The previous column – “Government deposits at the BoG and some MMT-like themes”– makes several points. Firstly, the Consolidated Fund has been in overdraft since 1985, according to data my co-author, Mr. Joel Bhagwandin, assembled from the annual Budget Estimates. The year 1985 is the starting period for which we can find the data and not the first year when a deficit was recorded.
Secondly, the summary Consolidated Fund is no longer reported in the Estimates. One can think of this account as being similar to a business’ chequing account, which can be in overdraft if the business is faced by random expense shocks exceeding revenues. The Bank of Guyana (BoG) houses the Consolidated Fund. Thirdly, central government – in principle – can write cheques to make payments to the private sector and not bother too much about directly repaying the BoG. These expenditures expand the liability of the central bank, just like if the government decides to print Guyana dollar notes and make payments. These currency notes, if printed, will also expand the BoG’s liabilities. The overdrafts generate surplus reserves in the banking system. Exactly how the structural surplus reserves in the economy are managed is the subject of much academic research and debate. I will discuss later in this essay how the BoG manages these structural excess reserves that are created by the overdrafts.
