Dear Editor,
At paragraph 3.1 of the budget speech, the Finance Minister admitted the economy recorded a dismal 0.7% GDP growth by mid-year (up to June 30, 2015). The Finance Minister then stunningly claims GDP growth for 2015 ended up at 3%, meaning there was a staggering growth of 5.3% between July and December 2015! At paragraph 3.9, we are told that “Increased export receipts of gold and other exports, by 6.7 percent and 9.4 percent respectively, ensured a small 0.2 percent increase in merchandise export earnings, to US$1.2 billion. As expected, there were significant reductions in export receipts for bauxite (16.4 percent), timber (18.5 percent), sugar (8.1 percent), and rice (11.5 percent).” So, are we to believe that with only gold and other exports (which is a minor category of export revenues) showing increases in 2015 and with probably half of the increases in gold export revenues already contributing to a meagre 0.7% by June 30, 2015, the rest of the increase in gold revenues (3.35%) would account for this staggering turnaround in a resource/commodity-driven economy when all other commodities/ resources took a beating? Are we to buy this interesting constellation of figures?
At paragraph 3.14, the government confirmed that deflation had set in for the first half of 2015 at 0.2%. Of greater concern, this deflation increased to 1.8% by the end of December 2015. We have had a 1.6% increase in deflation in the six months from July to December 2015 and this government has the gall to bamboozle us with stellar assertions of grandiose economic growth that makes the rest of the world gripped in a downturn look pedestrian. This deflation occurred at a time when the fuel prices remained unadjusted and high in Guyana, despite the dire world price for oil. Despite this high cost of fuel prices comparative to the world price for oil, Guyana fell deeper into deflation. The budget is now reducing fuel prices, which will likely plunge us even deeper into deflation.
Deflation hints that consumer spending in the economy is heading in the wrong direction and is hitting the wall. It is disastrous for private investment, especially in a country driven by base production, low value-added and re-importation of value-added and processed products at higher cost. Everyone assumed consumer confidence would be lower in any government in which the PNC/APNU is the major partner. It is simply the stain borne by the PNC from its past. That this reduced consumer confidence coincided at the most inopportune time for the coalition government to gain power – a time of imploding commodity prices worldwide ‒ delivered a knockout blow to this government. This is why this absurd decision to shut down a sugar estate at this time with possibly about ten thousand of direct and indirect jobs and spending beneficiaries of the sugar industry affected in the midst of rising deflation is one of the most preposterous economic decisions in this country’s history. This act not only wipes out that spending power, it puts a damper on the spending intentions of those other sugar workers in the industry, putting spending beneficiaries of the sugar industry into a retreat from spending. This does not even consider the negative lurch on the spending machinations of the wider public.
This country is already operating in a low interest rate environment for savers (1.26%) with a high spread for borrowers who pay much higher interest rates (10.63%). The significant bulk of the borrowing in this country is by those who are in the commodity production business. These individuals and companies will face severe debt servicing issues with rising deflation. This is going to further fuel this deflationary trap. The debt burden is going to be very problematic and in an environment of collapsed commodity prices with no relief in the near term, some companies trapped in this reality will fold. Plus, this is a country where bargain hunting and delayed purchasing is an entrenched consumer affliction. The psyche of the Guyanese consumer is going to add to this deflationary spiral. Lower production was already occurring in the face of external low world commodity prices. Now, internal deflation is further going to erode production and lower wages. It is difficult to see how economic growth, moreso at the claimed incredible level by this government, is possible in this depressing economic environment. Are we really getting the truth from the government? Because this does not look or smell like the truth.
Yours faithfully,
M Maxwell
