-says it is biggest hindrance to development
Guyana is among the five countries in the region ranked as “repressed” in the Wall Street Journal/Heritage Foundation 2010 Index of Economic Freedom, which – like last year – lists “oversized government” as the biggest barrier to the country’s development.
Guyana’s economic freedom score remains at 48.4, making its economy the 153rd freest in the 2010 Index which surveyed 183 countries, though four were not graded because of insufficient data. The report, released last week, says that Guyana’s overall score remains the same as last year because improvements in three of the 10 economic freedoms were offset by declines in investment freedom and property rights.
Guyana is ranked 27th out of 29 countries in the South and Central America/ Caribbean region, and its overall score is well below the world and regional averages. Only one economy in the region, Chile (10th), made the worldwide top 20 while at the other end of the scale and ranked “repressed” were Guyana, Venezuela and Cuba, who were joined this year by Ecuador and Bolivia. Venezuela remains a problem, as its authoritarian government is working to undermine democracy throughout the region, a statement from the Heritage Foundation says. St Lucia (70.5), Barbados (68.3), The Bahamas (67.3), St Vincent and the Grenadines (66.9) and Trinidad and Tobago (65.7) are the CARICOM countries in the regional top ten while worldwide Hong Kong again leads in Economic Freedom followed by Singapore, Australia, New Zealand and Ireland.
According to the Index, Guyana does not perform well in any of the 10 economic freedoms and is slightly above the world average only in labour freedom and monetary freedom. It noted that average economic growth over the past five years has been only about 3 percent, lagging behind other developing countries. “Long-standing constraints on overall economic freedom include property rights protected only erratically under the weak rule of law and widespread corruption in all areas of government”, it says. The report stated that the biggest barrier to development is Guyana’s “oversized government”, with expenditures that often exceed half of GDP. “Significant restrictions on foreign investment, combined with an inefficient bureaucracy, substantially depress the entrepreneurial environment”, the report adds.
Business freedom
The 2010 Index examined 183 economies, although four of these could not be graded because of insufficient data. Levels of economic freedom in 10 categories were rated on a scale of 0 to 100. The higher the score, the lower the level of government interference in the marketplace. The 10 freedoms measured are: business freedom, trade freedom, fiscal freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom. Ratings in each category are averaged, then totalled to produce the overall Index score.
In the area of business freedom, the Index says that despite some progress, the overall freedom to conduct a business remains restricted by Guyana’s regulatory environment. Starting a business takes about the world average of 35 days. Obtaining a business licence requires less than the world average of 18 procedures, but closing a business can be costly, it says. Guyana received a score of 63.4 in this area.
With a score of 71.3 in the area of trade freedom, the report says import restrictions, import taxes, import-licensing requirements for a relatively large number of products, burdensome standards and regulations, inefficient customs administration, weak intellectual property rights enforcement, inadequate infrastructure, and corruption add to the cost of trade. Fifteen points were deducted from Guyana’s trade freedom score to account for non-tariff barriers.
In relation to fiscal freedom, Guyana received a score of 55.9. Guyana has relatively high tax rates, the report notes with the top income tax rate being 33.3 percent, and the top corporate tax rate at 45 percent. Other taxes include a property tax and a value-added tax (VAT). Excise taxes on fuel were temporarily suspended in 2008. In the most recent year, overall tax revenue as a percentage of GDP was 35.7 percent, the report says.
26.2 is the score for government spending. Total government expenditures, including consumption and transfer payments, are high. Privatization of state-owned enterprises has achieved mixed results. Poor management of public expenditures has led to persistent fiscal deficits. In the most recent year, government spending equalled 49.6 percent of GDP, the report says.
As regards monetary freedom, Guyana received a score of 71. According to the report, inflation has been high, averaging 9 percent between 2006 and 2008, but has been falling steadily from a peak of nearly 12 percent in March 2008. It was 6.4 percent at the end of 2008 and was expected to continue to fall in 2009, barring a renewed shock to global energy prices. Guyana has made progress in removing price controls and privatizing the large public sector, but the government still influences prices through the regulation of state-owned utilities and enterprises. Ten points were deducted from Guyana’s monetary freedom score to adjust for measures that distort domestic prices, the report says.
Investment
Freedom
In Investment Freedom, Guyana received a score of 30. “Guyana has been moving toward a more welcoming environment for foreign investors, but major foreign investments receive intense political scrutiny in an economy still dominated by the state”, says the report. It added that the approval process for investments can be burdensome and non-transparent. While there is no mandatory screening of foreign investment, the government conducts a de facto screening of most investments to determine eligibility for special tax treatment, access to licenses, availability of land, and approval for investment incentives, it says. “Investment is hindered by crime, corruption, inefficient and burdensome government bureaucracy, non-transparent regulations, a weak and burdensome judiciary, and an inadequately educated workforce’, it states. It noted that foreign exchange, credit, and capital transactions face some restrictions and controls. The constitution guarantees the right of foreigners to own property or land.
Guyana snagged a score of 40 in financial freedom. This, according to the Index, is due to the underdeveloped financial system which remains plagued by inefficiency and a poor institutional framework. High credit costs and scarce access to financing remain barriers to more dynamic entrepreneurial activity while the percentage of loans that are considered non-performing is a relatively high 14 percent, it says. It noted that there are restrictions on financial transactions with non-residents.
On property rights, Guyana received a score of 35. “Guyana’s judicial system is often slow and inefficient. It is also subject to corruption”, the report says while adding that law enforcement officials and prominent lawyers question the independence of the judiciary and accuse the government of intervening in some cases. According to the report, a shortage of trained court personnel and magistrates, poor resources, and persistent bribery prolong the resolution of court cases unreasonably. There is no enforcement mechanism to protect intellectual property rights, it says noting that Guyana is ranked 109th out of 115 countries in the 2009 International Property Rights Index.
Guyana received its lowest marks in freedom from corruption with a score of 26. Corruption is perceived as widespread, the report says noting that Guyana ranks 126th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. “There is extensive corruption at every level of law enforcement and government. Public officials are required to disclose their assets to an Integrity Commission before assuming office, but the commission had not been constituted as of mid-2009”, the report says. It adds that widespread corruption undermines poverty-reduction efforts by international aid donors and discourages foreign investors.
As regards labour freedom, Guyana received a score of 65.2. The non-salary cost of employing a worker is low, but dismissing an employee is fairly costly, the Index says.
In this year’s Index of the 179 countries ranked only seven were classified as “free” (a score of 80 or higher). Another 23 were rated “mostly free” (70-79.9). The bulk of countries—113 economies—were found to be either “moderately free” (60-60.9) or “mostly unfree” (50-50.9). The remaining 36 countries have “repressed” economies, with total freedom scores below 50.
The Heritage Foundation is a conservative American think tank based in Washington, DC. It took a key role in the conservative movement during the presidency of Ronald Reagan.
