By: Sase Singh; MSc – Finance, ACCA
Given the structural character of the economy (a small and open one), it is expected that there will be a high reliance on imports for consumption and capital development. In such a situation, the proper administration of the stock of foreign currency in the system is of paramount importance to conduct trade. Therefore, there must be discipline in how the foreign currency market is managed.
The Bank of Guyana has just released its December 2018 Statistical Bulletin and in Table 2.16 captioned the Bank of Guyana Foreign Exchange Intervention one can find an alarming situation. For the readers, Bank of Guyana intervention in this case translates to their buying and selling currency from the commercial banks/cambios and other major F/X traders, such as the Guyana Sugar Corporation (GuySuCo).
Those of you who are more familiar with arithmetic, unlike the geniuses in the legal fraternity who thinks 33 is not greater than 32, will understand from that table that the Bank of Guyana sold US$8.1 million in F/X to the market in 2018. But at the same time, the very same Bank of Guyana bought from the very same system a sum of US$187.8 million in F/X. For emphasis, please read this carefully – the Central Bank of Guyana drained from the public financial system a sum of US$179.7 million in F/X in 2018.
The primary consequence from such an act is dire foreign currency shortage in 2019 and if this is not fixed now, beyond. This shortage will be compounded by the fact that the foreign currency earnings of GuySuCo, one of the largest contributors to the Central Bank F/X supplies, saw its inflows from abroad chopped by 67 per cent since 2017 because four sugars estates were closed. In the final analysis, there will be a shortage of foreign currency in 2019, which will cause the price to increase. This is harmful to the Private Sector and the ordinary citizens and will contribute actively to an increase in the cost of living across the land. Therefore, there is a need for urgent short-term measures to combat this economic illness.
On February 4, 2018, several businesspersons informed me that unless they were willing to pay GY$218 for the US dollar, they could not secure the required foreign currency by way of a wire transfer to pay for their imports. But what is strange is that if you actual need cash from the non-bank cambios, you must stump up around GY$224 to purchase US$1. This is a far cry from the situation in 2016.
Guyana is now gliding into a recession mainly because much policy paralysis in the Finance Ministry and poor political leadership out of the Ministry of the Presidency. Public uproar may be too much to hope for, but surely if Guyana’s economic engine is downshifting, you’d expect the political class to wake up and understand the plight of the ordinary people. But nothing of the sort has happened as the political class focuses on elections and JOHN PUBLIC continues to bite the increases in the cost of living because of this currency crisis among other factors.
And the political crisis is not helping. This nation is swiftly moving into a zone of unregulated autocracy, which will manifest after March 20, 2019. To hold on to office in such a situation is to enter into “no-man-land”. The Executive could not have asked for better guidance than that which was given to them by the Legislature and the Judiciary in their interpretations of the Constitution. Non-alignment with the spirit and intent of the Constitution by the Executive will have economic consequences since in any country the economy is intertwined with the political landscape. Common sense must return to the President and his advisors.
This economic damage will only hurt the ordinary people and can be the catalyst for increased levels of poverty in the immediate future. Everything in the market will cost more within a month. Things will be selling at higher prices in March 2019 that the consumers never experienced at all 2018. We must remember two of the main inputs into our food chain are imported fertiliser and imported fuel, both of which will be adversely impacted upon by this depreciation in the F/X rates.
I am therefore encouraging the authorities to cease and desist from this reckless economic and political strategy. The foremost consequence is a rapid shortage of foreign currency in the market, which will drive the re-awakening of a parallel foreign exchange market. That is nothing else but economic retardation. Guyana can do better than this!