Unstable exchange rates
Local companies participating in public tenders at home are at a disadvantage since they are mandated to price their products in Guyana dollars, whereas their overseas-based counterparts/competitions are allowed to bid in US dollars.
With the Guyana dollar slipping rapidly, local companies/bidders are forced to make a decision between hedging upfront – which puts them at risk of overpricing their products and, therefore, losing the tender – and adopting the current rate, which carries the risk of future exchange losses as they scramble to fulfil contractual obligations. Either way, local companies are at a big disadvantage.
A local businessman explained that the information on the bid datasheet must be submitted in Guyana dollars for local companies.
“I would say that puts us at a disadvantage if you have a fluctuation of the currency,” he explained.
In this regard, the entrepreneur said businesses could risk losing tenders.
He said in situations where there was uncertainty in the foreign exchange market, the bids should be allowed to be submitted in US dollars.
Two other businessmen also spoke with this publication and shared similar views, saying that the Government of Guyana, in light of the circumstances, should either mandate all companies to bid in US dollars or use a predetermined exchange rate for the bid along with a proviso for a plus or minus adjustment in pricing within the time-frame of the expected contract.
Observers have outlined that the decline in export revenue from key sectors was likely to persist in 2017 and beyond owing to the decreased investment in the key export sectors, given the unfavourable business climate and onerous taxes that increase the operating cost of export businesses.
Available forecasts suggest that imports will increase further over the next five years by an annual average of 6.8 per cent. It, therefore, means the demand for foreign currency will increase in the near future.
But given the contraction in supply of foreign currency and demand pressures, the market participants anticipate continued shortage of foreign currency.
As a result of the low supply versus high demand, the value of the local dollar has declined.
If this situation persists, as many economists have forecasted, the value of the Guyana dollar will continue to plummet. In the end, the lower value of the Guyana dollar will result in higher prices for the consumer goods which are overwhelmingly imported. The inflationary pressures will place further pressure on the average Guyanese who is already bombarded by job layoffs, consequent to the economic slowdown in all sectors of the real economy save gold mining.
In fact, Opposition parliamentarian and former Junior Finance Minister Juan Edghill has posited that Government’s current intervention on the issue of exchange rates was contributing to the problem.
“Now if the Central Bank continues to take money from our foreign reserve and dump it in the market to control pricing, sooner or later, we would have bigger problems because we will have a reduced foreign reserve and if you are not earning, how long will they be able to continue to do that,” Edghill pointed out to reporters at a press conference on Wednesday.
He went on to outline that this was not a sustainable move, adding that at this time what was required was the stimulation of exports and incentivising of the business sector in such a way that the economy could boom and money would circulate.
“Money is currency and anytime it’s not moving and you’re hoarding it, you will have exactly what we have here – you can’t blame people for holding onto their money, because they’re prospecting and they’re looking to see what is going to happen because of the uncertainties.
“So, what is required is not the bullying that is taking place by the Administration, but we need to see fiscal policies that eliminate the uncertainties that exist, we stimulate exports and we allow people to be able to trade. If the money is being devalued, we have to admit it,” Edghill asserted.
The former Junior Finance Minister added that the situation the country found itself in today was being fuelled by uncertainty because of the “ineptitude, mismanagement and the lack of vision and direction” of the coalition Administration. He noted that it was a worrying situation and one that needed to be fixed.