Before budget day 2016 there had been several calls for boosting government spending to stimulate the economy for the purpose of job creation. This is an old Keynesian idea which says if private sector investment and external demand for exports are weak, the central government should intervene by increasing its spending to stimulate the economy. For an economy such as Guyana, government stimulus can at best increase economic activity in the non-tradable sector of the economy. The non-tradable sector represents those businesses which do not export to earn foreign exchange. Stimulating the tradable sector that earns foreign exchange requires structural or long-term policies as one would have under an agreed economic development strategy.
In other words, the yearly budget implements short-term economic activities of government spending and taxation. Another way of thinking about the short run is to see it as a cycle. Each cycle has a trough, expansion, peak and recession.
The forces driving these short-term business cycles are completely different from the forces determining the long-term trend. In good years – depending on global demand for Guyanese products – there will be an upswing in the cycle. In bad years the cycle turns downward and
