Budgets by their very nature are highly anticipated as they set out the fiscal agenda for the year and chart a course for the entire country so to speak. The best practice would be to have a presentation very early in the year or even before that. By comparison our presentations have tended to be later than they should be.
The budget should also contain the major fiscal measures that would underpin the anticipated performance and the stimuli for boosting the fortunes of the citizenry whether it is an adjustment of the income tax threshold, the wage increase for public servants or some other measure. The budget measures have been highly anticipated but in recent years there has hardly been any. This year there is none and to the great disappointment of the average man/woman in the street there has been no lifting of the income tax threshold even though the VAT continues to be a weighty burden.
From today, our country’s legislators have a chance to debate the quality of this year’s budget and they have been given a head start by the very comprehensive review done by Ram and McRae and published in this newspaper last week. Hopefully the MPs will take their work seriously. Too often these debates are shallow, not well researched, purely partisan and vapid.
There are several major areas that both government and opposition MPs should be focused on. Perhaps the most important is the sugar industry. It should be apparent to all sides that the importation of sugar from Guatemala so that Guyana can meet its export quotas and the shocking delay in the start-up of the ambitious Skeldon sugar factory are signs of a major crisis in the industry.
Importation from Guatemala is the outcome of the slumping production over the last three years which has been blamed on flooding, bad weather and industrial unrest. Annual production was 226,267 tonnes, a slide of 15.1% from the previous year although the first crop had actually risen by 2.3% and was the largest crop in four years. This was all spoilt by an alarming 25.7% collapse in the second crop which the sugar corporation attributed to complications in the transition to the new factory at Skeldon, the repercussions of waterlogged soils on cane growth and the level of sucrose, pest infestation and strikes. GuySuCo is projecting a return this year to the 2008 projected figure of 290,000 tonnes. Whether this figure can be met given the aforementioned problems which GuySuCo itself cited will have to be closely evaluated.
The turn-key project with the Chinese contractor, CNTIC for Skeldon is more problematic. Despite the resort to liquidated damages, the actual loss to the industry would be far higher since the new factory was to be in place for the second crop last year. It missed that, missed the first crop this year and fingers will be tightly crossed for the second crop this year. Added to these losses would be the resort to the old Skeldon factory, aging cane in the fields and the testing costs. Why these start-up problems have been so intractable and the decision making that led to the selection of the Chinese contractor should now be on the table for a full discussion in Parliament.
With an interim board in place and the Booker Tate Management contract at an end after 18 years, the industry should come under more regular and detailed scrutiny by the Economic Services Committee of Parliament and one expects that MPs will use the opportunity of the debates this week to have the relevant questions answered.
Another area of interest to MPs should be the scale of the deficit financing and the likelihood of supplementary financing that may be required during the year. Revenue is budgeted at $90.2B and expenditure at $128B. Amid the bewildering upheaval in the global financial markets, the usual assurances of budgetary support from foreign sources cannot be guaranteed. As it is now, the fiscal balance of the central government is expected to deteriorate by 24.6%. In addition, as pointed out by the Ram and McRae review, the public debt and the external debt are grounds for concern.
Given the debt-relieving outlook of successive PPP/C administrations beginning in 1992 there is a contradiction in the contracting of new debt without adequate consideration of whether there is an absolute need. It is something that the Minister of Finance should be pressed to defend. Debt contracting has to be seriously reviewed considering that the days of concessional loans are over for HIPC graduates and there is no prospect of further multilateral debt write-offs. After having made a never-ending fuss about the US$2.1B debt inherited from the PNC, the government would be hard-pressed to defend some of the new loan acquisitions. After a recent visit to China, President Jagdeo had referred blithely to a substantial loan for the power sector. It was unclear what the terms of the loan would be and whether the continued investment by the state was the way to secure the fortunes of the power sector.
Also of great importance at this time is the concern about whether Guyana is adequately insulated from the contagion of the international financial turmoil. The two key areas would be remittances and the fall-out from the CL Financial crisis. There isn’t much that could be done about remittances but in relation to CL Financial there needs to be a clear understanding of the related party transactions between its subsidiary here, CLICO (Guyana) and CL Financial and other subsidiaries in the Caribbean particularly with CLICO (Trinidad) and the operations in the Bahamas. CLICO (Guyana’s) accounts for 2008 reflect transactions with its sister companies which have not been adequately explained. It has now been revealed by the Trinidad Central Bank that CLICO (Trinidad’s) situation is more dire than previously thought and the statutory fund deficit may be as high as TT$10B. There is much room for MPs in the debate and eventually the Economic Services Committee of Parliament to get involved in relation to whether financial regulation of the insurance and financial services industries is adequate.
There are many other issues. Ever since the government’s announcement of a canal at Hope to drain the East Demerara Water Conservancy whenever it is at a dangerous level, there has been frenetic commentary on the matter particularly in the letter columns of this newspaper. Valid questions have been raised about the assumptions that have underpinned the canal, how its cost was arrived at and whether it is the best option. It is the kind of expert, well-intentioned debate that should attract the attention of the government and the legislators. Thus far, the government has ignored the debate and seems intent on steaming full speed ahead with this canal which has been on the agenda since 2005. The budget debate will provide a golden opportunity for the Minister of Agriculture to explicate on the thinking behind the Hope canal and for industrious MPs to grill him on it. The planned expenditure of $3B on this canal should only proceed if it is determined to be a viable solution to the conservancy threat and the most cost effective option.
And as we have lamented before, the bases of the economy remain largely unchanged from the traditional primary commodities. In the budget presentation, the Finance Minister referred to new and emerging sectors and the planned agricultural diversification. He referred to a planned outlay of $1.1B for the expansion of non-traditional agricultural sub-sectors. This was interesting but a far cry from what is needed to catapult the country onto a new plane of development. There has to be more robust examination of how the economy can be reoriented to take account of new and emerging opportunities.
It is up to the MPs – both government and the opposition – to use this debate meaningfully to represent the interest of the people who voted them in and we sincerely hope that they do so.
