Category: Business and Economic Commentary

November 10, 2024

Trump 2.0: Economic Lessons and Challenges for Guyana

Introduction

A transactional electorate has overwhelmingly voted to return to the presidency in the United States of America a convicted felon, a misogynist, a businessman who owes his success to scamming, the exploitation of the tax and bankruptcy laws of that country, and a man who has been ordered by the courts to pay millions for sexual assault. And just a small bit of irony – he will be sworn in at the same place where he led an insurrection four years earlier.

For contrasting reasons, Trump’s re-election is particularly significant for Guyana and the rest of the world – north and south, democratic and unfree, rich and poor, large and small. Trump befriends and admires Russia’s Putin, North Korea’s Kim Jong Un and Hungary’s strongman Victor Orban while calling the leaders of his domestic Democratic rivals “enemies from within,” threatening to let loose the Justice Department to deal with them. I have always treated the moniker of America as the “greatest country on earth” with grave doubts, but certainly that would not now earn a place on a late-night comedy show.

Trump 1

Trump was first elected President in 2016 when Guyana had only just had a few oil discoveries under David Granger, and it was in the twilight of Trump 1 that the USA intervened to impose clarity and democracy in Guyana by bringing Granger to his senses and ushering in the Ali Administration. Now, with Trump 2 only a matter of months away, Guyana faces the prospects and challenges from a dramatically different position than during his first term.

In 2016, Caribbean analysts warned of increased protectionism, reduced development assistance, and challenges to correspondent banking relationships – predictions that largely materialised. This time around, as a not insignificant oil producer, Guyana must navigate these renewed challenges with ExxonMobil’s role as an extension of US foreign policy in our midst and playing an outsize, dominant role in Guyana’s economy, politics and society.

Trump’s promised trade policies – including a 20% tariff on all imports and 60% on Chinese goods – echo the protectionist stance that characterised his first presidency. Oil is Guyana’s biggest export to the USA, and it would be interesting to see whether Exxon’s and Hess’ oil imports in the USA will escape Trump’s tariffs. It would be the greatest irony if the US’s IRS allows Exxon and Hess to claim a credit for taxes which we in Guyana pay but imposes Trump’s tariff on their imports of Guyana oil into the USA. While the Stabroek Block is Exxon’s and Hess’ Kohinoor (jewel in their crown), Trump might want to promote America’s oil production over imports.

Oil

But Guyana exports to the USA is more than oil. Caught in any genaralised tariffs could be agricultural produce, seafoods and gold. If Exxon and Hess face any pushback in the US from their Guyana production, they will play hardball with Guyana to prevent any setbacks to their good fortune. As I expressed in 143 of the Oil and Gas column this past Friday, their resistance to renegotiation of the 2016 Agreement will be even greater than it is today.

But however oil is dealt with as a tariff issue, the impact of Trump 2 on oil price is even more certain and consequential. Already we have seen the fall in price with expectations of further reductions over the next year. If there is the easing of geopolitical risks, the ending of the Russian – Ukrainian war, Israel’s declaration of victory and its war aims, prices can really tumble with grave implications for the budget. These are real prospects and the backdrop to Government’s announcement of its intention to seek a supplementary budget for the $60 Bn or more to pay the $100,000 cash grant to all Guyanese. No time for explaining that there are two sides to a budget – the expenditure authorisation side and the funding side. We are still to be told where the money will come from, or its impact on inflation and the exchange rate. But that is an aside.

Trump 2

Trump is likely to pull out from the Paris Accord (again) heightening the risk of accelerated global warming with direct, catastrophic consequences to low-lying countries like Guyana. The change from the Trump 1 era to Trump 2 era is that Guyana has moved up in the league to being a rich country to which development assistance might no longer be available.

There must be tens of thousands of Guyanese caught in the deportation drive. That will pose a huge housing, economic and social challenge to the Guyana economy and society even as we seek to accommodate and adapt to the huge influx of Venezuelans in Guyana. It is unclear how prepared Guyana is, but I worked with Joe Harmon in an NGO providing assistance for compulsory returnees and am aware of the huge challenges which arise.

