The Guyana Sugar Corporation (GuySuco) has already recorded a whopping billion deficit in its accounts for the first half of 2016, but this is being masked by a billion subsidy that was handed to the beleaguered entity by Government.
In fact, while the $9 billion transferred was earmarked for the Corporation to be disbursed for the entire year, all of the money has already been transferred.
This information is contained in the recently released mid-year report on the nation’s accounts by Finance Minister Winston Jordan.
The Minister said the reason the entire $9 billion earmarked for GuySuCo for the whole year was disbursed in its entirety by the end of June 2016, is “because of a deterioration in the Corporation’s cash balances that was due to a severe shortfall in production.”
Winston Jordan
The subsidy that was transferred to GuySuCo has in fact allowed the company to record in its books an operating surplus of $2.9 billion, down from an operating surplus of $3 billion for the same period last year.
“This surplus is inflated by a $9 billion transfer from the Central Government to finance operations… without this transfer; GuySuco true position would be a deficit of $6 billion.”
The Finance Minister has since said that in the future, all central Government transfers will be shown as financing, instead of being included as part of revenues.
He noted too that the industry continues to be plagued by many problems.
According to the Minister Jordan, GuySuCo has taken several steps to address some of its challenges, including negotiating with UK-based Tate and Lyle for better prices for sales to the European Union’s market; pursuing studies to inform diversification into areas such as other crops, fruits, aquaculture, rice, dairy and livestock to reduce dependence on sugar; and rationalising its operations for increased efficiency and productivity.
The dismal performance of the sugar industry has since flagged as a domestic risk to the real, external, and fiscal sector.
Minister Jordan notes that while Government’s involvement has kept the rice and sugar industries afloat, it has also shielded them from market conditions that would otherwise force the industries to reform or innovate. According to Jordan, the lack of alignment between production costs and prices typically results in the destabilisation of revenues and the eventual need for Government support packages.
“This is exemplified in the case of GuySuCo, where constant demands for transfers continue to crowd out other priority Public Sector expenditure.”
The inefficiencies, he said, compromises GuySuCo’s ability to compete globally, while at the same time continuing to face growing competition from alternative sweeteners and sugar substitutes.
It was noted that the rice and sugar industries make up a consequential portion of Guyana’s Gross Domestic Product (GDP), “so their performance has important implications for growth.”
He said too that the two industries also make up a large share of exports, and reduced export earnings from these industries could negatively affect reserves and the balance of payments.
According to Jordan, “In the short run, GuySuCo in particular, poses a large risk to the Government’s fiscal position.”
He said if sugar production fails to improve in the second half of 2016, GuySuCo may face financial strain that will lead to requests to the Government for further transfers, on top of the $9 billion it has already received in the first half of the year.
The Minister did point out also that despite the risk posed by the rice and sugar industries, the agricultural sector still holds potential for development, and the Government is working to improve the robustness of the sector by improving the competitiveness of both crops and increasing diversity.
