The European Commission is proposing that fossil fuel firms that have made windfall profits from soaring energy prices to make a financial contribution to help citizens and industries grapple with high energy bills. The proposal involves European Union countries introducing a “solidarity contribution” from the taxable profits of these firms in respect of the fiscal year 2022. This will contribute to supporting ‘households and businesses with high bills, helping energy-intensive industries, cutting EU energy consumption and making Europe more self-sufficient in its energy supplies’. In the second quarter of this year, Europe’s biggest oil companies Total Energies and Shell recorded quarterly profits of $9.8 billion and $11.5 billion, respectively. Some countries, including Italy, have already introduced a windfall profit tax on energy firms. See https://www.euractiv.com/section/energy/news/eu-plans-solidarity-contribution-from-oil-and-gas-firms-during-energy-crisis/.
A recent Oxford University study on climate change concluded that switching from fossil fuels to renewable energy could save the world as much as $12tn (£10.2tn) by 2050. The study refuted claims that moving quickly towards cleaner energy sources is expensive, especially considering soaring gas prices and the falling costs of renewable sources of energy, with solar energy being the cheapest option. According to Prof. Doyne Farmer, ‘[e]ven if you’re a climate denier, you should be on board with what we’re advocating. Our central conclusion is that we should go full speed ahead with the green energy transition because it’s going to save us money’. See https://www.bbc.com/news/science-environment-62892013.
Last week’s article titled “Debarment of contractors and suppliers” provoked quite a reaction, with the President, in an exclusive interview with the Stabroek News, defending the $566.9 million contract award to Kares Engineering for the rebuilding of the North Ruimveldt Secondary School. The President stated that all awards for government contracts follow the law and that there is only so much government can do:
This was a public tender. What are we to do? If you went out, if you go to public tender, a public process, people participate in the process, there’s a recommendation that goes to the tender board, the Board sends a recommendation to Cabinet, who can only have a response…what else is there to do?
The President may have overlooked the fact that even the best of systems and procedures are likely to produce less than the desired results if officials responsible for overseeing those systems and procedures are not selected on the basis of certain established criteria. These include professional and technical competence, proven track record in the related fields; demonstrated objectivity, integrity, independence and ethical behavior; and ability to put the public interest above all other interests. Unfortunately, the evidence suggests that quite the opposite happens in respect of several key non-political appointments. Selection is often based on political loyalty and/or party affiliation as well as on the belief that the appointed official may be swayed to manipulate rules and procedures to favour a certain desired outcome.
As regard the NPTAB, the tenure of office of the current members will come to an end in ten days’ time. We hope that the selection of new members will be based on the above stated criteria. The appointment of the current chairperson, who is a senior official of the Ministry of Finance, was to have been a temporary one, but this was not to be. The Procurement Act provides for a two full-time persons to sit on the seven-member board, including the chairperson. In addition, a scrutiny of the minutes of the weekly tender board meetings posted on NPTAB’s website shows only a spreadsheet listing of the various bids received, the amounts involved and certain other information. There is no indication of the basis of the award. We trust that the new NPTAB will consider it necessary to make available on its website, the actual discussions that take place leading to the contract award. Also, should the report of the Evaluation Committee not be made available to the public via NPTAB’s website in the interest of transparency and proper accountability?
Cabinet is also not a passive player in its involvement in the procurement process. It has a duty under Section 54 of the Procurement Act to first review the streamlined evaluation report prepared by NPTAB, setting out the basis for the proposed award of a contract. Cabinet can object to the award of a contract if all the procedures have not been followed. In the case of the Kares contract, one of the key qualification requirements relates to past performance, which both the Ministry of Education and NPTAB failed to consider.
In our article of 25 July 2022 titled “Latest assessment of the state of Guyana’s economy”, we highlighted the contents of the Bank of Guyana report on the performance of the economy covering the first quarter of 2022. According to the report, the economy recorded mixed performance in the major sectors, with both rice and sugar experienced decline in production by 53.1 percent and 47.7 percent, respectively. The rate inflation was 1.7 percent which we considered unrealistic compared with the experiences of several other countries.
By Section 67 of the Fiscal Management and Accountability Act, the Minister of Finance is required to present to the National Assembly within 60 days of the end of the first half-year of each fiscal year, a report on the year-to-date execution of the annual budget and the prospects for the remainder of that fiscal year. The report is to include:
(a) An update on the current macroeconomic and fiscal situation, a revised economic outlook for the remainder of the fiscal year, and a statement of the projected impact that these trends are likely to have on the annual budget for the current fiscal year;
(b) A comparison report on the out-turned current and capital expenditures and revenues with the estimates originally approved by the National Assembly with explanations of any significant variances; and
(c) A list of major fiscal risks for the remainder of the fiscal year, together with likely policy responses that the Government proposes to take to meet the expected circumstances.
On 29 August 2022, the Minister of Finance issued the 2022 Mid-Year report. In today’s article, we highlight the key aspects of the report.
Real GDP growth
An overall real Gross Domestic Product (GDP) growth of 36.4 percent was recorded in the first half of the year, with the non-oil economy growing by 8.3 percent. This was due mainly to improved performance in the petroleum, other crops and service sectors. The mining and quarrying sectors expanded by 64.6 percent, with oil and gas sub-sector expanding by 73.5 percent compared with the first half of 2021. Real GDP growth for the entire year is projected at 56 percent, with non-oil growth at 9.6 percent. In 2021, non-oil GDP growth was 4.6 percent.
