What is expected in Budget 2021 and the anticipated economic outcomes?

In previous writings featured under this column, an assessment of the Government’s performance, inter alia, the 2020 emergency budget was conducted. In that assessment, it was essentially concluded that the Government has achieved/delivered on about 30% of the promises outlined in its five-year manifesto. To describe this achievement as “astounding” is an understatement because 70% of the monies in the budget was already expended (unlawfully) by the previous Administration, and, it has inherited a broken economy, a bankrupt treasury, and had to combat the effects of COVID-19 pandemic. This is no ordinary task for any newly elected Government. (See link to referenced article for ease of reference: https://guyanatimesgy.com/an-assessment-of-the-governments-performance-within-the-first-100-days-in-office/). Having said that, it is largely these indicators and other actions taken by the Government to date – that formed the basis upon which the theme of today’s article is premised.
During this period, His Excellency on several occasions would have himself announced that his Government is working on a number of transformative developmental projects most of which will commence next year. Examples of these are: –
For simplicity of illustration through some amount of extrapolation; the information in the above table represents key projects in the Government’s manifesto where actions have been undertaken to move forward with these into 2021, as well as some private sector projects announced in the public domain. The estimated investment values for some of the projects were also stated in the public domain and where those were not stated, the others are reasonable estimates by the author.
That said, while these are just a few of the key projects to commence in 2021 and to be completed over the next five years, the total estimated capital investment is approximately G$1.2 Trillian. This in turn can be worked out to about $246 Billion on average, annually over the next five years (bearing in mind these estimates are just a fraction of what is expected over the next five years, perhaps 30% – 50% of what is to come). Of this sum, 51.5% represents estimated public investments while noting importantly as well – that the Government is seeking to employ a Public Private Partnership (PPP) model to finance most of these projects. Now, let’s dissect what this scale of investment means by a forward-looking approach and by reverting to some analyses on government expenditure over the last five years done by this column. This is to simply draw a distinction between the two different approaches by both regimes in terms of allocation of resources.
In previous articles, this author would have compared Government spending for the period spanning 2011-2014 and 2015 – 2018. The findings of this comparative analysis showed that Government spending increased by $214.2 Billion or 43% relative to the period 2011 – 2014. More so, the alarming revelation when disaggregated to show Government spending in public investments and consumption goods and services, public investment fell by $35 billion or 14.34 %. (See links to the referenced articles here: https://guyanatimesgy.com/analysis-of-government-expenditure-for-the-period-1993-2019/, https://guyanatimesgy.com/an-analysis-of-governments-revenue-expenditure-for-the-periods-2011-14-2015-18-part-2/).
In other words, over the last five years, Government’s allocation of public funds deteriorated to the extent where more monies were expended on non-productive activities amounting to excessive wastage of resources through mismanagement; while the productive sectors were neglected of critical resources – and very little to zero investments in public infrastructure and transformational developmental projects.
Against these backgrounds, let’s now put today’s thematic discussion into perspective. In so far as the development trajectory of country is concerned, the current Government has set the framework to completely reorient the national budget to achieve its development goals. In doing so, more resources are expected to be allocated towards productive activities through its public investment agenda – some of which are illustrated above to aid in this discussion.
Towards these ends, the projected injection of in excess of $240 billion into the economy through both public and private investments to develop the housing and other major public and private infrastructure, will translate to a construction boom in the making.
This means, that companies supplying hardware, household appliances, sand, cement and steel and all other building materials, will benefit from increased demand in goods and services. Contractors as well: carpenters, masons, labourers, construction companies, trucking and transportation, the banking sector, all these sectors will benefit from increased level of commercial activities. This means, companies will need to invest more in order to meet the growing demands, by investing more companies will also need to employ more people to work – this is creation of employment. This in turn, will result in increase spending power for households – who will in turn spend in consumption goods and services and also invest by taking out loans to improve their standard of living.
Moreover, all these activities will spill over into other sectors as well, and, it also means that companies by virtue of investing more and to meet the growing demand, will earn more profits, and in turn pay more taxes. On the individual level, the creation of thousands of employment opportunities will also lead to more taxes in revenue collection for the Government.
This is effectively a different philosophy designed to propel economic growth and development by broadening the tax base through expansionary growth as described herein, rather than, increasing the level of taxes that results in decreased spending power of households, high poverty levels and even causing companies to go bankrupt as a result of an excessively burdensome taxation system.
In a developing economy context, creating the enabling environment for businesses to grow and by attracting new investments into the economy is critical for national development. To facilitate this, the Government need to focus on ensure the ease of doing business is enhanced to allow for greater efficiency, and to pursue an expansionary fiscal agenda rather than a contractionary fiscal agenda as was previously the case.
In these respects, the current Administration is moving in the aforesaid direction which is commendable and, therefore, one can only expect the economy to take off in 2021. As such, companies, entrepreneurs and potential entrepreneurs need to prepare themselves swiftly and strategically so as to not be left behind by being more forward looking and proactive. Despite the COVID pandemic, development will take place at a relatively rapid pace. There is much work to do and so one cannot afford to sit back and be lazy.

About the Author: JC. Bhagwandin is an economic and financial analyst, lecturer and business & financial consultant. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected].