh said this basically meant that Government was borrowing “on the heads of children of Guyana” to fill the short-term financial need, but that could not be a sustainable financial strategy. Getting adequate economic incentives in place to build the confidence of the Private Sector and to motivate them to invest in the productive sector will permanently change the economic dynamics for the better.
He also noted that not only were international investors finding it hard to do business in Guyana, but the local Private Sector has been complaining bitterly about the issues facing the local economy. “Can you imagine over the last 12 months every single day there have been blackouts in Guyana? We need to fix it,” he asserted.
Also, the Half-Year 2017 Balance of Payment illustrates that short-term capital outflow for Guyana for the first six months of 2017 stood at US$33 million, which indicates that there has been an increase in commercial banks moving their monies abroad. “When banks start to move their monies overseas, we have a major problem.”