Guyana’s high GDP growth is primarily due to the operations of Exxon Mobil’s subsidiaries. However, it does not translate into improvements in the standard of living for middle and lower income groups as well as the unemployed youth, pensioners and other vulnerable groups. By definition, GDP is a measure of the monetary value of all finished goods and services produced within a country’s borders in any given period of time. On the other hand, Gross National Product (GNP) is the value of all finished goods and services owned by a country’s citizens, whether or not those goods are produced in that country. Therefore, any output produced by foreign residents or entities within the country’s borders is not included in GNP calculation, while any output produced by the country’s residents outside of its borders is counted.
Most economists will agree that, considering Guyana’s situation where 87.5 percent of oil production goes to Exxon’s subsidiaries, a more realistic measure of economic performance is the GNP. While it sounds good that Guyana is the fastest growing economy in the world with un-precedented growth, the GDP is an unrealistic measure when citizens are unable to reap the benefits of such performance.
Balance of payments
The current account balance improved from a deficit of US$259 million to a surplus of US$780.4 million due mainly to a significant improvement in export earnings. On the other hand, the capital account recorded a deficit of US$897.6 million, compared with a surplus of US$158.6 million in the first half of 2021, on account of higher fuel costs and capital imports. This gives an overall balance of payments (after certain adjustments) of US$100 million, financed from a drawdown on the Bank of Guyana foreign reserves.
Revenue and expenditure
According to the 2022 approved Estimates of Revenue and Expenditure, amounts totalling $488.045 billion were budgeted to be collected as revenue (both current and capital) while budgeted expenditure (both current and capital) amounted to $552.933 billion. A supplementary estimate of $44.8 billion was approved last month, giving a revised allocation of $597.733 billion. This gives an overall budget deficit of $109.688 billion.
Budgeted current revenue for 2022 was $432.014 billion. As at 30 June 2022, the actual collections, net of the Guyana REDD+ Investment Fund (GRIF) and the Natural Resource Fund (NRF) withdrawal, amounted to $151.3 billion, representing a 35 percent achievement of the budgeted revenue. This nevertheless reflected a 12 percent improvement in performance compared with the corresponding period last year. Revenue collections therefore need to be stepped up in the latter half of the year if the annual target is to be achieved.
In terms of both current and capital expenditure, amounts expended in the first half of the year totalled $180.2 billion, representing 30.2 percent achievement of the revised budgetary allocation for the year. Capital expenditure amounted to $46.8 billion, compared with an allocation of $238.8 billion, representing 20 percent achievement against the revised budgetary allocation. Notwithstanding this relatively low performance in capital expenditure, it was 48.5 percent higher when compared with the corresponding period last year. As in the case of revenue collections, the Government’s infrastructure development programme needs to be accelerated in the latter half of the year, unless the programme is too optimistic.
Inflation
Consumer prices were 4.9 percent higher than levels recorded at the end of 2021, due largely to higher food and energy prices. Inflation is projected to be 5.8 percent for 2022. The report indicated that the Government responded with a series of measures to ease the burden of growing commodity prices on citizens, including the removal of excise tax on petroleum products as well as value added tax on cement; purchase and distribution of $1 billion of fertilisers to farmers; and distribution of $800 million cash grants to households in riverain and hinterland communities.
Exchange rate
The official exchange rate of the Guyana dollar to the US dollar remained stable at $208.5. However, the market mid-rate appreciated marginally from $208.8 to $206.9.
Foreign reserves
The Bank of Guyana foreign reserves amounted to US$710.9 million, representing 1.2 months of import cover.
Public debt
The total public debt, inclusive of publicly guaranteed debt amounting to US$2.4 million, was US$3,248.8 million, compared with US$3,126.7 million at the end of 2021, an increase of US$122.1 billion. The total public debt is projected to increase to US$3,520.5 million by the end of the year.
The external debt amounted to US$1,370.8 million, compared with US$1,392.8 million at the end of 2021, a decrease of US$22 million. Internal debt, however, increased by 8.3 percent from US$1,733.9 million at the end of 2021 to US$1,878 million. This was mainly due to a 21.8 percent increase in the stock of Treasury Bills to US$856 million. Internal debt is projected to increase further by 6.6 percent to US$2,002.6 million by year-end in anticipation of the issuance of new Treasury Bills.
Natural Resource Fund
The Government received US$307 million in revenue from its share of profit oil, along with royalties totalling of US$37.1 million. The cumulative balance on the NRF, inclusive of interest income, was US$753.3 million, after taking into account the withdrawal of US$200 million in May. It is anticipated that there will be 13 lifts of profit oil in 2022 with an estimated US$1.1 billion from the sale from profit oil and US$147.7 million in royalties.
Considering the above, should we not use a portion of oil revenues to liquidate some of the country’s indebtedness, thereby saving on interest charges? Should the practice of seeking external loans to finance infrastructure development not brought to an end? When will we cease borrowing locally via the issuance of Treasury Bills and debentures to finance budget deficits? And should we not liquidate the huge overdraft on the Consolidated Fund that is financed by the Bank of Guyana?
