‘Voodoo economics’
Economics is essentially a discipline based on commonsensical principles and ideas. These are then expressed precisely, with logic and theoretical rigour. And, more often than not, they are supported with the use of mathematical techniques, and statistical analysis and inference. It is for this reason I believe that when government and its functionaries make economic pronouncements which violate common sense, ordinary Guyanese dismiss these as ‘voodoo economics’ or in other words, rubbish. The 2009 National Budget brings us face-to-face with an even more disturbing companion of ‘voodoo economics,’ that is, the economics of ‘make-believe.’
By ‘make-believe’ economics I refer to situations when the government and its functionaries put forward economic statements and prescriptions, which bear little or no relation to the realities of the everyday life of Guyanese. This happens because, like the proverbial ostrich, the government wilfully or otherwise ‘buries its head in the muck’ that surrounds it, systematically ignoring in the process uncomfortable economic occurrences that are unfolding on a daily basis.
Global crisis
Since January 25, I have been detailing in my Sunday Stabroek columns, the impact of fourteen major exogenous shocks/challenges, mostly externally-driven, which have rocked the Guyanese economy during 2008 and as a consequence damaged its prospects for 2009. The budget presented to the National Assembly on February 9 has devoted little attention to this. Hopefully, during the debates, opposition members would be able to force this topic to the top of the agenda.
Because of this stand, the budget makes two incredible claims. These are 1) that GDP grew by as much as 3.1 per cent and inflation by as little as 6.4 per cent during 2008 and 2) projects for 2009 GDP growth at 4.7 per cent and inflation at 5.2 per cent.
The growth rate of 3.1 per cent claimed for 2008 is double the average annual rate of increase (1.5 per cent) over the period 1998-2008. Indeed for four of the years during the past decade, annual real GDP growth has been negative. Further, the growth of 3.1 per cent for 2008 is about one-third that of the two previous years 2006-2007, implying that the economic shocks and challenges the country faced made no real difference. This is an unbelievable outcome.
We must bear in mind that the economic shocks/challenges in 2008, include the devastation of the floods and the near-collapse of the sugar industry during the second crop. Indeed, the sugar sector declined by 15 per cent during 2008. It was the same for forestry and worse for the diamond industry (37 per cent).
Prognosis for 2009
The element of make-believe economics is even more dramatically pronounced in the projection of Guyana’s economic growth for 2009 at 4.7 per cent.
Worldwide, estimates of real GDP growth for 2009 have been declining, with each more recent estimate. The most recent estimate of global real GDP growth for 2009 is 0.5 per cent. This makes the budget projection of 4.7 per cent, embarrassing and ridiculous. Can it be that in Guyana the growth rate for 2009 can rise by more than 50 per cent above the growth rate for 2008!
Bear in mind that the analyses I have presented in these weekly columns since January 25 show that the global economic slowdown is getting worse – not better. Job losses, real GDP declines, investment flows, and consumer spending are trending down, everywhere. How therefore, could the performance of Guyana’s very open economy defy this trend, when even the mighty Chinese and Indian economies cannot? As time passes, the expectation for the global economic turnaround is now being projected further and further into 2010!
Blatant as these make-believe elements of the budget appear, there are other very important ones. For the budget preparation, the Ministry of Finance refused to engage in the traditional consultations with stakeholders, such as the trade unions, private sector bodies and consumer organizations. Whatever point the ministry was seeking to make, we now know for certain that by refusing to consult this time, it has served to confirm the fact that previous consultations were not considered useful and therefore had nothing to offer to the analysis and proposals in the National Budget.
Delayed reaction
In any event, for those following my SN columns the question that should be now asked is: why did the government not make a concerted effort before to provide guidance to Guyanese on the potentially devastating effects of the global crisis that started at least four months ago?
In Caricom, where critics have been calling for urgent regional action, a regional task force was put together before the budget. The budget, with its make-believe elements, does not engage seriously or directly analyse the impact of the global financial crisis, credit crunch and economic recessions on Guyana.
This is a serious omission, particularly as efforts to deal with these exogenous occurrences in the rich developed economies are showing signs of economic nationalism, protectionism, beggar-thy-neighbour policies and inward-focused development. All of these imply neglect for the many priority items on the global agenda, which concern Guyana: climate change; nutrition and poverty; environmental sustainability; and, the achievement of the Millennium Development Goals.
EPA
A sad and perhaps poignant reminder of how ‘make-believe’ is the economics of the 2009 budget is its (non) treatment of the EPA (Cariforum-EC, Economic Partnership Agreement). Before, during, and after the government’s signing of the EPA in October last year, the EPA dominated discussions on the prospects for Guyana’s future economic development. Despite the National Consultation and the strong progressive public stance taken by the government on the EPA, this agreement fails to find mention in the first National Budget of the Guyana government, produced four months after its signing. If proof were needed that the budget was all about make-believe with scant attention paid to the serious day-to-day realities of the lives of Guyanese people, this surely provides it.
To most Guyanese the prices they have to pay for goods and services relative to their incomes and wealth constitute the sharpest reminder of how their lives are faring. As we shall see in next week’s column, the National Budget ignores the households who make up the nation and focuses on the government’s accounts, as its priority consideration. I shall explore how this flawed development approach has hurt the people of Guyana.
