Guyana Balance of Payment deficit widens

Economic report shows

– deficit moves from US$53M to US$69M

By Jarryl Bryan

With the release of the 2017 macro-economic report, the 2.1 per cent growth rate is not the only thing of concern. The report shows that the deficit in Guyana’s balance of payments, an important economic indicator, is on the rise.
The Balance of Payments report contains statistical data on a country’s fiscal transactions, including imports and exports. To record a deficit, Guyana would therefore have had to spend more on imports, among other things, that it derived from exports.
According to the report, Guyana’s overall balance of payment in the 2017 fiscal year showed a deficit of US$69.5 million. This is a hike when compared to US$53.3 million the previous year. A breakdown of the figures shows stunning disparities.
On the one hand, the current account shows a deficit of US$287.4 million for the year 2017. But in the previous fiscal year, the report notes, this was just US$12.4 million. The report admits that this is because of a negative balance on the merchandise trade account.
“The further weakening was due to the negative balance on the merchandise trade account. Merchandise exports were slightly lower than projected, mainly on account of lower export earnings of gold and other exports in the last two months of the year.”
When Finance Minister Winston Jordan presented the 2018 budget last year, he had announced that merchandise imports were estimated to grow by 9.6 per cent. This had been attributed to increased imports of mining machinery, chemicals, fuel and lubricants. According to the report, imports exceeded the Government’s projections.
“Imports were slightly more than the US$1.59 billion projected at the time of the presentation of the 2018 budget. As a result, the merchandise trade deficit of US$196.2 million was considerably higher than the projected deficit of US$147.2 million.
“Notwithstanding, the deficit on the services account was lower than estimated. The improvement in the services account more than offsets the weaker balances on both the non-factor services and unrequited transfers accounts,” the report states.

Capital account
While the Current Account is nothing to boast about, the Capital Account improved. The report notes that it showed a surplus of US$228 million, an increase from a deficit of US$13.2 million in 2016. It also exceeded a projected surplus of US$181.8 million.
This publication had recently done an article on the state of Guyana’s net foreign reserves. A recent report from the Central Bank had indicated that Guyana’s net foreign reserves, held by the bank in foreign currency notes, have fallen to their lowest point since 2008. The reserves went from a high point of US$825 million in 2012 to US$498.5 million as at March 2018.
A perusal of the Bank of Guyana’s statistical abstract shows that the reserves started dropping in 2013, going from $751.2 million in that year to $652.2 million in 2014. It is in 2017 that the reserves plunged well into the US$500 million range.
By November of last year, the reserves were recorded at US$562 million. And as at March 2018, for the first time since 2008, the net foreign reserves fell to below the US$500 million benchmark. Interestingly enough, the end-of-year report details that US$12.1 million was drawn down from the reserves to finance the balance of payments.
“The 2017 balance of payments deficit was financed by exceptional financing of US$1.9 million in debt relief and US$55.6 million in debt forgiveness, along with a drawdown of US$12.1 million in net foreign assets of the Bank of Guyana,” the report states.
“Additionally, gross revenues of the Bank of Guyana were equal to about 3.1 months of import cover at the end of 2017; slightly above the three-month minimum benchmark for reserve adequacy.”
The Parliamentary Opposition had previously expressed concern over the increasing deficit in the country’s balance of payments, which it had said would continue to have serious implications for the local economy.