Mid-year report 2012 shows mixed performance

For years, this column has made some sharp comments about the Finance Minister over his presentation of the economy’s mid-year report required under the Fiscal Management and Accountability Act. That cannot be said for this year. I am not only sure that its presentation to the media at a hastily convened press conference on September 1, 2012 had no publicity intentions, but I accept that it was as good as meeting the statutory deadline of sixty days after the end of the half-year. Even more, I give the Minister credit for presenting the report to the public even before its laying in the National Assembly, which is what the Act requires. With this kind of precedent and epiphany, Guyanese might now hope that all other reports for which the Minister has responsibility will be tabled in the National Assembly and made available to the public within their respective statutory deadlines.

Before looking at the 2012 mid-year report it seems necessary to make a point that appears to have been excluded from the report itself and the reporting on it which followed publication. It appears that the method used to describe the growth figures is not only unclear but may actually mislead. The figures compare a period to its corresponding period – as in this case, Jan-June 2012 against Jan-June 2011. There is logic for this: it removes the skew that would be due to seasonality. It would not be a fair representation to compare growth in the first half of 2012 with a period in 2011 that included the second half of 2011, if there were seasonal factors unique to the second half.

So what this means is that when the Minister reports a 2.8% half-year growth, he is comparing half-year 2011 with half-year 2012. Worse, had the Minister given any comparison with the corresponding measures in 2011, Guyanese would have learnt that half-year growth in 2012 is less than half the real economic growth of 5.9% recorded in 2011. That is quite a dramatic slowdown which if it continues will translate into substantially slower growth in 2012 than the 4.1% expected at the time of the presentation of the 2012 budget. We recall that that 4.1% was actually lower than the 5.4% for the full year 2011.

Let us now look at the disaggregated numbers under two groups – those that have done better in half-year 2012 than they did in the same period in 2011 and those which have done worse.

The stars
Rice improved over the corresponding period in 2011 by 1.4% but this was well down on the 23.3 % increase in 2011 over the corresponding period in 2010. Despite the modest improvement in the first half of 2012, the full year growth is projected to remain at 2.6%.

The fisheries industry recorded an estimated growth of 13.8% compared with a contraction of 2.2% during the corresponding period in 2011. On this basis, the annual growth projection has been revised from 5% to 9.7%. Since the fisheries industry is not a significant sub-sector in the economy, the revision is not expected to affect the overall growth for the economy in full-year 2012.

The mining and quarrying industry continued to record strong growth (16.4%) in the first half, mainly supported by bauxite and gold. By comparison, however, the growth is modest when placed against the increase of 38.6 % in 2011 over the same period in 2010. The Minister cautiously noted that as a result of more recent domestic developments in Linden along with possible volatility in the external fortunes of the two industries, the overall growth rate for the sector for the year would be revised to 1.4 %, down from 1.8% in the budget.

The transportation and storage industry at the time of budget was projected to grow by 9.5% in 2012. In fact, the Minister reported that “indicators” for the first half of 2012 showed growth of 20.2% when compared to the corresponding period in 2011. Quite what he meant by “indicators” is neither clear nor helpful since it raises questions about just every other sector for which performance is reported.

Financial and insurance services grew by 5 % in the first half of 2012, with all of the key indicators of the sector showing positive signs of growth. By comparison, in 2011 the industry had recorded a half-year growth rate of 16 % over 2010.

The Wholesale and retail trade, comprising the distribution both of imported consumer, intermediate and capital goods, and domestic products, reported growth of 11.6% in the first half of 2012 compared with a growth of 21.7% for the same period in 2011. The sector’s projected growth for the year of 6.5% is maintained.

Education which now includes increasing private participation also recorded slower growth (1.2%) compared with 3.0% in 2011, but here too the projected growth of 1.8% for the full year is maintained. The story for Health and Social Services is similar with growth of 2.4% in 2012 compared with 3.4% in 2011 while the projected growth rate of 5.7% for the full year is maintained.

