Dear Editor,
Permit me to comment briefly on an issue raised by Mr Rajendra Rampersaud in his letter of October 27 to SN (‘Ram’s analysis in relation to the exchange rate was flawed’).
Prior to that, however, any objective observer has to acknowledge that Guy-ana’s economy today is more robust than it has been for a long time. This judgment is based on the country’s strong marco-economic fundamentals, its rate of growth and health achievements. Inflation plunged from 14 per cent in 2007 to an estimated 4.0 per cent by the end of this year, while the overall fiscal balance declined from -7.2 per cent to about -3.2 per cent. The health of the financial sector improved, with capital to risk-adjusted assets rising from 14.3 per cent in 2004 to 18.3 per cent in 2009, while non-performing loans as a share of total loans fell from 39.7 per cent to 8.3 per cent during the same period. Returns on equity and assets have risen.
While not exactly robust, economic growth has made an about-turn from -1.71 per cent in 1998 and has been heading in the positive direction ever since. Growth averaged about 4.7 per cent during 2006-2008, contracted to 3.3 per cent in 2009 and is expected to rise to about 4.4 per cent this year. Thus, Guyana has weathered the global financial crisis quite well. While domestic policies have played an important role in strengthening the economy, external factors were important. The country has been the beneficiary of considerable foreign assistance for both development purposes and debt relief, which has wiped out almost the entire external debt stock the PPP inherited in 1992 (about US$1.9 billion); during its 18-years in office the PPP has racked up about $800 million in external debt.
Commodity prices have also been a blessing even as the country suffered from booming oil prices. The generosity of Guyanese living abroad shows up in huge remittances: from US$126 million in 2006 to US$300 million in 2009. And, despite the dire economic conditions in North America and Europe, where most of the foreign Guyanese live, foreign remittances are expected to reach about US$310 million this year, while they are expected to contract for many other countries. Foreign remittances are larger than foreign domestic investment (FDI): the former was 5.9 per cent of GDP in 2004 compared to 2.4 per cent for FDI in 2004. Remittances peaked at 17.2 per cent of GDP in 2008 and are expected to contract to about 14.2 per cent at the end of this year. Even so they will be twice the size of FDI. Thus, while the volume of foreign remittances will rise, their relative share (of GDP) will contract.
But corruption is endemic, which, together with spiralling crime, knocks off about 1.5-2.0 per cent from economic growth. Inequality is considerably higher today than it was ten years ago so Guyana is one of the most unequal countries in the Western hemisphere. One unfortunate and growth stifling consequence is that the middle class, an important driver of growth in many countries, has been reduced to a shadow of itself.
This brings me to Mr Rampersaud, who wrote: “I will not even delve into the Gross International Reserves of the Bank of Guyana that hovers around the US$750 million that has been most unprecedented in the history of the country.” Aside from the fuzzy language, this is another example of the propensity of PPP apologists to throw numbers around. Do you think that $20 dollars in 1950 is, say, the equivalent of $200 now? Certainly not, because the $200 now does not have the purchasing power $20 had in 1950. Moreover, $20 in 1950 was probably about three-quarters of one’s income for the month; today, $200 is less than 1 per cent of one’s income. This is why talking about absolute numbers is not very helpful, unless we relate then to something – in this case, monthly income.
We confront a similar issue with Gross Inter-national Reserves (GIR). To make sense of the volume of GIR, economists relate it to months of imports they could buy – since we have to pay for imports with foreign exchange. At the height of the short-lived sugar boom in 1975, the country had US$100.5 in GIR, which was sufficient for four months of imports. The mountain of GIR now with the BoG could probably buy the country around 7 months of imports. While considerable, it is nothing to brag about, especially when a large share of it comes from foreign remittances, which played no significant role in 1975.
Despite statistical shenanigans, the economy has done well and there is no need for pathological number confounders to invoke big absolute numbers to justify its performance. Numbers by themselves do not mean much unless they are related to important things in life. There was a time when I was excited to talk about Guyana’s potential, but then a natural resources expert brought me down to earth: “You cannot eat potential,” he said.
Yours faithfully,
Ramesh Gampat