Responding to Trumpism

The lessons from Trump’s first term show that reliance on a single market or sector creates dangerous vulnerabilities. The Ali Administration has itself become trapped by the Dutch Disease even as we hear of job losses in the oil sector, the outsourcing sector and even a prominent bakery, all on top of the destruction to our village economies with the proliferation of Chinese businesses in every corner of the country.

While oil dominates our current economic discourse, we must strengthen the existing sectors and create the conditions for the diversification into a robust, resilient economy. This is not a job task for the Government alone and it is sad to see how little the major private sector companies contribute to import substitution, let alone exports. Nand Persaud in rice best serves Guyana and while GuySuCo produces some sugar, the cost of maintaining the Corporation is prohibitive and possibly unsustainable. So much on the shelves from the supermarkets – including water, for Pete’s sake – is imported, as are chicken, eggs, fish, beef and pork, vegetables etc.

ONE GUYANA is a good political slogan. Let us paraphrase Trump and make PUT GUYANA FIRST our economic motto,

November 03, 2024

Jagdeo promises gross constitutional violation: Ali needs to assert his authority.

Introduction

Vice President Bharrat Jagdeo – in one of the government’s most egregiously constitutional violations – announced at his weekly press conference at the PPP/C’s headquarters that the government has no intention to seek parliamentary approval for the already bungled cash payout of oil money to Guyanese at home and abroad.

Article 217 of our Constitution could not be more precise in its requirements: no moneys shall be withdrawn from the Consolidated Fund except through proper legislative authorisation. This is not mere bureaucratic red tape – it represents the fundamental barrier between democratic governance and autocratic rule. When Jagdeo dismisses these requirements as inconvenient obstacles to “government flexibility,” he is not just expressing an administrative preference but advocating for dismantling vital constitutional provisions and safeguards against financial abuse.

A public declaration by the Vice President that the Government will ignore this vital constitutional provision in the distribution of over sixty billion dollars or nearly three hundred million United States dollars without legislative authoritative authority and parliamentary oversight represents more than just administrative overreach – it signals a dangerous drift toward autocratic governance that should alarm every Guyanese citizen. President Ali’s apparent acquiescence to this constitutional subversion is more troubling, marking a profound failure in his primary duty as guardian of our Constitution.

Resource Curse

This cavalier disregard for the constitutional Framework invites comparisons with many third-world countries that have fallen victim to the Resource Curse. However, we need only look at neighbouring Venezuela to see where profligacy and thoughtless spending lead. In the early years of its oil boom, Venezuela similarly began bypassing legislative oversight for direct disbursements, arguing for “flexibility” in helping its citizens. This erosion of institutional checks and balances contributed significantly to the eventual mismanagement of its oil wealth and the following economic crisis. Remember Guyanese, Venezuela has the largest oil reserves in the world.

We have forgotten our country’s lesson from the Burnham era, which showed the dangers of concentrated power over national resources. The constitutional provisions Jagdeo now seeks to circumvent were designed to prevent the recurrence of such centralised control over public funds.

The darkening path

This is not the first instance of financial abuse by the Ali administration. In the 2022 Budget, approximately five billion dollars were allocated for contingency relief, a process hitherto unknown in Guyana. Ram & McRae warned at that time that this was just the beginning. Now, we are facing tens of billions more in even looser and larger situations. What started as general grants with weak controls is now evolving into more perilous forms of arbitrary power. We cannot overlook the trend: insufficient oversight over exploiting the country’s national resources is being used to undertake development projects outside the legislative purview. It is evident that every decision and action taken—including spending on programs and projects—is being executed not through constitutional mechanisms but through executive decree, with no meaningful checks or balances in place.

Mr Jagdeo’s creative justification for resisting Elder Kwayana’s call for legislation to regulate the proposed grant, was that that would create “rigid recurrent expenditures”. That is absolute nonsense, and I do not think that the Vice President himself believes it. It suggests, however, that whatever he thinks, he views constitutional constraints as impediments rather than essential safeguards. This concentration of power in the executive branch, particularly in Jagdeo’s hands, represents a clear and present danger to our democratic institutions. It is time that Guyanese take note.

