Govt’s large drawdown on net foreign assets worrying – GCCI President

The Georgetown Chamber of Commerce and Industry (GCCI) has expressed grave worry on the decline of net foreign assets from the Bank of Guyana, which is critically linked to safeguarding the country’s macroeconomic stability in the economy.

President of the Georgetown Chamber of Commerce and Industry, Deodat Indar used the opportunity during the entity’s Annual General Meeting on Monday at Duke Lodge to emphasise the significant decline in Guyana’s foreign reserves.
“What is particularly worrying for us in recent times is the development in the external sector. There is a large drawdown on the net foreign assets from the Bank of Guyana of $104.1 million. The sustenance of net foreign assets to the central bank is critical to the external viability and the preservation of macroeconomic stability,” said Indar.
According to him, statistics from the last six years have been analysed by the GCCI and the conclusion points to the fact that there has been a deficit overall balance.
This was determined since the accumulated reserves at the Bank of Guyana during these years saw a drastic decline due to the drawdowns, thus affecting growth.
“We have seen that our reserves has dropped. The GCCI has been observing the situation and have been carefully analysing those numbers. Whilst Guyana has experience, positive growth in recent years, a careful look at the external sector have some facts to tell,” the GCCI President explained.
He further added that “the balance of payment over the last six years recorded deficit overall balance and that is worrying. Due to the large drawdowns from the Bank of Guyana in the recent years, from 2013 to present, it is clear that the surplus which resulted in the accumulation of foreign exchange has been reducing.”

Currency shortage
The GCCI President believes that this reduction on the reserves has impacted the occasional foreign currency shortage and increasing exchange rate. The “behaviour” of the central banking institution further confirms that there are negative effects of removing such large quantities of assets. Last year would have recorded a net purchase of US$178.2 million.
“It is with this persistent drawdown of net foreign assets, which is the heart of the occasional foreign currency shortage that has been experienced and a consistently increasing exchange rate. The behaviour of the Bank of Guyana confirms the negative effects of these net foreign asset drawdowns as they recorded net purchased of US$178.2 million from the financial system during the year 2018.”
The GCCI, he added, is, therefore, calling for policies to be crafted, which will generate commercial activity and improve business performance. The added that GCCI believes that such actions will guarantee a “critical foreign exchange” for the country.
“It is our fervent hope that suitable policies will be crafted in the near future which will stimulate commercial activity, improve business performance and the economic climate. These will ensure that critical foreign exchange rate for Guyana is earned and well-aided in the mitigation of the widening balance of the payment of the deficit,” Indar stated.
Some four months ago, the chamber said that it was worried about the macroeconomic dynamics of the fiscal sector. It noted that Budget 2019 indicated 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.
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.