WHAT’S
NOT WRONG WITH THE ECONOMY?
By Prem Misir Ph.D.
Most parts of the world are experiencing
an economic slow down. In fact, the recession in the U.S.
started not on September 11, but since March of this year.
We should note, too, the economic stranglehold that the World
Trade Organization has on poor developing countries. And of
course, the senseless post-elections violence that emerges
at each election in Guyana, only to subsequently retreat into
protracted hibernation. All these factors impacted the Guyana
economy as well as other economies of the developing world.
This economy does not operate in isolation from the international
monetary and economic developments.
A lot has been made of the closure of businesses.
But very little attention is given to the number of new businesses
operating and the number of existing businesses expanding.
The new businesses and expansions mean that people still perceive
the economy to have a favorable business climate. The prophets
of doom need to address the mismanagement that occurred in
some failed businesses.
The economy has shown some positive signs
which generally get lost in the scramble to demonstrate negatives,
as demonstrated in the two charts below. Some of the these
are:
Inflation rate: 14.2% (1991); -0.4% (2001)
· Per Capita income: US$231 (1991); US$833 (1999)
Minimum Wage/Salary: total increase is 615%
from 1992 through 2001; $2801 (1992) and $20045 (2001); these
figures show high wages/salaries and increase in real wages/salaries.
350% increase in tax-free allowance from $48000 in
1992 to $216000 in 2000.
Government spending in public sector employment: from
$3.2B in 1992 to $11.8B in 2000.
Minimum Public Sector Wage /Salary
Increases
Minimum Public Sector Wage/Salary
Increases
The PPP/C Government’s economic policy directions are
incorporated in the National Development Strategy (NDS) and
the Poverty Reduction Strategy Paper (PRSP). The details of
its macroeconomic strategies, therefore, are included in these
two documents.
The PPP/C Administration believes that the
key to enhancing the future development of Guyana must include
creating a stable macroeconomic environment. In this regard,
it intends to eliminate the fiscal deficit, reduce interest
rates, sustain the stability of the Guyana dollar, achieve
a sustainable balance of payment status, and sustain high
growth rates of output and employment.
In 2000, the Guyana dollar depreciated by
only 2%, and the economy experienced more foreign currency
transactions than in 1999. In the first half of 2001, the
Guyana dollar depreciated only by 1.1%. The central Government’s
total deficit decreased in 2001, largely induced by reduced
interest payments and increased capital receipts.
In the first half of 2001, commercial banks
showed a high level of investment in loans to the private
sector, treasury bills, debentures and shares in companies.
With regard to the interest rate, the 91-day Treasury Bill,
the standard for other interest rates , fell by 7 basis points
to 8.45% at the end of the first half of 2001.
Promoting a stable price and exchange rate
to manage excess liquidity is one of the foundations of the
Government’s monetary policy. In the first half of 2001,
open market operations checked any significant increase in
the excess liquidity created by higher domestic savings and
some private sector credit expansion.
The real Gross Domestic Product (GDP) increased
by 1.3% at the end of 2001, a small percentage, but a positive
one, amid the international economic slowdown.
Due to the links with the NDS and the PRSP, the PPP/C Administration
is clear on its monetary and fiscal policies. The details
can be dragged out of the NDS. On the monetary side, the PPP/C
will reduce the quantity of bond issues, and will enable debt
instruments to be issued over a longer period. In these ways,
interest rate can be contained. Its containment will contribute
to fiscal deficit reduction, which, in turn, will connect
to sustained and enhanced economic growth.
On the fiscal side, the applicability of
VAT is being carefully considered; non-standardized import
tariff schedule will become less non-uniform for about four
categories of goods; the possibility of reducing corporate
taxes for both commercial and non-commercial companies may
be an attractive option; how tax holidays are to be addressed,
the availability of micro-credit facilities, privatization,
and export promotion, are other macroeconomic issues being
aggressively pursued.
The tax base will be widened, and the tax
system changed to produce a reduction in taxes and providing
incentives for the private sector. Chances are that VAT may
replace the consumption tax.
A policy of debt reduction will persist.
By the end of 2001, the debt is expected to reach US$800M
due to the Enhanced HIPC. Keep in mind that this debt was
US$2.1B in 1992.
In this presentation, we have stuck pretty
much to the macroeconomic agenda of the PPP/C Administration
because without a stable macro economy, there will be no economic
program.
Some economists expect Guyana to have a robust
economy with unparalleled growth over the next few years.
The impact of globalization and the recession experienced
in some of the G8 countries, on this small economy, looms
large. While some positive economic signs via the opening
of new businesses and expansions, are clear for all to see,
let’s understand the damage inflicted on the economy
by the institutionalized post-elections violence.
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