The Opposition’s Budget Debate Incoherent and Contradictory

Dear Editor,
Having listened to the recently concluded policy debate on budget 2023 in the National Assembly, the Parliamentary Opposition’s contribution was found to be incoherent and contradictory, specifically, on the macroeconomic and public finance matters.
The Opposition Leader in his closing debate proposed several alternative policies and initiatives. These alternatives included a number of initiatives that the Government is already pursuing (he just presented it in a different form), for example, community development initiatives. This is already being pursued by the Government and provisions are made in the 2023 budget for community development across the country.

The Opposition Leader also advocated for a 50 per cent increase in wages and salaries in public services. In this respect, it should be pointed out that the total employment cost for the public sector from FY 2020 when the Government assumed office to FY 2023; with the budgeted amount for employment cost in budget 2023, a cumulative increase of $33.9 billion or 47.13 per cent is reflected. This rate of increase in just three years is due to the incremental increases together with the salary adjustments for the various categories of public service workers. At this rate and trend, it is safe to deduce, henceforth, that by 2025, cumulative salary increases for public servants will surpass 50 per cent in the five-year period.
Other Opposition Members of Parliament (MPs) argued that the Central Government’s fiscal deficit is indicative of a crisis in the making and that the Government is borrowing excessively to service other debt. On the other hand, the Opposition’s proposal, if considered would result in almost doubling the size of the current expenditure side of the budget, reducing the capital side of the budget (to finance the current expenditure), which in turn would delay critical capital investments to expand and diversify the economy that will generate long term revenue. Noteworthily, borrowing excessively (which is what the Opposition is proposing) to finance current expenditures is unsustainable and a recipe for bankruptcy. Further, even if the Opposition is suggesting that the Government use the Natural Resource Fund (NRF) to finance the current
expenditure, this is also dangerous to the extent that when oil prices fall below a certain level, such an event would culminate into a spontaneous financial and economic disaster.
Some other key criticisms of the budget by the Opposition are as follows:
The budget does not sufficiently address the cost of living (COL), for example, the Opposition argued that less than 1 per cent of the budget is allocated for COL intervention (s).
The Opposition argued that the budget does not contain any poverty reduction mechanism or strategy.
The expansionary monetary policy stance of the Administration is inflationary.
The Opposition also contended that the budget is heavily focused on infrastructure and as such it is not a balanced budget in terms of providing adequate allocations for the social services sector and increase in public sector wages and salaries.

The impact of cost-of-
living measures on the budget
The budget contains several measures to combat the cost-of-living issue which is largely impacted by external factors within the global economy. To this end, the inflationary pressure is driven by two forces: (1) imported inflation attributable to the fact that Guyana imports more than 80 per cent of consumer goods, intermediate, and capital goods. This aspect of inflation is impacted by events in the global economy such as supply chain disruptions leading to cost-push inflation and demand-pull inflation. (2) Secondly, the inflationary impact within the domestic economy is also driven by strong domestic demand across all sectors as demonstrated by the vibrant double-digit growth in the overall economy and in the non-oil sectors.
The total estimated cost of the COL measures implemented by the Government in terms of direct cost to the treasury and foregone revenue to the treasury–is approximately $89 billion. This represents 11.3 per cent of the total budget, 28 per cent of current revenue, and 43 per cent of the NRF withdrawal to finance budget 2023. Effectively, the impact of these measures altogether would translate to about $404,545 on an annualised basis per household using a total estimated household of 220,000 as per the 2012 national census data.
Consequently, this is demonstrative of the effectiveness of the Government’s series of interventions to combat the COL and evidently, Guyana has managed to contain the COL impact on the domestic economy much better than most countries globally. To corroborate this, Guyana’s inflation rate remained in the single-digit range and is projected to slow below 5 per cent by the end of 2023, thus remaining below the global average. On the other hand, the average global inflation rate is above 7 per cent while noting that many other countries are experiencing double-digit inflation. To this end, the World Economic Forum reported that inflation rates have doubled in 35 of 44 advanced countries over the past two years.
Turkey had the highest inflation rate in the first quarter of 2022 at 54.8 per cent while inflation has grown the fastest in Israel, with a 25-fold increase.

Expansionary
monetary and fiscal
policy and mitigating inflation
Indeed, the Government is pursuing an expansionary fiscal and monetary policy framework to facilitate the accelerated development trajectory of the economy. In theory, it is true that expansionary policies are inflationary. From all indications, however, the Government is mindful of this and has managed to contain inflation while preventing the economy from overheating. It is precisely for this reason that the Government has been careful to not significantly increase the current expenditure side of the budget.
In this regard, the current expenditure of the budget since the Government assumed office in 2020 only increased cumulatively by 51 per cent or an average Y-o-Y increase of 12.76 per cent. In theory, substantial increases in the current expenditure side of the budget would drive inflationary pressures on consumption, and which would be difficult to scale back because this would include, for example, larger increases, as the Opposition is advocating for, in wages and salaries and social welfare programmes. Conversely, to accelerate the development trajectory, there have been substantial increases in capital expenditure by over 400 per cent cumulatively since FY 2020 with an average Y-o-Y increase of 102 per cent.
Notwithstanding, capital expenditure and capital projects can easily be scaled back to contain any inflationary impact or overheating of the economy. So far there are no indications of the economy overheating and this can be explained by another inherent constraint, that is a default mechanism anchoring the overheating risk of the economy.
One of the major challenges that the Government has to confront is absorptive capacity, wherein, this speaks to the rate of implementation of projects coupled with the bureaucracy in the system. While this is a constraint to the fast-paced development, it is also naturally working as an anchor by staving off any strong inflationary impact that would lead to overheating.

