In a recent interview with the media, the Finance Minister posited that the country’s resource is “slender”. However, it should unfortunately be noted that it is under the subject minister’s stewardship over the last five years, inter alia, the economic policies administered therefrom have been woefully responsible for this “slenderness” of the country’s resource.
To this end, it is noteworthy to examine where the state’s resources stand in 2020, and where it stood in 2015; that is, what the Minister inherited.
In 2015, the Government’s total deposit in the Central Bank stood at a surplus of $15.3 billion, and total public sector deposits in the commercial banks stood at $68.2 billion, giving rise to total Government deposit of $84 billion surplus in the banking system. The Bank of Guyana’s International Reserves stood at US$595 million, which represented almost five months’ worth of import cover in reserves. At the end of 2014, total public debt stood at $330 billion, which included external debt; and the overdraft on the Consolidated Fund (CF) at the end of 2014 stood at $77 billion.
As at February 2020, the Government’s deposit accounts at the Central Bank stood at a whopping $82.4 billion as a negative/deficit balance, from a surplus of $15 billion in 2015. While bearing in mind that these deposit accounts had, over the last two decades, always recorded surplus balances as high as exceeding $60 billion at one point, the public sector total deposits in the commercial banks stood at $55.4 billion – which, when taken together with the balance at the Central Bank — would give rise to a deficit of $26.5 billion, or US$127 million; compared to a surplus position in 2015 of $84 billion, or US$403 million. The International Reserves as at the end of February 2020 stood at US$548 million, which is equivalent to less than 2.5 months’ worth of import cover – thus giving indication of a weaker position from almost 5 months’ equivalent in 2015.
Total public debt stood at $354 billion by the end of 2018, representing an increase of $24 billion from 2014; while the balance on the CF as at 2017 (the most recent publicly available data) stood at $137 billion deficit, from a position of $77 billion in 2014, representing an increase of its deficit/overdrawn position by $60 billion.
It is important to note that these huge deficit balances drawn on the Central Bank are in effect the creation of debt, which ought to be repaid. These Central Bank balances should not be used as perpetual financing for Government’s spending.
Key Fiscal Policy responses of the Dominican Republic – COVID-19
The latest economic measures announced by President Medina amounted to US$576 million, or ¾ percent of GDP. These include higher social spending; subsidising the most vulnerable households, including informal workers; support for 1.5 million households, of whom 0.9 million had already received payments as at April 22; Additionally, 452,817 families will receive monthly transfers; (ii) the newly created Employee Solidarity Assistance Fund (FASE) (RD$15 billion), which will benefit about 754,000 families of formal workers who were laid off with a monthly transfer of up to 70 percent of wages.
The Government increased healthcare spending on medical supplies and equipment, tests in private labs, rental of two private medical centres, and support of the pharmaceutical industry, including through budget reallocations.
Tax relief is provided through extended payment deadlines and some tax benefits. Also, for health workers, operational staff, and military and police officers, the Government established a special allowance which would amount to an expense of RD$2.4 billion.
Consequently, the Ministry of Finance estimates a fiscal deficit of 4.5 percent of GDP for 2020. To cover financing gaps, the authorities are mobilising loans and commercial credit lines from the IMF, World Bank, the Inter-American Development Bank, Latin American Development Bank, and the Central American Bank for Economic Integration, and raising private donations for healthcare needs (IMF, policy Tracker for COVID-19).
To be continued.
