Finance Minister, Dr. Ashni Singh has maintained that the country’s foreign reserves are not being used to finance government’s expenditure as though it is their personal piggy bank.
His statements came on the heels of accusations by members of the Alliance For Change (AFC) over the country’s dwindling foreign reserves, which they say is a result of government is dipping into it.
Specifically, AFC Vice-Chairman, Moses Nagamootoo, had said that reports revealed that Guyana’s reserves declined from US$835M in 2012 to US$609M by November 2014. This, according to the AFC, is a worrying decrease of US$226 million.
He had asked the Finance Minister to explain to the nation what happened to the foreign reserves.
But Dr. Singh at a recent press conference had said that he would not be responding to “capricious statements”, assuring that Guyana’s reserves are adequate enough to meet its external obligations.
This, however, did not satisfy the AFC. Nagamootoo and his party continued to press for answers and the Finance Minister finally responded yesterday.
He said that the AFC’s statements are indicative of a worrying lack of basic knowledge of macro-economic accounts; of the framework within which external reserves are generated and managed, and of recent developments in the global and domestic economy.
The Bank of Guyana, by law, holds and manages the country’s foreign exchange reserves. These reserves he said, include foreign currency deposits, treasury bills, bonds, gold and Special Drawing Rights (SDRs) with the International Monetary Fund (IMF).
The Finance Minister also stated that the reserves are held to meet defined foreign payment obligations such as sovereign debts, financing imports, absorbing unforeseen external shocks, and intervening in the foreign currency market during times of volatility.
The Bank of Guyana has never used its foreign reserves for purposes other than those listed above, Dr Singh said. “The foreign reserves are not available at any time to finance Government expenditure.”
The quantity of foreign exchange reserves can change as and when there are changes in the value of imports, exports and capital flows, which are reflected in the overall balance of payments position.
“For example, an increase in net exports and capital inflows usually has a positive effect on the balance of payments, which increases the level of foreign exchange reserves. A decrease in net exports and capital inflows will have the opposite effect.”
More significantly, he said that the foreign exchange reserves held by the Bank of Guyana were US$862.2 million, US$776.9 million and US$665.6 million at the end of 2012, 2013 and 2014 respectively. The decline in reserves in 2013 and 2014, an official from the finance ministry said is explained by its use to offset the balance of payments deficit of US$119.5 million and US$111.3 million caused by lower net exports and capital flows in 2013 and 2014 respectively.
The Minister said, too, that the principal contributory factor underlying the expansion in the balance of payments deficit, and by extension the decline in the foreign reserves, is the reduction in gold export receipts.
“Total gold exports declined from US$716.9 million in 2012, to US$648.5 million in 2013, to US$469.8in 2014, principally reflecting the rapid decline in price observed over the period. Put simply, while Guyana’s gold exports declined by US$247.1 million from the end of 2012 to the end of 2014, Guyana’s external reserves declined by only US$196.6 million during the same period,” the Finance Ministry said.
It emphasized that there are many benchmarks for measuring the adequacy level of foreign reserves of a country. The most common measure it highlighted is the import cover which is the level of foreign reserves to cover a number of months of import of goods and services.
The Finance Ministry said that last year, the level of import cover was adequate, with cover of approximately three to six months, comfortably above standard benchmarks.
It said that it is also worthwhile to note that at the end of 2014, the commercial banks foreign assets increased by US$44.2 million from its 2012 level to US$357.6 million, additional evidence of adequacy of foreign currency assets in the financial system as a whole.
The Finance Ministry said that the maintenance of adequate foreign reserves even in the face of declining export commodity prices reflects continued prudent management of the economy by the Government.
Dr Ashni Singh stated, “The apparent bewilderment among the AFC leadership on the reason for the decline in Guyana’s foreign reserves, and their reckless speculation that the external reserves can be “dipped into” for the purposes of financing government expenditure, are without basis or merit, and are reflective of an alarming lack of familiarity with both basic operations of government finance and recent developments in the economy. One does not need a single modicum of formal training to be aware that gold prices have been falling recently, that this would affect export receipts and in turn overall balance of payments, and ultimately that this would impact external reserves.”
The Finance Minister said that to insinuate otherwise can only be indicative of either alarming ignorance or deliberate mischief.
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