Singh urges prudence, but projects GDP growth at 4.7%

Though emphasising “prudence” in the face of an uncertain global economic climate, Finance Minister Dr Ashni Singh yesterday projected a real growth in Gross Domestic Product (GDP) this year of 4.7%.

Presenting the financial targets in the government’s $128.9 billion budget, Singh also announced a projected inflation rate of 5.2%, while saying government’s monetary policy would continue to focus on liquidity management to ensure stable prices and a responsive exchange rate, at the same time facilitating private sector growth.

Singh told the National Assembly that the budget was crafted with the objective of preserving macroeconomic stability against the background of a global financial system characterised by chaos and turmoil. “Today’s environment is totally uncharted territory for policymakers and market participants alike,” he said. “It is for this reason that caution and prudence are required of us as we navigate the way forward.”

Last year, the economy achieved real growth of 3.1%, despite a significant decline in sugar production and an international economic downturn. Exports from sugar suffered an 11.2% decline to US$133.4 million ($26.6 billion) last year. However, the overall growth figure was boosted by a 5.9% growth in the non-sugar GDP. Singh said the economy remained “relatively insulated” from the global upheaval, noting that inflation dropped to 6.4% at the end of last year, from 14% in the previous year. The lowering of the rate this year is the result of the reduction in fuel prices toward the end of last year and the lowering of other prices. (At a cost of $4.2 billion last year, government reduced the excise tax on fuel products to cushion the effects of rising world market prices.)

However, Singh stressed that sugar is likely to exert a significant influence on the overall performance of the economy this year, while the non-sugar economy is projected to “moderate” to 1.8%.
Although the rice sector registered a strong performance last year, he said it is projected to decline by 7.1% with a production of 306,156 tonnes owing to tempering price levels and delayed planting in the light of unfavourable weather conditions at the start of the year.

The livestock sector is projected to grow by 3%, benefiting from the distribution of greater and improved breeds of cattle and swine distributed last year, increased production levels of poultry meat and reduced grain prices. Singh said other agriculture is targeted to grow at 2%, which he attributed to the continuing benefits of the state’s “Grow More Food Campaign,” adding that this would outweigh the losses experienced from flooding earlier this year. The forestry sector is expected to return to positive growth of 0.3%, while growth in the fisheries sector is expected to remain flat.

After recording a 6.1% growth last year, the mining and quarrying sector is expected to contract by 1.4%, with bauxite gold and diamond production projected to record negative growth. According to Singh, with continued depressed markets, the bauxite sector is expected to record a contraction in output, falling by 7.1% to 1,943,624 tonnes this year, from 2,092,237 tonnes in 2008. Bauxite achieved growth of 22.8% in the first half of last year, reflecting what Singh called “conducive world market conditions”. However, the halving of the world market price and accumulation of global stockpiles in the last five months of the year affected the local industry.

While gold prices remain relatively strong, Singh said it is anticipated that replicating the performance of the sector last year would be difficult and declarations are expected to decline by 1.5% to 257,503 ounces, from 261,424 ounces. Similarly, diamond production is also expected to drop by 2.35% this year, from 168,926 carats last year. In 2008, diamond production dropped by 37.2%.

However, Singh reported that the engineering and construction sector is targeted to grow by 3.8%, with growth centred on the lower-value home construction in expanding new housing areas. Other contributing factors are the continued strong construction in the commercial and financial sectors as well as public sector infrastructural works.

Meanwhile, Singh said the manufacturing sector would remain flat, mainly reflecting the prospect of limited expansion and demand.
The minister projected the overall balance of payments would deteriorate to a deficit of US$13.9 million ($2.78 billion). Last year, the balance of payments reflected an overall surplus of US$7 million ($1.4 billion), on improvement over the 2007 deficit of US$1.4 million ($280 million). The current deficit is projected to improve marginally to US$288.7 million ($57.74 billion), the result of projected lower oil imports that outweigh the marginal reduction in export earnings. Exports are expected to earn US$763.5 million ($152.7 billion), mainly conditional on the achievement of the targets of sugar export earnings. The export earnings in gold, bauxite and rice are projected to decline by 18.8%, 12.5% and 3.7%, respectively. Last year, export earnings increased by 14.4%, reflecting favourable conditions for primary commodities. Meanwhile, merchandise imports are projected to decline by 8.9% to US$1.184 million ($236.8 million), due mainly to a lower fuel bill. Private transfers are projected to decline by 20.9%, which, Singh said, is attributed to lower worker remittances and in-kind transfers given the downturn in the global economy. The capital account is projected to decline by 10.1% to a balance of US$274.8 million ($54.96 billion), which is based on projected lower levels of foreign direct investment and capital transfers.

Revenue and expenditure

Central government is targeting $90.3 billion in revenue collection this year, a 9.5% increase over last year’s figure. Customs and trade taxes are estimated to collect $7.8 billion, internal revenue $37.4 billion and value-added taxes (VAT) and excise taxes $41.3 billion, representing increases of 3.7%, 8.1% and 11.2% over last year’s figures, $7.5 billion, $34.15 billion and $37.1 billion, respectively. Last year, customs and trade taxes suffered an 8.5% decline, since the figure for the previous year included no longer available residual consumption taxes that had offset the increase recorded in import duties. According to the minister, the projected collection increases this year are primarily the result of the restoration of the excise tax on fuel with the lowering of prices. Non-tax revenue, meanwhile, is forecast to be $3.9 billion or 16.3% more than last year’s level of collection, mainly on account of the Bank of Guyana’s net income transfers.

Total expenditure for this year is projected at $127.8 billion, which an increase of 11.6% over the $114.5 billion spent last year. (Last year total expenditure increased by 6.5%, mainly owing to non-interest expenditure, which increased by 22.4% to $71.5 billion, driven by the state interventions to alleviate the impact of high fuel and food prices. Additionally, there was a $3.3 billion subsidy to GPL and a $117.3 million intervention to contain flour prices.) The current expenditure is projected to grow by $81.3 billion, while capital expenditure is projected to grow to $46.5 billion, an increase of 4.1% and 27.8% respectively. Singh explained that increased maintenance of physical and social infrastructure is among the sources of growth in non-interest expenditure. He added that the significant growth projected in capital expenditure primarily reflects the allocations for major sectors such as drainage and irrigation, electricity, public safety, environment and pure water supply.

Singh also said last year interest payments increased by 5.7% to $6.5 billion, reflecting higher external payments given that 2007 benefited from the implementation of the IDB’s Multilateral Debt Relief Initiative, which outweighed the reduction in domestic interest payments.

The stock of external debt grew by 16% last year to US$833.7 million ($166.7 billion), reflecting disbursements, while debt service payments increased by 11% to US$21 million ($4.2 billion). Singh added that efforts continue to get debt relief arrangements with all of the countries bilateral and remaining commercial creditors on terms comparable to those obtained from the Paris Club. In this regard, he noted that a debt cancellation agreement was concluded with Venezuela, which wrote off all of Guyana’s outstanding debt, amounting to US$12.5 million ($2.5 billion).

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