(Rawle Lucas is a Guyanese-born Certified Public Accountant and Assistant Vice President of the Lending Services Division.
Mr. Lucas has agreed to serve as a columnist with the Stabroek Business and will be contributing articles on economic, financial and development matters.)
A Paradox of Sorts
Anyone being attentive to the plight of the Guyanese consumer knows that the current economic and financial hardships did not appear overnight. A look at the 2007 Half-Year Report of the Bank of Guyana (BOG) would reveal that the inflationary pressure has been building overtime. In that report, the BOG, also known as the Central Bank, pointed out that consumer prices had grown by over 13 percent between June 2006 and June 2007. This increase was on top of an 8 percent increase from a year earlier. Yet, after being aware of this hurtful trend for nearly two years, little effort has been made to put the Guyanese consumer in a comfortable position. Moreover, according to the BOG, signs of the current upward trend in prices had begun to rear its ugly head earlier in 2007. Normally, inflation occurs when demand for goods and services outstrip the supply of those goods and services.
Put another way, when people have lots of money to spend and few goods and services to spend it on, prices tend to rise. In essence, consumers drive inflation. Yet, judging from the 2007 Half-Year Report of the BOG, it does not appear that inflation resulted entirely from the collision of the unequal forces of supply and demand, or from ordinary Guyanese being awash in money. That report states clearly that the money supply in the country, made up primarily of currency in circulation and deposits in checking accounts, went down by over 7 percent. Consequently, there is very little chance that there was too much money chasing too few goods.
At the same time, Guyanese seem to be putting as much extra money as they could in the commercial banks, a paradox itself in an environment of high inflation and arguably high unemployment. Knowing their circumstances, there are many Guyanese who, upon reading this article, would disqualify themselves from the ranks of the savers. Be that as it may, Guyanese individuals and businesses increased their savings in the commercial banks by 13 percent in 2007 without much incentive to do so. Almost all of the increase in savings (83%) came from individuals. Admittedly, borrowing expanded by 22 percent suggesting that Guyanese spent more than they saved.
