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.
By Rawle Lucas
Incremental budget
The administration plans to spend G$128.9 billion in 2009 on behalf of the Guyanese people. That is what the Minister of Finance disclosed in an incremental budget laid before the Guyana Parliament last Monday, February 9. Set against the backdrop of a weak global and regional economy, the budget emerged as a plan of action to stave off the harmful effects of the ongoing global economic crisis and to place Guyana in a stable macroeconomic condition that offers its citizens opportunities for economic progress.
According to the administration, the plan was conceived also with the intention of building a modern and prosperous Guyana and bringing improvement to the lives of every Guyanese citizen.
These remarks are among the best statements in the budget as they tacitly recognize Guyanese as people who have not been well served and who have not shared equitably in the economic opportunities of the country. Guyanese are caring and considerate people who have much to offer each other and are often willing to make personal sacrifices to do so.
As a people full of compassion, it should come as no surprise that all Guyanese could readily agree on the need for real and evenhanded economic progress and would be prepared to support budget initiatives that are inclusive and responsive to their impoverished conditions and disadvantaged position.
Decisions and spending choices
In quantifying the expectations about revenues and expenses for the year, the budget presents Guyanese with a set of decisions and spending choices that may not necessarily be consistent with their priorities. Without an honest debate, Guyanese may never know if that is the case.
The administration fails also to disclose pertinent and specific information about key spending programs. For example, while the budget is full of statistics in support of many of its spending choices, it carefully avoids disclosing to Guyanese the total amount of money to be spent on modernizing parts of the traditional sector such as the beleaguered sugar industry and the uncertain bauxite industry.
In addition, the budget does not make clear how much money will be spent on boosting several non-traditional and emerging sectors such as tourism, telecommunications and alternative energy.
Critical issues
Over and above that, the budget fails to address two critical issues that may serve to undermine its integrity and sincerity. In the face of tough economic times, Guyanese have not been told by the administration why it should be allowed to spend an additional 8.1 percent of their money. Nor has the administration told Guyanese how the additional spending would affect them in the current year.
Exploring these two issues is important to understanding the immediate consequences of the budget proposal for Guyanese.
Per capita metric
The increased contribution of 8.1 percent by Guyanese to the spending by the administration is no simple matter. From what we know, Guyanese would be on the hook collectively for all the money that the administration plans to spend and the personal share of each Guyanese could be more onerous than imagined.
Using the per capita metric as an indicator of burden sharing helps Guyanese to appreciate their role in funding the decisions of the administration. It should make them realize too that the administration is not doing them a favour in the budget and, given the cost to each person of funding the budget, why they should expect the administration to be much more responsive to their economic plight.
Per capita calculations indicate that each Guyanese would be contributing an estimated G$170,000 to the budget. Based on the information about the minimum wage contained in the budget, the personal contribution of G$170,000 of each Guyanese would be equivalent to five months disposable income of a worker who earns the minimum wage.
The way the administration claims the money of Guyanese is primarily through the imposition of the income tax and the value-added tax or VAT. As pointed out in the budget, minimum wage workers do not pay income tax and they usually spend all of the money that they earn. Consequently, their contribution to the budget comes mainly in the form of the value-added tax (VAT). At 16 percent VAT, they would contribute over two months of earnings to this year’s budget. Using the situation of the minimum wage worker as a lower limit, Guyanese would have to give up in 2009 between two to five months of their disposable income to support the spending plans of the administration.
Sacrifice
This simple analysis demonstrates the amount of sacrifice that Guyanese are being asked to make so that the administration could engage in spending choices that may not be compatible with the majority of the nation. The 8.1 percent increase in spending that the administration is requesting means that many poor and low-income families, in particular, would have to go without some amounts of food, clothes, transportation or some other essential goods or services. This budget could have the effect of increasing the burden of the poor and disadvantaged in Guyana.
Yet, the administration does not see it fit to explain to Guyanese its rationale for asking them to give it additional money. The stubbornness of the administration on display in the Guyana Parliament suggests that the administration will not be offering explanations any time soon. This unhelpful approach to dealing with the interests of Guyanese debases the integrity of the budget and causes the theme “Working Together, Reinforcing Resilience” to ring hollow.
Performance of economy
Similarly, Guyanese should be interested in what they will get for their G$128.9 billion investment. With the proposed additional spending, the administration does not expect the Guyana economy to do any better than it did last year. In fact, it expects the economy to performance worse, despite the unfounded optimism about the economy and, in particular, the sugar industry. Last year, gross domestic product (GDP) was expected to increase by 4.8 percent. Instead, it turned in a performance of 3.1 percent. This year GDP is projected to grow at the rate of 4.7 percent, even with the increase in spending planned by the administration.
The budget offers no rationale for this projected performance in the face of an ongoing global economic crisis that affects many of Guyana’s major trading partners and the prices of many of the products that it exports. By its own admission, the administration does not expect substantial amounts of foreign investment and it does not expect remittances to reach recent historical levels.
Moreover, by taking an additional 8.1 percent of the resources from Guyanese consumers and businesses, it deprives the private sector a chance of increasing GDP by as much as 6.5 percent, three times the amount than it would with the administration spending the money. With consumer spending expected to decline by 4.8 percent, investment by businesses was likely to decline by 1.6 percent. The reduced spending by businesses could lead to job cuts and higher unemployment. Quite often, job reductions affect unskilled and lower paid workers
General Price Level
At the same time, consumers could expect inflation to increase by at least 11 percent. One way to look at the increased spending of 8.1 percent by the administration is to view it as the amount by which it expects the general price level to rise in 2009. If the administration is projecting an 8.1 percent increase in its own cost, it is reasonable to believe that the private sector would use the same benchmark in its own budget process. Who other than the administration is in the best position to know early what is going on with the important macroeconomic variables in the economy?
In addition, entrepreneurs make hard choices about where to invest their money. The opportunity cost of investing the money for profit is the interest that is given up. For simplicity, the small savings rate of 3.04 percent reported by the commercial banks in December 2008 could be used as the alternative income given up by entrepreneurs. When that is added to the anticipated increase in cost, it brings us to 11.14 percent and makes it is easy to understand why prices could exceed the 5.2 percent declared in the budget.
The foregoing are some of the issues that have not been properly addressed in a budget that appears to be based on overly optimistic estimates. Guyanese understand the need for hope. They have been living on that diet of anticipation for a very long time as a way of surviving. But the 2009 budget appears to be promising far more hope than Guyanese should believe in.
