Guyana has endured, in the political environment, one-and-one-half years of a roller coaster ride that was characterised by great degrees of political uncertainty that dampened investors’ confidence and largely affected businesses in general. It is without doubt that these effects have been painful for the country and its people. It appears now that, finally, this elections saga is coming to an end, and a new Government will be sworn in. A smooth and peaceful transition is expected, and the political economy is expected to revert to stability.
Before addressing today’s topic, this columnist wishes to extend sincere congratulations to the incoming President, Dr. Irfaan Ali; to the Party’s General Secretary Dr. Bharrat Jagdeo, for his resilience and steadfast stewardship during this period, which served to preserve Guyana’s democratic principles and the country’s legitimate international standing; and to the entire team of the new regime which is soon to be installed. On this note, the incoming regime has a humungous task ahead of it: to firstly address the impacts of the COVID-19 pandemic, and to focus on an economic recovery plan and nation building for a country that has been badly wounded for the last one and a half years.
While proponents would argue that the economy had indeed recorded consecutive and increasing growth rates in real GDP over the last five years, those were driven largely by the oil and gas- related sector; inter alia, increased levels of foreign capital inflows into that sector, and in large part the performance of the mining and construction sector. Notwithstanding, this outturn does not necessarily translate widely to improved standard of living for the vulnerable and the working-class people, or broad-based and inclusive growth. GDP does not measure progress and human development, and is certainly not a good measure of standard of living. Essentially, GDP measures spending in four different aspects; namely: Government spending, investment (foreign and local), consumption/ household expenditure, and net-exports, which in the case of Guyana has always been a deficit position. The country’s ability to generate adequate supplies of foreign reserves depends largely on its national competitiveness to produce goods at internationally competitive prices to boost export earnings. The major inhibitor here is the high cost of energy in Guyana, which is among the highest in the western hemisphere. This inhibits the private sector from making investments to produce more value-added goods and services, which in turn would enable greater levels of job creation.
High levels of public debt, coupled with a decline in Government revenue – attributed largely to the adverse economic effects of COVID-19 and the political uncertainties — would thereby constrain Government’s ability to honour its debt obligation; and if so materialised, this leads to a bankrupt State.
With this in mind, when Government’s revenue has to be redirected to service high levels of debt, this has implications for vulnerable groups, working-class, middle-income families, and the business sector.
The level of non-performing loans in the banking sector, for example, is an indicator of the vulnerabilities and economic hardships, some degree of the gravity thereto, upon which vulnerable groups of people, the working-class and some sections of the business sector have been facing over the last five years. To this end, the level of NPLs increased by over $22 billion in the last ten years; and the business sector alone accounted for 66 percent, or close to $20 billion, and the household sector accounted for 30 percent, or $4.5 billion, representing an increase of 75 percent from the 2010 position.
To interpret this differently, non-performing loans effectively means that individuals and businesses are virtually so bankrupt that they are unable to service their debt obligations because of a number of factors, including loss of income to the extent that 17% or approximately 42,500 of total average households have been pushed into poverty. In 2010, just about 4 percent of total householders were in this position, as determined by using the level of NPLs in the banking sector that were concentrated in the household sector as a benchmark. This, of course, does not include the more vulnerable groups.
Despite the growth in GDP, the level of poverty has grown steadily over the years, and would only worsen with the impact of COVID-19, especially in the absence of adequate fiscal support packages on the part of the Government.
Governments have an obligation and responsibility to provide public goods and services — where such goods and services serve as the enabler that creates a conducive environment in which businesses thrive through productive development – designed to foster the emergence of new industries and businesses. In so doing, Government needs to allocate resources in public infrastructure, roads, bridges, housing, and industrial development sites for example. These, however, should not be limited to the rehabilitation of existing infrastructure each year, as is the case in Guyana, owing to a series of factors, including substandard work, which translates to a lack of proper mechanisms in place to ensure value-for-money projects. Rather, public investments need to be linked to a national development strategy in which are created new industrial zones that would facilitate commerce, and, by extension, the creation of wealth designed to achieve the sustainable development goals – mainly poverty reduction.