Govt ‘comfortable taxing economy to death’ – former Minister

Mid-year financial report

By Samuel Sukhnandan

Based on all the macroeconomic indicators, the economy is still struggling or limping along; so says former People’s Progressive Party/Civic (PPP/C) Government Minister, Irfaan Ali. Instead of adopting counter recurring policies to turn this economic situation around; Ali said the A Partnership for National Unity/Alliance For Change (APNU/AFC) Government seems comfortable “taxing the economy to death.”
Ali’s comments come against the backdrop of the 2017 Mid-Year Finance Ministry Report. The former Minister pointed out that credit to the key traditional sectors declined distinctly, as the commercial banks respond to the slowdown in the economy and high levels of non-performing loans.
The non-performing loans increased from $26.585 million at end of June 2016 to $29.945 million at end of June 2017. The ratio of non-performing loans to total loans was 13.1 per cent at end of June 2017, almost twice the level at the end of September 2014. Ali said given the low provisioning, the financial sector is standing at the precipice of immense uncertainty and signals that the economy is in distress.
He noted that while the inflation rate was stabilised at 1.1 per cent, local consumers were forced to pay more for food, housing, transportation, medical and personal care, education, recreation and culture. To a large extent, the tax measures introduced this year are responsible for the price increases.
Meanwhile, Guyana’s external overall balance of payments has deteriorated resulting in the reduction in the gross international reserves and import cover. According to the report, the overall balance of payments moved to a deficit of US$46.0 million from a surplus of US$12.1 million.
This outturn was due primarily to deterioration in the current account which registered a deficit of US$100.1 million for the first six months of 2017, compared with a surplus of US$27.0 million during the corresponding period in 2016.
Lower export receipts from the ailing sectors coupled with the notable growth in imports contributed to the deficit in the current account during the first half of 2017.
The principal exchange rate (GY:US) continued to slide during the first half of 2017. The average buying and selling rates depreciated from $206.35 and $210.11 during December 2016 to $211.80 and $214.25 during June 2017. Ali said notwithstanding the draconian measures implemented by the Central Bank to stabilise the exchange rate, the principal exchange rate depreciated by more than four dollars; the largest decline in the exchange rate over the past two decades.
He said it is noteworthy that the depreciation occurred because demand for the US dollar remained strong while the inflow of US dollars dwindled due to the poor performance of the non-gold export sectors.
The Opposition Member of Parliament (MP) also made reference to the Private Sector credit which increased marginally by 1.8 per cent. However, there were notable contractions in credit to all the major sectors, except the services sector. Loans to the agriculture sector, declined by 12.6 per cent, while loans to the manufacturing, mining and quarrying sector, declined by 5.1 per cent and 7.1 per cent respectively.
“The contraction in credit to the key sectors provides additional confirmation that our economy is unwell and suffering from a prolonged coma,” he added.
In a previous comment, Ali noted that net foreign reserve plummeted from US$633 million in June 2016 to US$574 million in mid-2017; the lowest ever recorded in over seven years.
“In other words, the APNU/AFC Government destroyed in two years what the PPP/C took to amass in seven years. Even more worrisome, external debt increased by US$53 million to US$1.200 million,” he added.
Guyana’s economy recorded real Gross Domestic Product (GDP) growth of 2.2 per cent during the first half of 2017. This marginal increase was mainly driven by the expansion of the agriculture, fishing, and forestry sectors. The manufacturing, construction, and service sectors also made contributions.
Growth in the agriculture, fishing, and forestry sectors was led by expansion in the rice and fishing industries attributable to favourable international prices, strong demand, and entry into new markets. Non-sugar growth declined from 3.1 per cent, in the first half of 2016, to 2.4 per cent during the same period in 2017.