Guyana has registered its highest score in eight years on the Wall Street Journal/ Heritage Foundation Index of Economic Freedom but remains listed among “the mostly economically unfree” countries.
The Index, which was released earlier this week, put Guyana’s economic freedom score at 55.7 with a world ranking of 121 out of the 178 countries that were surveyed. Despite the improvement, it is still well below the world and regional averages of 60.3 and 59.7 respectively, the index noted.
There were another eight countries listed but unranked. Guyana’s score is 1.9 points higher than last year and 7.3 points higher than in 2009 when it fell into the category of “repressed” nations.
According to the survey, Guyana, “over the Index’s 20-year history, has advanced its economic freedom score by 10 points. This overall increase has been achieved by enhancements in seven of the 10 economic freedoms, notably the management of public spending, freedom from corruption, and monetary freedom, the scores for which have improved by 10 points or more.”
Guyana is now grouped in a category of “mostly economically unfree countries,” and is ranked 22 of the 29 countries surveyed in South and Central America, as well as in the Caribbean. As opposed to 2009 when just Venezuela and Cuba alone fell below Guyana in South America, the 2014 Index shows that Suriname, Haiti, Bolivia, Ecuador, Argentina, Cuba and Venezuela all scored less than Guyana, with overall ranks of 54.2, 48.9, 48.4, 48, 44.6, 36.3 and 29 respectively.
Despite the improved rating though, the Index found that “broad-based economic growth (in Guyana) continues to be held back by institutional weaknesses in the economy.” Meanwhile, long-standing constraints on economic freedom include fragile protection of property rights and below average levels of openness and integration into world markets.
In the Caribbean, only Haiti scored below Guyana, while Saint Lucia, Barbados, Saint Vincent and the Grenadines, Dominica, Jamaica and Trinidad and Tobago are doing much better with overall ranks of 70.7 (the second highest in the region behind Chile), 68.3, 67, 66.7, 65.2 and 62.7.
Hong Kong, Singapore and Australia took the world number 1, 2 and 3 spots respectively.
To arrive at the scores found on the Index, statistics are collected from international financial institutions including but not limited to the International Monetary Fund (IMF) and the World Bank. Ten broad areas, which are deemed to be necessary for economic freedom to thrive, are assessed to determine a country’s level of economic freedom, and these 10 areas fall under four larger categories – Rule of Law, Government Size, Regula-tory Efficiency, and Open Markets.
These areas include Business Freedom, Labour Freedom and Monetary Freedom (these determine Regulatory Efficiency), Government Spending and Fiscal Freedom (these determine Government Size), Property Rights and Freedom from Corruption (these determine how well Rule of Law is adhered to) and Investment Freedom, Financial Freedom and Trade Freedom (which determine the level to which markets are open).
Some of the areas in which Guyana excelled in 2014 are also the areas where it has done poorest in recent years. In 2009, Guyana’s “oversized government” was identified as its biggest barrier to development. With a score of 3.2, the Index stated that total government expenditures, including consumption and transfer payments were high.
Additionally, it was noted that privatization of state-owned enterprises achieved mixed results, while poor management of public expenditures and constantly increasing social spending were found to contribute to persistent fiscal deficits. Government spending was also found to be equal 56.5 percent of GDP.
This year, Guyana’s government spending score reached 71.8, with such spending equaling around 30 percent of GDP. The country’s Fiscal Freedom scored also increased; from 66.5 in 2009 to 68.4. “Guyana’s top individual income tax rate is (30 percent), and its top corporate tax rate is 40 percent. Other taxes include property tax and value-added tax (VAT).” The overall tax burden was found to be equal to 21.2 percent of gross domestic income.
Guyana also improved in the area of Monetary Freedom, scoring 78.1, which represented an increase by 2.2 points. In the areas of Labour Freedom and Business Freedom, Guyana scored 72.6 and 64.3, respectively but Labour Freedom and Business Freedom fell by 2.8 and 2 points, respectively. The Index found that “The overall pace of regulatory reform has lagged behind other countries. With no minimum capital required, launching a business takes eight procedures and 20 days. Licensing takes about 200 days.
The labour market is underdeveloped, and many rely on the informal sector for employment. The government influences prices through state-owned enterprises but has reduced subsidies for electricity and transportation significantly.” In this category, each factor either met or surpassed the world average.
The score for Trade Freedom is 72 points while Investment Freedom was scored at 45. These scores indicate increases of 0.8 and 10 points respectively from last year. Despite the improved scores though, both are still below the world average. Meanwhile, the Financial Freedom score is 30, which is neither better nor worse than last year’s score. This score is also below the world average.
The Index found that “Guyana’s average tariff rate is 6.5 percent. Political unrest has been a deterrent to foreign investment. The financial sector is small and underdeveloped. Banking remains plagued by inefficiency and a poor financial regulatory framework. High credit costs and scarce access to financing remain barriers to generating more dynamic entrepreneurial activity.”
The lowest scores were awarded for Property Rights, 30.0, which was the same as last year, and Freedom from Corruption, 24.4, which was lower than last year. These scores are worse than what were registered in 2009, and not at all better than last year’s. In fact, the score for Property Rights did not increase or decrease from last year, while the score for Freedom from Corruption decreased by 0.6 points. Again, both scores are below the world average. Incidentally, Guyana’s score for Freedom from Corruption won it the 135th place on the world index. Corruption has seen Guyana being ranked poorly on other international indices.
Addressing the rule of law in Guyana, the Index stated that “Guyana is a transshipment point for South American cocaine destined for North America and Europe, and counter-narcotics efforts are undermined by corruption that reaches into high levels of the government.” It also said that “Crime is a major problem and that the judicial system is generally perceived as slow and ineffective in enforcing contracts or resolving disputes. Protection of property rights is insufficient.”
The Heritage Foundation, a conservative think-thank, co-sponsors the survey with The Wall Street Journal.