Latest update March 19th, 2024 12:59 AM
Apr 26, 2017 Features / Columnists, Peeping Tom
The government seems to now be awaking to the reality that the economy is in crisis. There has been a tacit admission of a slowdown in business activity.
It does not take 20-20 vision for the government to equally concede that the productive sectors are in recession. The government by now conceding that there is a problem may be trying to do something about it.
The government seems to be moving in the direction of a fiscal stimulus. The government is of the view that if it spends more money there will be a multiplier effect on the economy in the sense that money spent by one person represents income to another person and so forth.
So the theory is that the more money that the government spends the more money will circulate. This is not necessarily so and depends on the propensity to consume, to save and to invest. So not because there is more money being pumped into the economy by government means that more of it is being spent.
It is not government spending per se, therefore, that is the basis for a stimulus but how and where the money is spent. The best way for the government to prime an economy is through increasing production.
The government is faced with an economy in which all of the sectors except gold are shrinking. The contraction means that money is not circulating. The government seems to now be keen on injecting a fiscal stimulus through increased spending on housing development.
But this is a waste of time. Government spending has never been the answer because Government spending does not reach as many hands as are needed to really boost business activity. Government spending ends up in the hands of contractors. There is not as great a trickledown effect as if the government had spent that same money say on sugar where they could have been assured that even though there will be a loss in the sugar company, more than sixty per cent of what the government would have spent will end up in the hands of workers who will spend in within the local economy.
Spending on housing is social spending. The government is said to be thinking about spending about 5 billion dollars. But this sort of spending will place greater pressure on imports since cement and other imported building materials will have to be procured. So it really cannot be a stimulus to the economy.
The government should be spending on the productive sectors. Public spending without production will drive up inflation so it makes no sense to spend five billion dollars on housing without trying to boost the productive sectors which generate spending in the local economy.
This is why it made no economic sense for the government to have gone ahead and close the Wales estate. It would have only cost the government about 1.9 billion dollars to keep Wales going but the multiplier effect of that spending would have been far greater than the multiplier effect of the five billion dollars they are expected to inject into the housing sector.
The government by spending this money on building housing units is displacing the private sector. The construction of housing should be a private sector activity. The infrastructural works for housing schemes should be government’s responsibility.
The government knew that the forestry sector was contracting. Yet it allowed Barama to walk away costing about one hundred jobs. Barama had the funds to invest in expanded production. The company had the money to invest in the infrastructure needed. The Barama concession was large. Instead, the government now plans to break up the Barama concession into smaller concessions.
This makes no sense at all in terms of improving production. Where will the small concessionaires find the investment to establish production?
The government could have still been doing business with Venezuela today. Guyana lost its most valuable rice market because somebody decided that a Venezuelan airline owed Guyana money and denied it landing rights. The Venezuelans decided enough was enough and they did not renew the rice agreement.
We will have an increase in rice production this year. But where will the rice be sold?
A fiscal stimulus is a good idea but it makes no sense if it is misdirected. It should be directed to those areas in which it can help increase production and in which there is a greater multiplier effect.
Listen to the man that is throwing Guyanese bright future away
Mar 19, 2024
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