Dear Editor,
I am happy that the former finance minister responded to my letter in which I called him out to an open debate. Mr. Jordan, however, digress-ed on the main theme in which I challenged him. He instead opted to elaborate on the work he did with the IDB Invest over the years as finance minister. For the record, I never took any issue with that aspect of his work which was a good and noteworthy effort on his part. My contention, however, was that it was counter productive work – having worked so hard for the IDB Invest to engage in more private sector lending while at the same time destroying the productive sectors of the economy and failure to address the development challenges and needs of Guyana – thus leading to limited or absolutely no bankable private sector projects. Hence, his elongated defense was totally irrelevant.
Highlighting his accomplishments, he mentioned the reduction of corporate income tax to 25% and the VAT of 14% and claimed that he never added any new taxes. All the tax measures that were reversed in the emergency budget such as VAT on Utilities and expanding the list of VAT exempt from zero rated – are examples of the burdensome new taxes. While he reduced VAT to 14% – the list of items VAT was applied to also expanded. The exorbitant increases in license fees and leases etc., are included. Further, what’s the point of boasting of reducing corporate income tax to 25% while doing nothing about the country’s energy problem? Having said that, and outlined hereunder, is a summary of my analyses on the economy – drawing from the work I have done over the last three and a half years – analyzing the outcomes of Mr. Jordan’s economic policies and governance of the economy:
The former minister stated in another letter that Ashni Singh, is pulling “the proverbial wool over the eyes of the discerning public since the evidence will show that over the last five years, the APNU+AFC regime racked up a deficit of $92 billion.” Then he went on to state that the deficit for 2020 projected under the current regime was projected at $75 billion, before they went to parliament on December 28, last, to extract another $17 billion”. By this comparison, Jordan sought to argue the point that the current government’s deficit in 2020 alone is equivalent to the deficit accumulated in his government’s five year tenure.
The previous government’s total expenditure for the period 2010 – 2014 total government expenditure amounted to $794 billion, whereas for the period 2015 – 2019 the expenditure amounted to $1.143 trillion. By the time the new government assumed office in August 2020, Mr. Jordan racked up over $1.2 trillion in five years – which is almost twice the amount of monies expended during the period 2010 – 2014 by Ashni Singh, who was minister of finance during that period.
To clarify, the $92 billion deficit the former minister was referring to – he was actually referring to the overdraft balance on the government deposit accounts at the central bank. From examining the data for the period 2010 – 2020, one should note that the deposit account balance stood at a surplus of almost $70 billion in 2010, then reduced to a surplus of $21.4 billion by the end of 2014. Notably, during the period 2010 to 2014 – the government’s deposit accounts were never allowed to reflect an overdraft balance. Contrasting this for the period under which Winston Jordan served as finance minister – combining the balances in the Consolidated Fund (CF) and the Deposit Accounts amounted to a net deficit of $45 billion by the end of 2015 which reached a whopping net deficit position of $148.2 billion which is the highest in this country’s economic history post 1992.
In fact, it should be mentioned that what Jordan did with those deposit accounts for five years was in breach of the Fiscal Management and Accountability Act which states that any overdraft balances on official bank accounts by the minister of finance must be cleared at the end of the fiscal year. The former minister never did this and there is a reason why he never complied with the Act to clear those deficit balances apart from the reason cited by Ashni Singh. That is, whether intentionally or by default, the fact that the overdraft balances are not captured in the reporting of the country’s official stock of public debt would have effectively resulted in the understatement or underreporting of the true state of the country’s public debt. This is what the current minister Ashni Singh is now correcting by raising the debt ceiling so that those balances can now be cleared by the issuance of the appropriate debt instruments which would allow the deficit to be reflected in the official stock of public debt.
Further, not only did the former minister of finance, and by extension the previous government, were engaged in reckless spending, the evidence would show that there was huge misallocation of resources which resulted in the underperformance of the country’s many productive sectors. The former minister’s philosophy in administering fiscal policy was one that was contractionary rather than expansionary and devoid of any transformative developmental trajectory of the country. In this regard, from the data presented for the period 2010 – 2014, capital expenditure accounted for more than 30% of government’s total expenditure. During the period 2015 – 2019 on the other hand, capital expenditure declined from a high of 35% of total expenditure to as low as 23% of total expenditure. Thus, more monies were expended on unproductive activities which resulted into excessive wastage of public funds – many of which are being uncovered almost on a daily basis.
Had it not been for oil discovery in 2015, today the economy would have been in serious trouble especially since the Bank of Guyana (BoG) has been struggling to meet its international reserve target or three months of import cover since the last quarter of 2017. This is in fact the main reason why it has had to sell off its gold reserve and has been buying up foreign exchange (FX) from the private FX market (commercial banks) since 2017. The BoG has had cause to buy up about US$300M to prop up its reserves. Thankfully, the FX in the commercial banks has not been depleted and that is largely because of oil & gas related activities where there is a continuous inflow of FX coming into the system, and it is helping to maintain some stability. Bearing in mind that the BoG has never had cause over the last ten years or so, prior to 2017, to buy up FX from the commercial banks. It has in fact always enjoyed a net sales position to the commercial banks.
Overall, the economy shrunk by $182 billion (US$840 million) while noting that the total losses in exports (except gold & other exports), public investments and private consumption combined, amounted to whopping $647 billion or US$3 billion – when compared to the period 2010 – 2014.
Editor, Minister Jordan has already indicated that he does not intend to respond to me, but I believe that he is wriggling out from a real debate given that a real budget will soon be presented in the National Assembly, and he perhaps lacks the wherewithal to engage me in any meaningful and scholastic manner. As the former finance minister, he ought to make it his business to defend his track record. For Mr. Jordan’s reference – all of my work can be accessed here: https://jbconsultancy.info/insights-the-economy-finance-published-articles/.
Yours faithfully,
JC. Bhagwandin