Poverty reduction, investing for the future through a balanced budget
The notion that the budget is void of a poverty reduction strategy and that the budget is not sufficiently balanced on the social side–was not compellingly articulated by the critics. One of the key counter-proposals by the Opposition, for example, in response to the cost of living and poverty reduction is to distribute the oil revenues in the sum of $300,000 per household.
The Opposition also argued that the cost-of-living phenomenon may persist for the next three years (citing international agencies’ analysis). Hence, this is suggestive that the Opposition proposal is to be maintained for the next three years.
As illustrated earlier, the COL measures implemented by the Government translate to about $400,000 per household albeit indirectly, which is more than the Opposition’s proposal of $300,000 per household through direct cash transfers. Assuming that the Opposition is proposing an additional $300,000 per household through direct cash transfers in addition to the COL measures implemented already, this will translate to another $66 billion per household on the current expenditure side of the budget. This amount represents 8.4 per cent of the budget, 32 per cent of the NRF inflow to the budget and 21 per cent of the current revenue. To make this possible, it means that the Government would have to cut the capital expenditure side of the budget. The question is, which project should the Government cut and/or delay to accommodate such a proposal.
For demonstration purposes, two major projects are the new bridge across the demerara river and the gas-to-energy project. The budgetary allocation for both projects in budget 2023 amounts to $45 billion giving rise to a shortfall of $21 billion. This means that the Government would have to slash some of the road infrastructure projects in the budget to reach the $66 billion for this proposal. With these adjustments, the configuration of the budget will move from a 50:50 ratio to 59 per cent (current expenditure) and 41 per cent (capital expenditure). Apart from such a proposal having the potential to engender uncontained inflationary pressures driven by consumer spending, it would effectively delay the development of the projects that are actually designed to mitigate the impact of inflationary pressures attributed to external factors. Consequently, not only Guyana but the entire region will be subject to pro-longed risks of externalities on the regional and domestic economies. As such, the gas-to-energy project, together with the infrastructure development is absolutely critical to achieving the objectives of the regional energy and food security agenda that the Government has positioned Guyana to lead.

Social services sector
The budgetary allocations in the social services sector, which include allocations towards employment cost for public sector employees, health, education, social welfare programmes, housing and water, culture, and youth amounts to $255.2 billion, reflecting a 36 per cent increase over the previous year and accounting for 33 per cent of budget 2023, and 79.73 per cent of current revenues. In view of this, there are substantial budgetary allocations towards the social services sector– while noting that the approximate sum of $255.2 billion is exclusive of allocations towards the public safety and security sector.

Determining whether the budget is a balanced budget?
With respect to the argument that the budget is not a balanced budget and not people-centric, the proponents of this view failed to state and justify what are the determinants of a balanced budget and how is it that the budget is not people focused. In this regard, the author attempts to put context to this notion and demonstrate evidently how the budget is a people-focused budget, and to further contextualise the term “investment for the future”, or, drawing the theme of the budget, “improving lives today, building prosperity for tomorrow.”
In doing so, the author examined the composition of the population age groups using the 2012 population census data (which is 11 years ago), whereby for the purpose of this analysis, the age groups were adjusted upwards by 11 years, since the study was done 11 years ago.
In examining the age groups of the population from the above illustration, 71 per cent of the population are in the age group of 11–40, 17 per cent of the population is in the age group 41–65, 7 per cent of the population is in the age group 66–75, and the remaining 5 per cent of the population are 76 and over. Putting this into context, investing for the future and creating prosperity for tomorrow essentially means investing in the economy that will create sustainable prosperity for the 71 per cent of the population comprising of the present and future generation, who in turn have their entire working life ahead of them–and in the process building and developing the economy. Another 24 per cent of the population in the age group which is made of 17 per cent in the age group of 41-65 and 7 per cent in the age group 66–75, these age groups are also in the working population all of whom ought to have the framework for an improved standard of living and quality of life today and securing their future as well.
Aligning this with the configuration of the budget whereby 33 per cent of the budgetary allocations are towards the social services sector and the remaining 67 per cent allocated towards investing in the infrastructure to enable the future growth trajectory and prosperity, this ratio configuration virtually mirrors the composition of the population in terms of age group where the future is for the 71 per cent of the population (11-40 years old).
While this segment of the population needs social services, more importantly, they also need the opportunity to build profitable enterprises for those who have entrepreneurial ambitions, and job opportunities that can only be created through investing in the economy and creating a conducive business and investment climate to so facilitate.

Conclusion
It is within these contexts, therefore, that it can be safely concluded that the budget is people focused. It is a balanced budget catering adequately to the present and future generations of professionals and entrepreneurs – while improving the present-day conditions upon which their livelihoods hinged. The budget also sufficiently caters to the elderly who account for about 5 per cent of the population within the limitations of the financial resources available.

Yours sincerely,
Joel Bhagwandin