This is not only about legal and constitutional technicalities. The absence of legislative debate, careful drafting, and parliamentary oversight in these massive cash distributions creates a stream of financial and governance failures. Opposition oversight is dispensed with, and there are no defined procedures for auditors to follow, while public accountability simply does not exist. Perhaps most dangerously, the door opens wide for political manipulation of these distributions, turning what should be national wealth into a tool for political control.

Ali’s duty

We also recall that the decision on the cash grant ostensibly came from President Ali. Since that announcement, however, Jagdeo has jumped into the driver’s seat and has varied Ali’s ideas beyond recognition. By his silence, President Ali, the Head of State and the primary guardian of our Constitution is demonstrating a glaring failure to prevent this overreach, amounting to a dereliction of duty. The President has sworn an oath to uphold the Constitution, not to stand by while his Vice President systematically undermines it.

President Ali has to show who appointed whom, assert his constitutional role, direct what the process requires, and demand a proper legislative framework for these distributions. The National Assembly must reclaim its rightful oversight role, and civil society must unite in opposition to this dangerous precedent. Our nation’s future hangs in the balance, and silence is no longer an option.

The moment demands action from every citizen, every parliamentarian, and every civil society organisation to stand firm in defense of our Constitution. Our nation’s future depends on it.

October 20, 2024

Uncertainty and confusion over Cash Grant

Introduction

The announcement of an immediate $200,000 per household among a Santa’s list of gifts, was met one day later by the removal of the word “immediate” followed by announcements, revisions, and clarifications regarding the cash grant initiative which had received widespread acclaim. Perhaps the most full-throated accolade came from prominent attorney and columnist Ralph Ramkarran who effusively described the announcement and address as a”masterstroke” that has “transformed the political discourse leading up to Christmas and the elections next year.”

Yet, what began as a bold proclamation by President Irfaan Ali has evolved into a case study of policy implementation challenges the country is facing under a Party that has governed Guyana for 28 of the last 32 two years.

The Revision and Lingering Questions

The latest position is that instead of $200,000 per household, the government would now provide $100,000 to every resident adult citizen 18 years and older. While this change addresses some implementation concerns, it has also given rise to a host of new questions and uncertainties.

“Resident” usually and in tax laws, is defined by physical presence in the country for more than 183 days. It would be interesting to learn whether the Government would apply this stringent measure in a circumstance that could operate in a manner that is adverse to its political interests.  

Despite the government’s stated intention to begin distribution “as soon as possible,” no specific start date has been announced, . This lack of clarity leaves citizens in limbo and raises questions about the government’s readiness to implement the program.

The Vice President announced some five months’ timeline but gave no indication of the order in which payouts will be made. Will it be based on geographic location, ease of accessibility, possession of qualifying papers, or whatever other criteria? So from total but unrealistic uncertainty of immediately, to some vague within five months. This also will reduce the political goodwill and support engendered by the original announcement.

Just as misleading, if not unacceptable, is the cost of the measure. Originally it was announced as $60 Bn, suggesting 300,000 households at $200,000 each. With the new proposal of $100,000 per adult, we are told that the revised grant would “substantially increase the $60 billion previously allocated for this measure.” However, this figure seems inflated given that Guyana’s adult population (18 years and older) is significantly less than 600,000. All the financial wizards have to do is look at the voting of the last elections and adjust for persons who would have become 18 on the arbitrary cut-off date of 1^st. January 2024, deaths and migration. That number is certainly less than 500,000 so on the outside the amount to be paid out is $50 Bn. While it  is frightening to think that the government could not do that simple exercise, it is even more troubling to think otherwise.

One of the concerns raised about the proposal was that since there was no parliamentary approval for the payout, the Government was banking on the popularity of the measure as justification for violating the Fiscal Management and Accountability Act and indeed the Constitution. It is now left to be seen whether it will seek Parliamentary approval, as it should have from the outset.

