Gold declarations for the first half of this year have dropped by 17.2% with export earnings from the precious mineral sliding by 25% and the decline is likely to continue for the remainder of the year, Minister of Finance Ashni Singh says.
For the past few years, gold has been a mainstay of Guyana’s economy but despite the drop in earnings for the first half of this year, the economy grew by 3.2%, according to the mid-year report on the economy released by Singh on Saturday. In his 2014 National Budget presentation in March, Singh had projected a 5.6% growth in real Gross Domestic Product (GDP) for the year but this has now been revised to 4.5%.
“Over the first six months of 2014, growth has continued to be positive and inflation has remained low. However, movements in relevant global commodity prices on both the import and export sides continue to be a source of risk to our near and longer term prospects. Notwithstand-ing the challenging external conditions, and the inevitable uncertainties arising from the testing domestic political situation, Govern-ment’s policy stance is aimed at ensuring continued growth in the economy,” Singh said in the mid-year report.
“It is anticipated that Government’s continued emphasis on promoting competitiveness and securing resilience will offset any adverse impacts of uncertainty in the global economy and in the domestic political environment, and ensure the achievement of a ninth consecutive year of positive economic growth in 2014,” he added.
Reporting on the overall performance of the economy up to June, Singh said that overall growth of 3.2% in real GDP was recorded, within which non-sugar GDP grew by 2%. Given the performance of key sectors within the economy over the first six months of the year, overall growth for 2014 is now projected at 4.5% of which non-sugar GDP is projected to grow by 3.6%, the minister said.
He noted that the performance of the mining and quarrying sector in recent years has been significantly driven by the record performances of the gold industry and to a lesser extent that of bauxite. “At the half year the sector has recorded a decline of 17.2 percent in gold declaration and a 3 percent decline in bauxite’s contribution. Consequently, projected end of year gold declaration has been revised downwards to 450,000 ounces or a 6.5 percent decline, while bauxite value added is projected to contract by 6.1 percent,” the minister said.
The gold industry achieved total declarations of 481,087 ounces last year, representing the highest level of production in the history of the industry.
According to the report, the first half of 2014 also witnessed a 24.6% contraction in gold exports earnings to US$226.7 million, associated with a 10.1% decline in export volume to 182,411 ounces, coupled with a 16.1 % contraction in average export prices to US$1,243 per ounce.
As a result, overall receipts from exports fell by 10.3% to US$534.2 million in the first half of 2014 compared to the corresponding period in 2013.
The minister said that with anticipated increased demand for quarry products in the second half of the year, the production of ‘other mining products’ is expected to rebound and return a marginally lower 5.5 percent growth. “The overall sector performance for 2014 has been accordingly revised downwards from the budget target of 2.8 percent growth to a contraction of 5.1 percent,” the report said.
On the other hand, the forestry sector recorded robust growth of 38.1 percent, “supported by the introduction of new incentives to harvesters and sustained demand from the construction sector and furniture manufacturing subsector,” the report said. As a consequence the growth target has been revised upwards significantly from the budgeted 3.3% to 15% growth for 2014. According to Singh, timber export earnings rose to US$21.3 million, a 31.3% increase due to an increase in export volume, “reflecting an expansion in plywood exports.”
Meanwhile, sugar production in the first crop of 79,995 tonnes was 66.5 percent above the first crop of 2013. “Based on the assumptions of favourable weather conditions and continued improvements in the operational environment, the industry is firmly on track at this point in time to achieve its end of year target of 215,910 tonnes. Accordingly, the expected end of year output is maintained at the budget projection of a 15.6 percent increase over the 2013 output level,” the minister said.
The report noted that sugar exports returned US$34.4 million in earnings, a 26.4% increase compared to the period up to June 2013. The increase was attributed to an 80.3% increase in export volume to 69,687 tonnes.
Rice production also increased. “In spite of instances of lower paddy prices and some delays in payment by millers to farmers, production in the first crop of 312,283 tonnes is already 18.3 percent over last year’s record high first crop of 263,868 tonnes. In light of current conditions in the industry, the end of year output and growth projections have been revised upwards to 591,892 tonnes equivalent to 10.5 percent over the 2013 record production levels,” the report said.
