Unconditional, uncapped, untaxed
Present official estimates show that more than one in three Guyanese are so poor that such persons regularly have to subsist on less than G350 or US$1.75 per day. This poverty coexists with distressingly large income and wealth inequality. The poorest 20 per cent of consumers account for only about per 7 per cent of total consumption. The ruling political class, organized criminals, several private business owners, some self-employed professionals and contract employees in the public service obtain, legally and illegally, a humungous share of the national cake.
Further, much of the national cake is siphoned off through the workings of the organized criminal underground economy, which accounts for about US$600-800 million. “PPP/C largesse,” as Minister Rohee aptly terms it, supports ostentatious consumption and unbecoming displays of wealth (gas-guzzling SUVs, swimming pools and ‘mansions‘ in fashionable districts) and/or is illicitly spirited out of the country, promoting an unconscionable accumulation of wealth overseas.
Perhaps the hardest-hit poverty group is made up of old age pensioners who depend on $7,500 per month and whose circumstances are now daily being contrasted with that of former presidents. My calculations show that the present presidential pension benefits are so unconditional, untaxed and uncapped, they defeat both transparent estimation and accurate accounting. Practically, these benefits can vary enormously but plausible monthly valuations fix them at around US$20,000 per month ($4 million) or 500 times as large the regular pension.
The dire situation of NIS
Government agencies, including the National Insurance Scheme (NIS), provide limited social protection to Guyana’s poor, particularly those dependent on old age pensions, and in addition those who are destitute, indigent, disabled, unemployed, landless, or otherwise disadvantaged, after traumatic family events (accident, illness or death).
However, as I wrote in this column last April, “The NIS is at risk of turning to the state for bailouts to fund its outstanding liabilities. When this eventuates the pressure it would put on government finances will adversely affect the country’s economic performance.” Six months later, no major remedial action has been taken. The NIS scheme continues to hurtle into disaster.
Consider the following facts: 1) The NIS generates annual income of about $11.5 billion; 2) of this, $10 billion come from contributions to the scheme, and $1.5 billion come from investment income earned from the NIS investment portfolio; 3) its main expenditures are the payment of benefits ($9.3 billion) and administrative expenses ($1.4 billion), making a total of $10.7 billion.
NIS is living on the edge with a current surplus of $0.7 billion, from which it has to finance its capital expenditures. On its present course, it is projected to go into overall deficit by year end and in a few years it will be in both current and overall deficit of about $1 billion.
NIS covers only about 30 per cent of the workforce. Its contribution base is limited. In fact it has many complex problems including, but not limited to, an ageing workforce; non-compliance by employers, the self-employed, and workers; burdensome financial arrears; bureaucratic and administrative snafus (like failures in record-keeping, inordinate delays in settling claims); high administrative costs (estimated at about one-sixth of its income); and resources tied up in the Clico/Stanford debacles.
The NIS Reform Project in its 2007 report made several recommendations which were not accepted by the government, although some of these have been implemented piecemeal. The original reforms in the report include raising the retirement age to 65 and the contribution rate; strengthening the financial reserve; improving administrative efficiency and effectiveness (including computerization). These reforms need to be speeded-up and completed. The time for drastic action is now.
In addition I would propose the complete restructuring of NIS, based on exploring new options for the scheme. These would include, but are not limited to, privatization; public sector-private sector partnership (PPP); compulsory universality of the scheme, including the self-employed; and broadening the range of benefits (including consideration of limited, but progressive, unemployment insurance).
Poverty reduction strategy
To address the massive poverty problem, over the years the government has been relying on the model of the IMF-World Bank, Poverty Reduction Strategy Papers (PRSP) used widely in developing countries. Guyana’s first PRSP was produced in 2001 and reviewed in 2003 and 2005. A second PRSP was produced in 2008, and finally in July of this year, a third was produced covering the period 2011-2015.
The PRSPs have failed because of intrinsic flaws in their design, implementation, and management. Some of these flaws are:
The PRSPs have focused on symptoms of the country’s socioeconomic ills, and consequently concentrated on band aids to alleviate these. Politically, they have not addressed many of the root issues of poverty in Guyana: endemic corruption; the rootedness of criminal enterprises in the society and key arms of the state; executive impunity; political manipulation; and other deep-seated indicators of poor governance.
The PRSPs have never truly recognized that the availability of productive jobs paying a living wage and the provision of opportunities and resources for self-employment, lie at the heart of raising living standards. Thus it never directly tackles such crucial issues as land reform, income distribution and labour market reform.
The PRSPs have no credible programmes for inventorising, monitoring and reforming access to the country’s abundant natural resources.
The PRSPs have been silent on the thriving underground economy, which is now largely the product of organized crime. In the end we cannot avoid addressing directly this phantom economy, which now accounts for a value of 30-40 per cent of GDP or US$600-US$800 million.
Finally, poverty analysis (and policy formulation) is plagued by the absence of reliable and timely up-to-date information on 1) poverty levels; 2) employment, unemployment and under-employment levels; 3) income and wealth distribution; 4) homelessness and indigence; and 5) other such vital socio-economic data necessary for addressing poverty in a serious and direct way.
It is my belief that this absence, after more than a decade of the PRSPs, is the clearest indicator of how poor poverty reduction strategies have been. The poor and the powerless continue to suffer.
