Jul 12, 2009 Letters
The global economic meltdown is now beginning to devastate developing countries, especially those with investment products in the US.
The devastation produces fluctuations in national income, output and employment.
Developed countries like the UK, Germany, France, and the USA already face a growing recession, caused by the global credit crunch.
Today, stock markets are down more than 40% from their recent highs. Investment banks have collapsed, rescue packages are drawn up involving more than a trillion US dollars, and interest rates have been cut around the world.
Stock markets across the world from both developed and developing countries have all dropped significantly since May 2008.
The India stock market dropped by 8% in one day; and at the same time so did stock markets in the United States and Brazil.
Developing countries are predicted to experience a decline in the demand for commodities and manufactured goods, many projects will be left at a standstill because of lack of funding; and the Gross Domestic Product (GDP) of developing countries will decline to less than 5% this year.
Growth and demand in China and India are predicted to decline, negatively affecting developing countries. Remittances to developing countries are expected to shrink.
And, because of the recession some parts of the developed world, there will be a decrease in migrants to developed countries. Foreign Direct Investment (FDI) and equity investment also will be strained.
The year 2007 was a record year for FDI to developing countries, and equity finance is now under pressure; and corporate and project finance will decrease.
The loan and grant capacity of International financial institutions, like the World Bank, IMF, and IADB, to developing countries, are fast drying up. Limited investments globally will become the order of the day.
Foreign Aid budgets in UK, other European countries, and the USA, are under strain because of debt problems and feeble economic situations.
Guyana has managed to maintain sound macroeconomic fundamentals, with quite a stable inflation rate. The inflation rate for 2008 was 6.40%, which was lower than the 14.05% rate in 2007.
With increased trade, the total transactions on the foreign exchange market continued to grow and the key monetary aggregates grew with increased economic activity.
Because of the global food and fuel crisis, food prices in Guyana increased by 27.2% last year; and Government has now increased the tax threshold by 25% from $28,000 to $35,000 per month, and for some time now removed the Value Added Tax (VAT) from a number of items.
Last year, Government also implemented a cushioning package, whereby low-income public servants were offered a monthly stimulus package to aid the effects of the price increases.
There was a 5% increase in wages and salaries, and the $4000 temporary cost-of-living adjustment for persons earning below $50,000.
The global food and fuel price increases made food security a major concern within the economy.
As a result, the Jagdeo Initiative was discussed to revitalise the agriculture sector to promote food security.
Since Agriculture is the foundation of Guyana’s economy and a major contributor to the nation’s Gross Domestic Product (GDP), it is vital to note that it has links to other productive sectors of the country’s economy.
And so, Government will continue to stabilise price levels and exchange rates, make certain that fiscal deficit is controlled, reduce unemployment, and keep an eye on the cost of borrowing money.
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