– with the exclusion of gold, private investment, public consumption, other exports from the equation
The analyses presented in the previous weeks’ series of articles focused particularly on an examination of government expenditure over the last four years, compared to the previous four years. It examined private investment and consumption, as well and the performance of the major productive sectors. The findings of which were quite troubling had it not been for oil discovery since 2015. Government revenue increased exponentially and so did government expenditure on consumption. Government expenditure in capital projects and public investment have actually declined, while the major productive sectors, except for gold and other exports, contracted by about US$2.1 billion (GY$430 billion) – relative to the four years period 2011-2014.
As such, it can be said that had it not been for oil discovery in 2015, today our economy would have been in serious trouble, especially since the Bank of Guyana (BoG) has been struggling to meet its international reserve target or three months of import cover since the last quarter of 2017. This is in fact the main reason why it has had to sell off its gold reserve and has been buying up foreign exchange (FX) from the private FX market (commercial banks) since 2017. The BoG has had cause to buy up about US$300M to prop up its reserves to date. Thankfully, the FX in the commercial banks has not been depleted and that is largely because of oil & gas related activities where there is a continuous inflow of FX coming into the system, and it is helping to maintain some stability. Bearing in mind that the BoG has never had cause over the last ten years or so, prior to 2017, to buy up FX from the commercial banks. It has, in fact, always enjoyed a net sales position to the commercial banks.
The findings of these analyses altogether suggest, rather strongly, that oil & gas related activities and gold have been miraculously keeping the economy afloat since 2015 to this day. If the world market price for gold collapses tomorrow, then the economy would be in serious trouble. What we have witnessed over the last four years is an egregious pattern of excessive and reckless spending on consumption goods, thereby, increasing Govt recurrent expenditure, wastage of resources, bloated public sector, at the expense of shrinking the economy vis-a-vis, the major traditional productive sectors and private consumption. Overall, the economy has shrunk by $182 billion (US$840 million) if one were to take the growth rates in gold and private investments out of the equation – given the argument that private investments were driven largely by oil and gas related activities; while noting that the total losses in exports (except gold & other exports), public investments and private consumption combined amounted to whopping $647 billion or US$3 billion. In other words, the economy has shrunk in this context by 95 per cent of real GDP.
Guyana does not need oil to transform its economy. The one single deterrent making our economy more competitive is the cost of energy. If we deal with the energy problem by pursing hydropower that was on the table a very long time ago, Guyana would have been able to significantly reduce the cost of energy, which will help to transform the economy into an industrialised economy driven by innovation and technology. Guyana has vast arable land, which can produce food to supply the entire Caribbean. If we deal with the energy problem, we will solve most of competitiveness challenges of firms, whereby, firms would able to benefit from improved economies of scale. Secondly, pursue with the road linking Brazil and Guyana, this will facilitate a multiplier effect in terms of commerce and the creation of new industries, and thirdly, the need for a deep-water port as was expounded in previous articles. Moreover, Guyana has a huge human capital deficit problem according to statistics in the most recent labour force survey. Therefore, whatever national competitive strategy is develop must address our human capital problem which is largely two dimensional – that is, the quality of education delivered, and skills and training needed, in fact our education system needs a complete overhaul. Finally, there is a need to examine the political institutional frameworks, how to improve them and ensure that they are working more efficiently, with the aim of reducing the barrage of red tapes that drives up the cost of doing business in Guyana.