Another tweaking was by the Vice President who suggested, without details, that there might be more such handouts. If this is now policy, it raises concerns whether the Government has reduced economic, social and financial management to receiving profit oil and royalties and paying these out as cash handouts to citizens, a clear abdication of the duties and functions of government. In narrowly defined circumstances, universal cash grants have their value but it is dangerous to think that they are a substitute for proper management.

NIS update

Commentary last week called for the official release of the outstanding reports of the National Insurance Scheme. The 2022 Report has now been published on the website of the NIS and confirms that the Scheme has turned a substantial surplus in 2022 which is more than likely to be repeated in 2023. Since the stated purpose of the injection was to assist contributors who are just short of the 750 contributions to qualify for a pension, it might just be a case of too much too late.

But that is only one of the multitude of problems facing the NIS, some of which are rooted in the past, and some due to past and present administrations.

Let us stop playing slow walk. The Government must be proactive in solving the myriad of problems which go well beyond just money – even $10 Bn.

October 13, 2024

Focus on Budget 2025?

Introduction

In what was probably his most consequential address to Parliament, President Ali, this past Thursday, gave us more than a glimpse of what will be announced in Budget 2025 – an election year. It was a comprehensive and ambitious presentation, embodying responses to calls by various stakeholders for several years. The President also reflected on his Government’s achievements since retaking power in 2020, outlining them in detail before turning to the future – 2030 and beyond. With oil revenues driving the economy and the agenda, the President committed vast sums to reshape Guyana’s future, improve living standards, and build a modern, resilient nation.

At times, the address felt personal, with the President using the word “I” more than fifty times as he laid out his vision for harnessing oil revenues to fund large-scale cash transfers, subsidies, and public investments.

The headline-grabbing measures included a one-off $200,000 cash grant per household, the abolition of bridge tolls (primarily benefiting those crossing the Berbice River), a 50% reduction in electricity costs, free university tuition, and a child allowance for tax purposes. Additionally, the President committed to raising the public service minimum wage to $100,000 and transferring $10 billion to the National Insurance Scheme (NIS) to help contributors who did not make the 750 contributions required to earn a pension. These policies aim to provide immediate financial relief to citizens, while other cost reduction measures seek to further ease economic burdens.

Economic Risks and Sustainability

From all the vibes, the initiatives are popular and have the potential to improve living standards, but they do come with risks that demand serious attention. The pace and scale of spending raise concerns about fiscal sustainability, particularly given the reliance on the Natural Resource Fund. If the economy overheats, as it certainly will, there would be significant inflation, pressure on the exchange rate, and the exacerbation of challenges related to Dutch Disease and the Resource Curse. Delay or failure to engage in robust and meaningful planning only heightens these risks. Seizing this unique opportunity without falling victim to the maladies of other resource-rich nations will require prudent fiscal management.

Inflationary Pressures and Economic Imbalance

It is likely that even the private sector might have been caught off guard by the influx of billions of dollars into the economy, with little time to adjust internal supply capacity and imports at this short notice. If available goods and services do not meet the increased demand, inflation is inevitable. There is also the risk of price gouging, particularly in sectors controlled by a small number of players and groups which dominate the distribution sector. The economy, already growing at breakneck speed – averaging a 40% annual GDP increase over the past three years – may face inflationary pressures that could diminish the value of the very cash grants intended to assist citizens.

The Government has yet to clarify how it plans to mitigate these problems. Even if inflation is partially managed, the impact will still erode the purchasing power of citizens, creating the risk of a cycle of handouts followed by price increases and further economic instability. It will be crucial for the Government to find ways to ensure this does not happen.

Exchange Rate Management and Dutch Disease

Despite the talk of food security, many consumables –  including an increasing range of food products, and water – are imported and paid for in foreign currency. The economy is already experiencing tight foreign currency liquidity, which could worsen unless the Government, through the Bank of Guyana, takes proactive measures to address this strain. The paradox of a highly successful economy that exports vast quantities of oil, yet experiences foreign currency shortages, is glaring, especially with much of the Natural Resource Fund already spent. Labour, too, is increasingly being redirected to the petroleum sector, with implications for Dutch Disease.

