GCCI worried over macroeconomic dynamics of fiscal sector

– raises concern about lack of job creation, consumer spending

The Georgetown Chamber of Commerce and Industry (GCCI) has issued a formal response to the presentation of the 2019 Budget, which was read in Parliament by Finance Minister Winston Jordan on Monday, raising some concerns relating to the financial plan.

The GCCI said that it was worried about the macroeconomic dynamics of the fiscal sector. It notes that Budget 2019 indicates the Government’s intention to finance about 80 per cent of the sizable fiscal deficit ($32.84 billion of the $41.49 billion) by borrowing from the domestic economy.
The Chamber said compounding this was the concern that there was a projected increase in taxation by 9.9 per cent, in an economy, which was projected to expand by 4.6 per cent. “This outstripping worries us,” a statement issued by the GCCI on Wednesday stated.
But even more worrying for the Chamber is the slow rate of implementation of the Public Sector Investment Programme (PSIP) and the long gestation period of capital expenditure. “This is likely to create a drag on the economy as money is withdrawn faster than it can be injected.”
In the external sector, the GCCI said the large drawdown on the net foreign assets of the Bank of Guyana of US$104.1 million remained of concern; the sustenance of which was critical to external viability and the preservation of macroeconomic stability of the country.
Concerns were also raised about job creation and consumer spending, with the Chamber saying that 2018 was expected to record marginal increases in labour-intensive sectors such as agriculture and fisheries, with forestry expected to grow 1.1 per cent.
Additionally, the mining and quarrying industries are expected to decline in year 2018. Given the dismal economic performance in these labour-intensive sectors, “we are disappointed that the required stimulus needed to recover job losses were not adequately addressed in Budget 2019”.
Further, the GCCI said with a decline in spending on the agriculture sector from $19.4 billion to $17.1 billion (from 7.1 per cent to 5.7 per cent of the total Budget), it believes that the dismal performance in the sector, unfortunately, is likely to continue. “This is expected to have a negative impact on consumer spending in 2019,” the statement added.

Fuel concern
However, the GCCI said it was particularly disappointed that there has been no adjustment to the tax regime of fuel despite its suggestion. “It should be noted that in 2018, the price of fuel had a disastrous effect on the Private Sector earnings as costs skyrocketed, and continues to affect every aspect of Private Sector operations, from manufacturing to distribution.”
During the 2019 Budget consultations, the GCCI, in meetings with the Finance Ministry, made a number of recommendations. The Chamber said it was pleased to see that some of the recommendations which were advanced to the Minister were well-received and taken on board.
“The Chamber of Commerce has noted that its requests to review the taxes on pesticides and limestone used in the agriculture sector has resulted in exemptions being granted from Custom Duty and Value Added Tax (VAT),” the statement said.
The GCCI is also pleased that its suggestions on the aviation industry have resulted in the VAT exemption of aircraft engines and main components/parts. In addition, the Commission said it welcomed a sector-targeted reduction in Corporation Tax and viewed this reduction as a step in the right direction for the facilitation and promotion of Private Sector development.
The Private Sector Commission (PSC) has also listed a number of issues it has with Budget 2019. The Commission said in a statement on Tuesday that it was mainly concerned about the level of proposed overall tax revenue on businesses and individuals as Budget 2019 forecast a 9.9 per cent increase in revenue, while the economy is projected to grow by 4.6 per cent.
However, the PSC recalled that it had recommended the gradual lowering of the Corporation Tax over a period of 10 years to 20 per cent. “The PSC is, therefore, pleased at the reduction to 25 per cent, which was announced for 2019 and signals a commitment to this mutual goal.”
Further, the PSC said it was cognisant of the need to incentivise the manufacturing sector and had hoped that given the large input of the services sector to Guyana’s Gross Domestic Product (GDP), thought would have been given to reducing the tax rate for commercial businesses from the draconian 40 per cent as this is having an adverse effect on legitimate businesses.
“Worrying too is the impact of Budget 2019 upon the foreign reserves of the Central Bank; an impact that does not appear to have taken cognisance of the need to cushion against external shocks to which the country and its currency are vulnerable,” the statement added.
Nevertheless, the PSC said it was pleased that Budget 2019 contained several measures such as the raising of the tax threshold, which it had proposed for some relief of the tax burden upon employees, and the monies earmarked for hinterland airstrips, among others.