By Rawle Lucas
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.
Perfunctory Act
It does not seem to bother the decision-makers of Guyana that the income earned by workers in this country has been declining steadily and contradicts the observed pattern of savings over the last 10 years. Everyday nearly half the Guyanese population of working age rises from bed and goes to work. Only they and their employers know what their efforts amount to at the end of each pay period. For the ones curious about the numbers, the data published periodically by the Bureau of Statistics (BOS) and the Bank of Guyana (BOG) offer clues as to what the paychecks of those workers could look like. To the inqusitive and cynical, the daily ritual of workers leaving home for work might seem more like a perfunctory act rather than a purposeful attempt at getting things done and helping their employers to move their enterprises forward. The bet is that, except for the privileged, the paychecks of workers in Guyana cannot contain much money.
This harsh perspective about workers in Guyana is borne out by the expanding role of remittances in the economy and what that expansion has done to production and workers’ incomes. The most notable impact is the under utilization of human resources in Guyana and the mirage of economic prosperity forged by the national data on domestic output. It contains also the rationale for why the pleas by the private sector for income tax relief have not been greeted with much enthusiasm by the administration.
Base Year
The simplest way to assess the impact of remittances on production and incomes is to determine what proportion of the money that Guyanese receive is made up of remittances. Economists in prepared studies for the World Bank have concluded that recipients of remittances in developing countries tend to spend out most of the money that they receive from abroad. Whether spent on food, education, entertainment or even to invest in some small business, that money forms part of the revenues that businesses obtain from customers and from which they pay their workers. With this simple understanding, it is easy to grasp what is happening in Guyana.
Simply stated, production in Guyana has deteriorated since 2000 and so have the incomes earned from work in Guyana. The year 2000 was chosen as the starting reference point in this article because it coincides with the year the administration has selected to use as its base year. The base year is the point in time from which the administration measures its own performance. The selection of 2000 as the base year means that the current administration has no choice but to accept responsibility for what has been happening in Guyana under its watch since that time.
Earned Income
Having found its way into the coffers of businesses in 2000, remittances made up 17 percent of income for that year. This meant that 83 percent of the money received by Guyanese came from income that was earned from work that they performed in Guyana. By 2008, the situation had worsened. According to some local newspaper sources, only 57 percent of the income of Guyanese came from work that they did in that year. Remittances took care of the remaining 43 percent of the income of Guyanese. Based on data in the annual reports of the BOG, a more favourable picture of 70 percent of the income of Guyanese was earned from work performed in the country. Either way, notwithstanding all the hustle and bustle seen in the major commercial centres across the country, the income earned by Guyanese from work has dwindled and the production base of the country has not expanded much.
This is an indication that remittances are not adding to the earned income of Guyanese. They are actually replacing income that would otherwise be earned. With Guyanese either being under utilized or unemployed, production is suffering. This is true for 83 percent of the agricultural commodities and half of the manufacturing items listed by the BOG in the production indices in its 2008 annual report. Production is down significantly compared to where it was in the year 2000. It is one of the reasons that prices have jumped 63 percent from 2000 to 2008, an average of seven percent per year, and the active labour force has not increased in size since then. Viewed alternately, the level of unemployment in Guyana has remained as unreasonably high in 2008 as it was in 2000. Nearly half of its working age population is left out of the economic loop.
No Small Order
The impact of remittances on the Guyana economy is no small order. Remittances have been growing at twice the rate of the Guyana economy and, along with other transfers, have increased by over 600 percent from 2000 to 2008. As a source of foreign currency, remittances, in 2007, brought into the country 86 percent more money than gold, 89 percent more than sugar and 180 percent more than bauxite. Quite recently, the administration and its cheerleaders have been singing the praises of rice. Yet, rice is no match for the value of remittances to the Guyana economy. Remittances secured over 170 percent more foreign revenue than rice in 2007. Even though rice had a stellar year in 2008, remittances still surpassed the money that it earned by nearly 140 percent. Remittances are often cited as a principal reason for improvements in the current account position of Guyana. In effect, the workers in none of the major industries in Guyana are productive enough for Guyana to reduce its reliance on their fellow Guyanese living and working abroad.
VAT
The importance of remittances to the economy was not lost on the administration and there is no doubt that this money was the motivation for imposing the value-added tax and at the high rate of 16 percent at which it was imposed. Based on studies performed for the administration, it obviously saw that Guyanese working at home were producing and earning less and that it was likely to obtain relatively less income tax revenue from the dwindling income of workers. With earned incomes already low and tax avoidance efforts on the rise, the administration expected to lose substantial amounts of revenue from income tax in the out years. The prospect of lower fiscal revenues in the future did not match the ambition and outlook of the administration. In the mind of the administration, the scope for income tax relief does not exist under those conditions.
At the same time, the administration was aware that Guyanese were obtaining an increasing share of cash resources from abroad. Unless there was a way of taxing those revenues, the administration felt that its coffers would suffer since the income tax base was shrinking. The only sure way was to catch Guyanese as they were spending the money that they received from abroad. VAT was the answer. Instead of doing the heavy lifting required to stimulate the Guyana economy and the participation of Guyanese, the administration saw easy money and wanted to get its share. For the administration, the migrant Guyanese is a “cash cow” and it intends to milk it for all it is worth. It does not require much imagination to realize that VAT will remain in place until its usefulness as a bountiful revenue source diminishes. Therefore, Guyanese should not be surprised that the administration is doing little to slow down or reverse the outward flow of Guyanese from the country. This trend suits the administration since job creation in Guyana or higher wages does not have to be a priority or a matter of urgency for it to keep raking in revenues.
Savings
Arising from these developments should be a closer look at the rate of savings in Guyana. Even though earned incomes were falling, Guyanese were able to increase their deposits at twice the rate at which their money was increasing from 2000 until 2006. In some years, the difference was even greater reaching as high as five times the rate of increase in 2001. It was not until 2007 that a more reasonable relationship between the growth in income and the growth in savings was achieved. For their part, Guyanese should ask the administration to explain what happened since 2007 to make this possible.
