Former Finance Minister’s argument on increase of debt ceiling comical and disingenuous (Part 2)

To clarify the $92 billion deficit the former Minister was referring to – he was actually referring to the overdraft balance on the Government deposit accounts at the central bank – from examining the data presented in the table for the period 2010–2020, one would observe that the deposit account balance stood at a surplus of almost $70 billion in 2010, which then fell to a surplus of $21.4 billion by the end of 2014. Notably, during the period 2010 to 2014, the Government’s deposit accounts were never allowed to reflect an overdraft balance. Now, importantly to note – which Jordan and none of his colleagues in the previous Government and the now Opposition will tell the public – the reason those balances in the Government deposit accounts started to slide in 2011 from $70 billion in 2010 to $60 billion in 2011 and through to $21.4 billion in 2014 is this: Following the national elections of 2011, which induced for the first time an unusual political dispensation of a minority Government under former President Ramotar – and where the political Opposition controlled the National Assembly by a one-seat majority, the political Opposition at the time, which is in Opposition again, used their one seat majority during that period to stymie development and slash budget proposals by the then Government and/or, in some cases, not approving the Government’s budget.
It was this period of deadlock that triggered snap elections in 2015. The reason mention is made of this historic fact in this argument is because it is for these reasons – where the Government had an extremely difficult time to pass the national budgets – that former President Ramotar had to revert to those deposit accounts in order to run the country’s affairs. This is why those balances were reduced during the period 2011–2014. Then, in 2015, when the new Government took over, those deposit accounts, for the first time in decades, started to be overdrawn: from a position of $2.3 billion by end of 2015, to a whopping $92 billion by the time that Government demitted office in August, 2020. Now, this is the $92 billion deficit that Jordan is referring to, but he is grossly misleading the public because he did not tell the full story.
Now, let’s understand some of the basic rules governing Government spending. The official Government Account from which monies are withdrawn is the Consolidated Fund (CF) which comes under the scrutiny of the National Assembly. So, let’s look at the CF balance for the period 2010–2019. In 2010, the balance stood at $41.7 billion in overdraft, and it went up to $81.2 billion overdraft by end of 2014. However, if one were to net this off with the surplus balances in the deposit accounts for the period, the data shows that the net balance between the CF and the Deposit accounts were surplus balances of $28 billion in 2010, and $8 billion net surplus position by end of 2013, before reaching a net deficit position of $60 billion by the end of 2014.
Contrasting this with the period under which Winston Jordan served as Finance Minister – combining the balances in the CF and the Deposit Accounts amounted to a net deficit of $45 billion by the end of 2015, which reached a whopping net deficit position of $148.2 billion, which is the highest in this country’s economic history post-1992. While the figures for 2020 are not yet revealed to the public, by this trend, it is almost certain that the combined net deficit position in the CF and Deposit accounts would have reached $200 billion, thus cementing the argument that it is the highest net deficit position on the national treasury in Guyana’s post historic economic recovery period since 1992.
In fact, it should be mentioned that what Jordan did with those deposit accounts for five years was in breach of the Fiscal Management and Accountability Act, which states that any overdraft balances on official bank accounts by the Minister of Finance must be cleared at the end of the fiscal year. The former Minister never did this, and there is a reason why he never complied with the Act to clear those deficit balances, apart from the reason cited by the Hon. Minister Dr. Ashni Singh. That is, the other crucial reason is, whether intentionally or by default, the fact that the overdraft balances are not captured in the reporting of the country’s official stock of public debt would have effectively resulted in the understatement or underreporting of the true state of the country’s public debt. This is what the current Minister, Dr. Ashni Singh, is now correcting by raising the debt ceiling so that those balances can now be cleared by the issuance of the appropriate debt instruments, which would allow the deficit to be reflected in the official stock of public debt.
Further, not only were the former Minister of Finance, and by extension the previous Government, engaged in reckless spending, the evidence would show that there was huge misallocation of resources, which resulted in the underperformance of the country’s many productive sectors. The former Minister’s philosophy in administering fiscal policy was one that was contractionary, rather than expansionary, and was devoid of any transformative developmental trajectory of the country. In this regard, as can be seen from the data presented, during the period 2010-2014, capital expenditure accounted for more than 30% of Government’s total expenditure.
Capital expenditure are those expenditures allocated in productive activities such as infrastructure development, which in turn leads to the creation of employment and opportunity for businesses to grow, inter alia, new investments based on how and where Government allocates resources towards such productive activities. During the period 2015–2019, on the other hand, capital expenditure declined from a high of 35% of total expenditure to as low as 23% of total expenditure. Thus, more monies were expended on unproductive activities, which resulted in excessive wastage of public funds – many of which are being uncovered almost on a daily basis. As such, one can conclude that the former Finance Minister’s position on these developments is simply lacking in substance and economic sensibility.
In the next column, the author will examine further the rationale for increasing the debt ceiling, and explain in greater depth the importance of this measure, which is necessary to be aligned with the projected growth of GDP driven by the oil economy and the Government’s transformative developmental agenda. Those forthcoming analyses will demonstrate that the increased debt ceilings, coupled with the projected growth in GDP, the debt-to-GDP ratio will still remain at sustainable levels; that is, below or equal to 70% of GDP.

About the Author: JC. Bhagwandin is a financial analyst, lecturer and business & financial consultant. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected]gmail.com.