The dogs
For the period January-June 2012, sugar production was 71,147 tonnes, down 33.4 per cent from the 106,871 tonnes for the corresponding period in 2011. The performance of the sugar industry must be quite exasperating to the Minister who in 2011 was encouraged enough to remark that the sugar industry’s path to recovery had commenced. The Minister displays that exasperation by blaming industrial relations disruptions and inclement weather – the two usual whipping boys of the industry. Despite this setback, the industry is projected to grow for the full year by 1.5%.

Like sugar, the other crops sector on which so much of the country’s diversification strategy had been pinned saw its performance decline from a growth of 5.7% in 2011 to an estimated mid-year growth of 2 per cent. The sector is projected to grow by 4% for the full year.

The forestry sector recorded a decline of 10.3% with the production of logs declining by 19 % and sawn wood increasing by 8.6 per cent. Full year decline for the sector is projected at 10.3%.

As a result of activity in the sugar sector, manufacturing contracted by 2.2% compared with a growth of 10.6% at the half year 2011. The growth projection for the full year is revised to 3.2%, down from the 3.9% in the 2012 budget.

Postal services declined by an estimated 11.5% for the period from January to June of 2012 compared to the same period in 2011. On this, the Minister went into some detail, explaining that the despatch of both in and outbound mail and parcels, has continued to decline and that the continued trend underscores the well-known shift to digital forms of communication. One might have expected the decline to have been replaced by telecommunications which are at least as costly, and by courier services which are vastly more expensive.

The construction industry contracted by 8.8% in the first half 2012, compared with a 4.0% in 2011. Despite this contraction, the end of year projection of 6.3% has been maintained in the expectation that recovery will take place.

Faced with these performances and what he referred to as the updated outlook for the various sectors, the Minister projected the economy would grow by 3.8% for full-year 2012, down from the 4.1% projected in the Budget.

While these developments are not without interest – as is the omission of any reference to oil exploration – it seems too early to say that the economy is slowing, particularly given the possibility of the government undertaking those big ticket items like Amaila and the Marriot over which concerns continue to circulate.

Other developments
At the end of the first half of 2012, the balance of payments had recorded a deficit of US$50.5 million, compared to a deficit of US$19.6 million in the corresponding period in 2011. Export earnings grew in 2012 by 9.2% to US$582.1 million, compared with the US$533.2 million registered in half-year to June 2011.The Minister did not indicate whether or how he expected the worse than expected deficit in the first half of 2012 to affect the budgeted overall balance of payments surplus of US$136.3 million for the year.

Whereas the value of sugar and rice exports expanded in 2011 by 32.4% and 35.1% respectively, in 2012 the earnings on sugar declined by 14.1% while the earnings from rice declined by 8.7%. On the other hand, the export value of gold grew by 16.8% in 2012 compared with a 54.6% increase in 2011.

Merchandise imports for the period increased by 10.2% to US$949.4 million primarily attributed to a 12.7% increase in capital goods to US$221.7 million associated with the expansion in the mining sector, while consumption goods increased by 8.1% to US$209.4 million.

The capital account recorded a surplus of US$174.9 million compared to US$162.4 million owing to higher capital transfers and foreign direct investment, which were concentrated mainly in the mining, energy and telecommunication sectors.

During the first half of the year, private sector deposits increased by 7.8%, with business deposits expanding by 13.3% to $43.3 billion, while deposits of individual customers grew by 6.6% to $181.4 billion.

The commercial banks weighted average lending rate declined by 22 basis points to 11.46% per annum, while the small savings rate declined by 23 basis points to 1.75% per annum. The annualised rate on 91-day Treasury bills declined by 53 basis points to 1.82%.

The domestic consumer price index (the inflation rate) moved by a moderate 1.8% in the first half of 2012 compared with a 3.0% increase in 2011. This rate measures the rate of growth over the period since December 31, 2011.

To be continued.

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