Even as the Government finances large-scale social and physical infrastructure projects, these investments may undermine the competitiveness of sectors such as agriculture and manufacturing. Diversifying the economy beyond oil is not just a goal but a necessity for long-term stability. The Government has to pay more attention to this reality.

University of Guyana and the Guyana Power and Light Inc.

While free tuition to the tertiary level is a long-overdue constitutional goal and is welcomed without reservation, this is a recurring cost of billions of dollars. The same goes for the electricity subsidy, which offers short-term relief but does not address the underlying inefficiencies of Guyana Power and Light Inc. (GPL). Some might view the electricity subsidy as merely a way to prop up an outdated model of generation and transmission, rather than modernising the system to meet the needs of a growing economy.

Both these subsidies will likely continue indefinitely, as no future government would dare reverse them – making it all the more important to ensure that these liabilities are managed wisely. GPL’s issues cannot be solved by subsidies alone; they require substantial reform to create a stable, reliable, and modern electricity grid.

Labour Market and Incentives

President Ali referred to Guyana’s tight labour market as a “good problem,” indicating economic vitality. Yet, unemployment remains high in certain parts of the country, with many people either unwilling or unable to join the workforce. There is a risk that the combination of cash transfers and subsidies may inadvertently disincentivise employment unless measures to improve labour force participation and productivity in a timely manner.

The decision to raise the minimum wage in the public sector to $100,000 is commendable, but it should have been accompanied by an adjustment to the national minimum wage to avoid disparities between the public and private sectors. Failure to address these differences, runs the risk of public sector employment crowding out the private sector, further exacerbating the labour shortage in non-government sectors, which already face competition from the petroleum industry. To build a balanced and sustainable economy, private sector development must be a priority, with policies aimed at fostering entrepreneurship and job creation.

The National Insurance Scheme

The announcement by the President of a $10 Bn. injection is an acknowledgment and welcome attempt to resolve a recurring and longstanding problem in the NIS. That deals with the demand side. We anxiously await the details and the enabling legislation to address the myriad challenges facing the NIS, including inadequate physical and human resources, outdated legislation, and enforcement against non-compliant employers. An urgent, more holistic approach to NIS reform is needed, including updating laws, improving enforcement mechanisms, modernizing systems, and ensuring long-term actuarial sustainability.

One simple step the NIS needs to take is publish its outstanding financial reports.

Taxation

The two references to taxation were on tax holidays in which the President reinforced expanding the number of regions which can qualify on the basis of new employment generation and the introduction of the child tax credit, allowing parents to claim an additional deduction of $10,000 per month per child. This is another case of itemised deductions, from which Guyana had previously moved away from in favour of a simpler tax system.

This may be well received but it will increase the workload of the Guyana Revenue Authority and test its capacity to prevent fictitious claims by taxpayers. It would be much simpler to raise the threshold and make the personal tax system more progressive.

Targeted Social Programmes and Efficiency

While the universal cash transfer of $200,000 per household may seem straightforward to administer, it raises concerns about the efficiency of resource allocation. A one-size-fits-all approach dilutes the impact of these programmes in addressing inequality. A more targeted system – such as means-tested grants – would ensure that resources are directed toward those who need them most, maximising the effectiveness of government spending.

Funding and Long-term Considerations

President Ali is acutely aware that current high oil prices are driven by global conflicts in Europe, the Middle East, and Africa. However, these prices will inevitably fall, and production in the Stabroek Block could decline post-2030. If diversification efforts are not successful, the country could face significant fiscal challenges when oil revenues decrease. Without other sources of revenue, Guyana’s ambitious commitments could become unsustainable, leading to budget shortfalls and austerity measures.

