There is a shortage of foreign currency in Guyana

Since August 2017, the Bank of Guyana has started to shop aggressively for foreign currency in the local private FX market. While there is no abnormality in the Central Bank entering the private FX market intermittently to buy and sell currency as a tool to manage its monetary policy, there is definitely a problem when it consistently conducts operations that resulted in the harvesting of some US$91.1 million over a 12-month period. This situation is abnormal.
The graph below was created with data published in the Bank of Guyana Statistical Abstract and it reveals some interesting facts.

If one looks at the trend line from the graph, it reveals a case of a deep dive in the supply of foreign currency in the local private FX market and this trend is not expected to improve as GuySuCo implodes. Only in April 2018, the Central Bank sucked some US$33.8 million out of the private FX market. Yet to date, we cannot hear of any policy intervention from the Finance Minister to address this systemic challenge.
The main reason for this situation is the perilous state of Guyana’s trade balance, which has worsened in 2017 as a result of the collapse of production and exports in the sugar industry. Until that is fixed, there will be a depreciation of the Guyana dollars. How do you fix this? New foreign direct investment to replace the sugar money.
Because of what was allowed to happen in the sugar industry by the mavericks in GuySuCo’s boardroom, the value of export flat-lined in 2017 because of the acquisition cost of fuel, the value of imports expanded by some US$170 million. But to add salt to the trade wound, remittance from abroad declined by over US$50 million in 2017. This is a clear indication that in addition to a trade imbalance, the Diaspora (a key source of foreign currency) has demonstrated a declining sense of confidence in the local economy.
While timely interventions in the private FX market can be a positive tool, because of the economic fundamentals of any economy, any sustained withdrawal of foreign currency from the private market is not advisable. All the Central Bank is doing is actively reducing the supply of foreign currency available to the Private Sector in a period when the demand should be increasing. In such a situation, the price will rise and the evidence has started to show. I was told that “off-the-book” trade is currency is now going for G$219 for one US dollar. As former President and Leader of the Opposition Jagdeo accurately postulated, he expects the exchange rate at Christmas 2018 to be closer to G$240 to US$1. All the computation I have done clearly points me in this direction also. So what is Jagdeo, the local Private Sector and many of us are seeing, that the Government cannot?
As fuel prices increase and as the dollar debt service payments also rise, the demand for foreign currency by the Central Bank will also swell. Rather than supporting the foreign currency generators in the economy such as the sugar sector, all the Government has done was plunder the stock of foreign currency in the private FX market as a short-term measure. But that is not progressive policymaking that is a reckless reaction to a situation where you have lost control. One only has to look at the first crop figures from GuySuCo. The sugar company had a pathetic production of 34,000 tonnes sugar. GuySuCo is now on course to produce less than 90,000 tonnes of sugar in 2018 compared to some 239,000 tonnes just two years ago. Those lost tonnes provided some US$50 million less to the Central Bank compared to two years ago. There is nothing right now filling that gap.
In spite of the situation where GuySuCo was making a Guyana dollar loss, the benefits to the nation was clearly it released valuable foreign currency into the economy. With GuySuCo now a shadow of its former self, those inflows of foreign currency are now lost. All we are hearing from the Granger Administration is the more empty talk of oil inflows but with a projected production of 120,000 bpd in 2020-2021, peanuts will be left on the table for Guyana after the company has made their claims.
In conclusion, it is clear that Guyana is facing a situation where there are heavy doses of policy paralysis in the Finance Ministry. Will President Granger acknowledge his mistake and take corrective measures to secure new leadership on this front? It is not too late!