Category: Business and Economic Commentary

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.

September 29, 2024

President Ali’s Address to the UN: Guyana’s Global Vision and Domestic Challenges

Introduction

This Commentary reflects on President Dr. Irfaan Ali’s address to the 79th Session of the UN General Assembly (UNGA) under the theme “Leaving no one behind; acting together for the advancement of peace, sustainable development, and human dignity for present and future generations.” It was one of the better written speeches by the President and both he and his speechwriter deserve credit.

Environmental Leadership and Biodiversity

Ironically, Ali begins his presentation critical of what he referred to as the annual pilgrimage to COP – the annual environment summit hosted by the UN – with a statement which, at the very least, warrants repetition at the next COP. The environment is one area in which Guyana stands out among countries of the world, giving the President the bragging right that Guyana has the second-highest percentage of forest cover globally and one of the lowest deforestation rates, although partly due to our small and concentrated coastal population.

Aiming to assert a leadership role for Guyana, the President announced the launch of a Global Biodiversity Alliance – convening the first summit in 2025 – the objective of which is the creation of a market for biodiversity credits, scaling conservation debt swaps, and promoting nature -positive actions which some might regard as technical jargon. He committed Guyana to doubling its protected areas by December 2025 and achieving the global biodiversity target of 30% by 2030. In a memorable phrase, he told the global audience that Guyana does not lecture but leads by example, boasting unnecessarily “without arrogance.”

Perhaps the President should have used the opportunity to call on the global body to support the right of small, developing countries to utilise their natural resources without being hypocritically lectured by the industrial world, the real and continuing culprit and cause of climate change. It was in such a context that some reference to Guyana’s oil development could have found a place in his speech and pointedly, how the oil industry of the world is loaded against developing countries.

International Relations and Border Dispute

His address dealt with the challenges to peace, human rights and human development across the world, beginning at home and then hemispheric countries Haiti and Cuba. He reminded the UN of Venezuela’s unlawful claim to two-thirds of Guyana, with its potential to stymie economic development in that space, and reaffirmed Guyana’s commitment to a peaceful resolution through the International Court of Justice (ICJ). He might have highlighted too that for a long time, the matter was under the jurisdiction of the UN and although it has moved to another forum, his country was still counting on the UN not to remove it from its radar, even amidst all the challenges the world faces.

On Haiti, Ali emphasised Guyana’s support for the UN Kenya-led force to bring peace to that beleaguered country and for Cuba, he called for the revocation of the US economic embargo against Cuba and its removal from the list of countries which engage in state-sponsored terrorism. With credibility as a Muslim, the President spoke with passion and conviction about the extreme action of the Taliban in silencing Afgan women in public.

Demonstrating Guyana’s engagement with global affairs and its willingness to voice opinions on complex international issues, Ali was unambiguous on several international conflicts, including Ukraine, Sudan, Afghanistan and the Israel-Palestine situation. An interesting observation is that on most, if not all of these issues, Guyana’s position was not at any significant variance with those of the USA, including on Ukraine which may not have gone down well in Moscow.

Other issues

Given that food production is an area in which Guyana enjoys some credibility, it was no surprise that the President showcased Guyana’s commitment to enhancing food production and that at least 35% of agro-businesses are owned by women and 60% by young people, even if the statistic is incomplete. It does not appear too, that he addressed the more mundane issue of ensuring fair trade in food commodities and affordable food prices across the world, posing a threat to the lives and livelihood of hundreds of millions.

Without offering any specifics or recommendations on how changing the composition of these organisations can better address the needs of small, rapidly developing states, the President called for reforms of international institutions like the UN Security Council, World Bank, and IMF to better represent developing countries.

Another omission was any reference to the challenges faced on the economic, social and political conditions even by a resource rich country like Guyana. This omission is particularly striking given the rapid changes the country is undergoing due to its oil boom.

Conclusion

President Ali’s address could potentially raise Guyana’s profile on the global stage, presenting the country as a responsible actor committed to environmental stewardship and international law. However, the speech misses opportunities to address the complex challenges which small states like Guyana face domestically.

Of course, the President chose how best to utilise the time allotted to him and with all that is taking place across the world, he was obviously constrained. In the circumstances, there must be omissions, while adhering to the theme of the occasion which the President himself repeated. Yet, for the domestic observer, there is another plausible reason: the President has become the country’s chief spokesperson internationally while his Vice President assumes that function domestically.

