-Index of Economic Freedom finds
Guyana’s ranking has fallen in a worldwide survey of economic freedoms that lists “oversized government” as the biggest barrier to the country’s development.
In the Wall Street Journal/Heritage Foundation 2009 Index of Economic Freedom released yesterday, Guyana’s economic freedom score was put at 48.4 for a ranking of 155 of 183 nations that were surveyed. Guyana’s overall score is 0.4 of a point lower than last year because improvements in four of the 10 economic freedoms were offset by a large decline in the government size score. “Guyana does not rank strongly in any category of economic freedom and is slightly above the world average only in labour freedom,” the Index said, explaining that although macroeconomic and financial-sector stability has been maintained, average economic growth over the past five years was only about 1%.
The Index groups the country among economically “repressed” nations, and places it 27 of the 29 countries surveyed in the South and Central America/Caribbean region, and its overall score is well below the world average. Only Cuba and Venezuela were ranked lower in the region. Five Caribbean countries were listed in the top ten countries in the South and Central America/Caribbean region rankings. Barbados was at the top with a score of 71.5, followed by the Bahamas with 70.3, Saint Lucia with 68.8, Trinidad and Tobago with 68 and Jamaica with 65.2.
Hong Kong topped the survey with a score of 90.0, followed by Singapore with 87.1, Austria with 82.6, Ireland with 82.2 and New Zealand with 82.0. The entire index is available at: http://www.heritage.org/Index/Ranking.aspx
According to the Index, Guyanese face substantial constraints on their overall economic freedom. It said property rights are protected only erratically under the weak rule of law, and corruption is a problem in all areas of government. It identified the biggest barrier to development as Guyana’s oversized government, noting that expenditures exceed half of GDP. It added that significant restrictions on foreign investment have been addressed only marginally, and these restrictions, combined with an inefficient bureaucracy, substantially limit investment and business freedom.
Scores are computed based on 10 broad factors of economic freedom, using statistics from organizations like the World Bank, the IMF and the Economist Intelligence Unit. Equal weighting is given to Business Freedom, Trade Freedom, Monetary Freedom, Freedom from Government, Fiscal Freedom, Property Rights, Investment Freedom, Financial Freedom, Freedom from Corruption and Labour Freedom. Each indicator is graded on a scale of 0 to 100, where 100 represents the maximum freedom. A country’s overall score is based on an average derived from the total score.
In the area of Business Freedom, Guyana’s score is 60.9. The index found that overall freedom to conduct a business is restricted by Guyana’s regulatory environment. Starting a business takes an average of 40 days, it said, roughly equal to the world average of 38 days. Obtaining a business licence requires less than the world average of 18 procedures, but it noted that closing a business can be lengthy and costly.
For Trade Freedom, the score is 72.6. Import restrictions, import taxes, import-licensing requirements for a relatively large number of products, burdensome standards and regulations, inefficient customs administration, inadequate infrastructure, and corruption were said to add to the cost of trade. Fifteen points were deducted from Guyana’s trade freedom score to account for non-tariff barriers.
In the area of Fiscal Freedom, Guyana’s score is 66.5. The index said that the country has high tax rates. The top income tax rate is 33.3 percent while the top corporate tax rate is 35 percent. Other taxes include a fuel tax and a sales tax. A value-added tax (VAT) was implemented in January 2007. In the most recent year, it said that the overall tax revenue as a percentage of GDP was 31.9 percent.
With only 3.2, Guyana scored poorly for the size of its Government. Total government expenditures, including consumption and transfer payments, were listed as high. Additionally, it was noted that privatization of state-owned enterprises achieved mixed results, while poor management of public expenditures and constantly increasing social spending were found to contribute to persistent fiscal deficits. In the most recent year, government spending equalled 56.8 percent of GDP.
The Monetary Freedom score is 69.6 against a background of high inflation, averaging 10.4% between 2005 and 2007. The Index said Guyana has made progress in removing most price controls and privatizing the large public sector, but noted that the government still influences prices through the regulation of state-owned utilities and enterprises. Also, ten points were deducted from the country’s monetary freedom score to adjust for measures that distort domestic prices.
The Investment Freedom score is 40.0 and although it was found that the government remains cautious about approving new investments, the Index noted that the country has been moving toward a more welcoming environment for foreign investors. At the same time, it added that the approval process can be burdensome and non-transparent. “The government still screens most investment, and the relevant ministries have significant discretion in issuing licenses and approval,” it said. Residents (with restrictions) and non-residents are allowed to hold foreign exchange accounts. Payments and transfers are not restricted. And while most capital transactions are unrestricted, all credit operations are controlled.
In the area of Financial Freedom, the country’s score is 40.0. According to the Index, Guyana’s “underdeveloped” financial system is dominated by banking. It said high credit costs and scarce access to financing remain barriers to more dynamic entrepreneurial activity. Overall, it said the banking system remains inefficient. The percentage of loans that are considered non-performing is relatively high at 14 percent, down from 25 percent during the mid-1990s.
The country scored 40.0 in the area of Property Rights, with the judicial system being described as being often slow and inefficient and subject to corruption. It was noted that law enforcement officials and prominent lawyers question the independence of the judiciary and accuse the government of intervening in some cases. Additionally, a shortage of trained court personnel and magistrates, poor resources, and persistent bribery were highlighted as being responsible for prolonging the resolution of court cases unreasonably. The absence of enforcement mechanisms to protect intellectual property rights was also noted.
Guyana also received a poor score for Freedom From Corruption, with 26.0. It was noted that corruption is perceived as widespread and the country’s ranking at 123 of 179 countries on the 2007 Transparency International’s Corruption Perceptions Index was cited. “There is extensive corruption at every level of law enforcement and government,” the Index said, pointing out that widespread corruption undermines poverty-reduction efforts by international aid donors and discourages potential foreign investors.
For Labour Freedom, the score was 65.2. Guyana’s relatively flexible labour regulations were cited as being responsible for enhancing employment and productivity growth. The non-salary cost of employing a worker is low, but dismissing a redundant employee is relatively costly, it added. The difficulty of laying off workers was also cited as a disincentive to employment growth.