It noted that rice export earnings increased to US$95.6 million, 14.9% higher than at June 2013 due to a 30.7% increase in export volume to 186,000 tonnes, outweighing the 12.1% contraction in export prices to US$514 per tonne.
The report said that production in other crops continues to record positive growth since 2007 and the half year estimate is already up by 5% over the half year output for 2013. Barring any adverse weather or unforeseen circumstances the subsector will achieve its budget target of 5 percent, according to the minister.
In the fisheries sector, the report said that despite the introduction of improved management and monitoring techniques in the industry, first half production was 25.5% below 2013 levels. “Even with an improved performance in the second half, an overall decline in growth is expected and the budget target of 2.2 percent growth has to be revised to a whole year contraction of 8 percent relative to 2013 output levels,” the report said.
It also noted that in the first half of 2014, manufacturing output grew by 11.2% driven by increased levels of production for sugar and rice which has compensated for slower performances in other manufacturing, and as a result of which sector growth is now revised upwards to 8.1%, a modest improvement on the original target of 7.1%.
Excluding gold, total exports grew by 4.3% to US$307.5 million in the first half of 2014, the report said. Among other commodities, bauxite export receipts declined by 2.9% to US$66.9 million due mainly to a 6.4% contraction in export volume to 855,877 tonnes. In addition, other exports contracted by 10% to US$89.3 million, primarily on account of a decline in fish and shrimp exports.
The report said that overall growth in the services sector continued to be strong in the first half of 2014. “Underlying this, construction recorded an extremely strong 16.8 percent growth reflecting both public and private sector activity. Wholesale and retail, information and communication, and financial and insurance activities recorded growth of 6 percent, 3.5 percent and 2 percent respectively. These were marginally counteracted by contraction in transportation and storage by 9.5 percent, and in the electricity and water sector by 4.2 percent largely associated with supply bottlenecks,” the report said.
“As a result of developments the first half of the year, along with the updated outlook for the remainder of the year, construction is now expected to record growth of 12 percent. The direction of growth is expected to turn around for the transportation and storage sector benefitting from increased production and activity in the second half in the sugar, rice, forestry and trading sectors, as well as a higher activity level in the gold mining sector which is expected to accelerate air transport activities. Resolution of some of the supply bottlenecks during the second half by the electricity and water sectors is expected to result in improved performance by the end of the year. These will ameliorate but not fully reverse the effects of the lower than expected growth performance in the first half,” the report added.
Meantime, in relation to the balance of payments, Singh said that the overall balance of payments deficit improved to US$93 million, compared to US$145.6 million at half year 2013, mainly attributed to a lower current account deficit of US$205.6 million compared to US$269.4 million at the end of June 2013. “This was mainly a result of a lower merchandise trade deficit coupled with higher current transfers,” the report said.
The report said that foreign direct investment increased by 10.7% to US$121 million driven by the mining and quarrying sector, even in the face of the world market price moderation referred to earlier.
In relation to inflation, the report said that at the end of the half year, the consumer price index declined marginally from the December 2013 level by 0.4%. While the second half of the year is expected to see some risk of upward movement, including as a result of imported factors, the inflation target has now been revised downwards to 3% for the whole year 2014, the report said.
The minster stated that Central Government current revenue, net of the Guyana REDD+ Investment Fund (GRIF), for the first half of 2014 amounted to $73.8 billion, 3% above 2013 level, primarily reflecting growth in several revenue categories consistent with growing levels of productive activity and profitability. Tax revenue collections increased by 2.9% to $66.8 billion, and represented 90.5% of total revenue collections, while non-tax revenue collections increased by 3.4% to $7 billion.
Value Added and Excise Taxes increased by 1.8% to $30.7 billion.
“While the outlook remains very favourable, risks could arise from unfavourable global commodity price movements and the uncertainties associated with the current domestic political environment. However, active management of those risks, and ongoing efforts in the diversification of our economy, are anticipated to result in an overall favourable economic performance at the end of the year,” Singh asserted.