Next week’s Commentary will address the absence of the long overdue Census

September 21, 2024

The deadweight of bureaucracy

The bureaucracy in Guyana can at times – and in different places – be stifling, overbearing, frustrating and totally unproductive. No place is spared as I recently learnt in an indirect encounter with the Guyana Police Force, concerning a recommendation to an individual who was applying for a firearm licence. It was with a mixture of amusement and bewilderment that I was requested to produce both a Tax Compliance Certificate and an NIS Compliance. I should have asked  whether the latter was for me as an employer or an NIS pensioner, or the relevance of my tax compliance to my recommendation!

This episode reminded me of two Letters to the Editor last year complaining about the processes in both arms of the Deeds and Commercial Registry last year. What appears to be happening is that arbitrary rules are put into use not only with little or no statutory authority or rationale by persons who see systems from only one side of the counter. Most of them have no experience in the private sector and have not had to be on the other side – except trying to open a bank account, which is itself a nightmare.

In the case of the Commercial Registry the issue was about a declaration of the ultimate ownership of companies by individuals controlling 25% or more of the issued shares in a company. What the Registry was requesting was a statement that includes every shareholder, information that is completely useless and which in any case is supplied with the Annual Return which must be made by every company. It took the intervention of the Attorney General to have the requirement set aside.

More recently, a request for a Tax Compliance Certificate for a property owner wishing to sell his property was met with a request for the buyer to produce a Taxpayer Identification Number. Worse, since the buyer was a company, the officer of the GRA insisted that a TIN was required for each of the directors. When I pointed out that directors can change at any time, the overenthusiastic officer said that the GRA would have to be notified on each occasion! Again, and to his credit, the Commissioner General addressed and resolved the issue immediately.

Then there is the case where an application for a Work Permit on behalf of a company was made to the Ministry of Home Affairs for an expatriate. The Ministry’s immediate response was that in order to process the application, they required copies of GRA and NIS compliance certificates for both the employer and the employee. They seem unaware that part of the wider process, the GRA has to be satisfied that the tax laws are complied with. The Ministry it seems is totally unmindful that requesting superfluous, unnecessary add cost, not value.

Then there is the NIS which is expected to deliver from a system which has been historically defective and deficient. The number of new employees has increased significantly but with no corresponding increase in human, physical or technological resources. There is indeed significant bureaucracy which the Government and the Scheme’s Administration seem unwilling to do anything about. Lots of the frustration which the public experience is derived from old, outdated laws, inadequate processes and a Board that seems incapable of appreciating the frustrations of the public.

I am not targeting these entities but only using examples of which I have personal experience. No doubt, others have similar experiences with other agencies, and it would be interesting to learn about these and how the public cope with and overcome them. And it would be unfair to suggest that the staff at these entities are unsympathetic or unhelpful. In fact, while some of them exploit the bureaucracy for less than honourable ends, there are others who are themselves hobbled by the bureaucracy.

As the country continues its unprecedented growth across all sectors, regions, agencies and activities, administrative reform and the elimination of bureaucracy is an absolute necessity. The path forward demands not just technical solutions but a fundamental shift in governmental culture to a results-based solution. I have conveyed my experiences and frustration to persons in authority but have met with another problem – inertia, at the political level. Of course, a process and culture which was birthed under colonialism will not be easy to root out and any solution requires a paradigm shift – an examination of the nature and purpose of systems and controls which are sometimes conflated with bureaucracy.

I have suggested the establishment of a dedicated Task Force under the aegis of the Minister of Business, or the Minister of Public Service, charged with the systematic identification and elimination of processes that serve no purpose beyond their own perpetuation. This Task Force should have terms of reference, timelines and be representative of key stakeholders without being too cumbersome.

The challenge is formidable, requiring a confrontation with inertia and entrenched interests, thus requiring courage and authority. It is hard not to be cynical whether those in authority are willing to break free from the tyranny of bureaucracy for bureaucracy’s sake. Fortunately, responsibility for the public service falls under the President himself. He has at his command the resources including the advisers, ministers, consultants and staff to lift the deadweight of bureaucracy hanging over and impeding an efficient public service.