International reserves held by the Bank of Guyana (BoG) declined in the first half of 2017 to US$578.4 million, a decline of US$18.3 million from the US$596.7 million that had been collected during the same period in 2016, and a representation of 3.4 months of import coverage.
This, according to former Junior Finance Minister Juan Edghill, is something that must not be overlooked. Rather, close attention must be paid to this issue, because if this trend continues, in a few years from now, it will have significant ramifications for Guyana’s financial sector.
Opposition MP Bishop Juan Edghill
The information contained in the Government’s Mid-Year Financial Report for 2017 pointed to the fact that, even with increased domestic earnings — which resulted from the revised tax regime introduced by the APNU+AFC Coalition Administration — this did not change the situation.
Edghill reminded that the internationally accepted standard is 3.5 months of import coverage, but he said that if this figure continues to decline, Guyana could be heading into a major foreign reserve issue.
“You may end up with restrictions and controls on foreign currency. The market may no longer be a free market. You might end up with restrictions on what money could be made available for imports, because that could put a demand on foreign currency,” the former minister explained.
But equally important, a diminishing reserve is an indication that the country is spending more than it is earning, something that is not novel. However, Edghill said that because Guyana is not earning less in terms of foreign currency, the country would not be able to match the local demand for foreign currency.
He said, “One may suspect that you have to be putting (sums of money) from the reserve into the market for the demand…That is a signal of the underperformance of a number of sectors that contribute to Gross Domestic Product and bring in foreign reserve. We are earning less.”
Despite these arguments, the former Finance Minister told Guyana Times, he would not make “too much noise” about the issue, since the situation is a bit manageable. However, he noted that the figure on foreign reserves has sent a signal that things could worsen if prudent management is not practised.
Earlier this year, officials at the BoG revealed that US dollars in the system had increased by an excess of between US$10M and US$20M. The selling rate then was between Gy$208 and Gy$210 for US$1 at most financial institutions, since the US dollar was not in abundance.
Overseas-based financial analyst Sasenarine Singh had claimed that Guyana’s foreign currency reserves decline was started under former President Ramotar, but the pace of the decline accelerated multiple folds since the election of President David Granger.
Singh said that both of these Presidents have failed to stimulate value-added ventures in the agriculture sector, especially in the local sugar industry. However, he said evidence supports the position that the economy is being bungled under Granger. And unless Finance Minister Winston Jordan rolls out some urgent progressive policies to stimulate investments, the run on the Guyana dollar can possibly hit Gy$250 to one US dollar by Christmas 2017, Singh had predicated.
He said the Granger Administration must rebuild the international reserves, stabilise the exchange rate, and stimulate investment in the Guyanese economy. If these strategies are successfully implemented, confidence can be restored in the Guyanese economy, and this would attract foreign direct investments.
Following the unease in the local economy about the availability of foreign currency, the BoG had instituted stricter monitoring measures. Government has never admitted to a shortage.