The President’s address did not devote enough attention to how these programmes will be funded in the long term, particularly in the event of declining oil prices. Diversification is the only solution, but meaningful progress in this area seems to be absent from the current agenda.

Conclusion

The President’s vision for Guyana is bold and imaginative, centred on using the country’s newfound oil wealth to improve living standards, investing in infrastructure, and creating opportunities for all Guyanese. For this vision to succeed, however, it will require competent management, a diversified economy, and strong adherence to the principles of good governance –  transparency, accountability and a commitment to reducing corruption.

The address did not explore potential “what-if” scenarios or some of the costly risks involved. While it is forward-looking, there are major concerns—inflationary pressures, exchange rate volatility, and the long-term sustainability of public spending—that must be addressed. Additionally and undesirably, the Natural Resource Fund may increasingly be used to support recurrent expenditure, raising further concerns.

Hopefully, Dr. Ashni Singh, the Minister responsible for finance, will address these in the 2025 Budget.

October 6, 2024

The long overdue Census

Introduction

The Census is not only a core function of the Statistics Act of Guyana but is the very first function listed under the Act which was passed one year before the progression from a colony to a country. Prior to the Act, responsibility for statistics largely rested with the ministries and departments of government, outside of any central coordination. The Act brought a more centralised structure into being, its timing providing the government with the power to collect, analyse and disseminate information to foster informed planning and decision-making both by the government and the people. Indeed, as the Minister responsible for Finance stated in his 2022 Budget Speech, Census 2022 would “establish baseline data sets that will guide policies at all levels”.

It is very unfortunate however that policies by the current administration are formulated when key political figures visit regions in the country, speak at ceremonial functions, or at press conferences, without any reference to data compiled by the Bureau of Statistics. Because the Bureau has largely operated under the thumb of the Ministry of Finance, it has operated outside of the public purview, a necessary ingredient for enhancement in efficiency and utility. Indeed, the public, unfairly, associates the Bureau entirely with the ten-yearly census which is has never performed with distinction, almost always late. Indeed, increasingly so as the following table shows:

1. The 1970 census; Report published in 1972.
2. The 1980 census: Report published in 1982.
3. The 1991 census: Report published in 1994.
4. The 2002 census: Report published in 2005.
5. The 2012 census: Report published in 2016

The census which should usually coincide with the commencement of each decade was announced in September 2022 – two years after the PPP/C resumed the reins of power and two years and nine months after the preferred international census date. Of course, even this was turned into political theatre with the Bureau announcing that “the first persons to be counted were the households of the President, Prime Minister, and the Leader of the Opposition”, going so far as to naming the offspring of the President and the Prime Minister. It would be great if such obsequiousness and tastelessness were matched with better quality and range of output from the Bureau.

Vague timelines

In March 2023, the Chief Statistician was quoted in the press as stating that preliminary results of the census had revealed significant shifts in the population”, without offering a preliminary report, as would be the norm. Adding another twist to the timeline, the Minister of Finance told the National Assembly in December 2023, that the report was “slated to be made available to the government by the second quarter of 2024” but that the bureau would require a further four to six months from that time for preparation and publication of all reports. This begs the question whether the preliminary report is for the eyes of the Government only and why the public is not permitted access to that report.

The Bureau and the Government must understand that this census is historic and critical since it will be the first after the discovery of oil in Guyana, the most game changing economic event in this country’s history. That planning and major expenditure are taking place in this census vacuum is not only unfortunate but unacceptable. Since that time, the country is witnessing an explosion in largescale and transformative projects, in major roads and other infrastructure, in building a new city from the ground up, in locating about a dozen new hospitals, in more than a single gas-powered plant, and in the construction of schools and court houses etc. It means that Guyana will have expended as much as trillions of dollars without a proper population, household and demographic census, labour availability and unemployment conditions, in place.

Anyone visiting the Bureau’s website will have noted that there is information but more in the form of raw data, very little of it sufficiently organised and mostly with no analysis, as its Act requires. The Bureau needs to organise focus groups to meet with its technical team(s)  to consider ways of making the trove of information it collects more relevant and useful.