With all the focus on the impending constitutional crisis, it is to some extent understandable that the political situation is going to eclipse the grave concerns about the economy. As much, however, as the constitutional crisis will stay in the forefront in the next few weeks, it should not detract from the concerns about the state of economic management.
There has been a slowdown in commerce. The Georgetown Chamber of Commerce and Industry, at the end of last month, reported that based on a survey it conducted, there had been a significant slump in business activity, ranging from 15% upwards. The Chamber attributed the decline to the unfavourable political situation.
The Guyana Manufacturers and Services Association at its Annual General Meeting held soon afterwards also expressed concerns over the decline in business environment, noting that the rate of growth of manufacturing had declined in 2018. It suggested that an unfavourable political climate will not help.
One financial analyst has revealed the shocking decline in Guyana’s net financial assets, indicating either growing external debt on increases in consumption of foreign goods or both.
This decline in the foreign assets of the country coincides with an unofficial devaluation of the Guyana dollar. Notes are now trading for as high as G$221 to US$1. This will mean higher prices for imports and more pressure on consumers.
The government however does not seem too worried. The Bank of Guyana insists that it has $50M in US dollar notes to sell to the commercial banks. But even this is not making it cheaper or easier for businessmen to source notes.
Many businessmen prefer to deal with notes, because they get a better deal overseas. There are no associated bank fees, both local and foreign, when dealing with cash, unlike when using wire transfers. Businesses are more willing to give large discounts for cash transactions than they are if they have to wait for their payment through wire transfers or via a line of credit.
GO-Invest says that it facilitated billions in investment. But it has provided few details as to these investments. It has not stated how many billions in investment have been foreclosed.
The real sectors are likely to be affected this year. The Budget projections for the mining sector are likely to be affected because of the industrial problems in the bauxite industry. And other areas of mining are also encountering exogenous problems having to do with shareholder confidence. Guyana may well find itself, at mid-year, having to revise downwards its growth and revenue projections.
In the meantime, the over-bloated state will have to be fed, and this means that taxes are not likely to be reduced to compensate for any decline in the real sectors of the economy.
Guyana is therefore heading into choppy economic waters. And the government, which is navigating the ship of state, is placing all its hopes on oil production, commencing in the first quarter of next year. One government official said that production by 2025 is likely to be about one million barrels of oil per day.
Exxon however contradicted that estimate soon after by stating that production is likely to be more than 750,000 barrels. There is a subtle distinction which economists will understand. But it is hard to imagine how production can rise from 120,000 barrels in 2020 to one million in 2025.
The government is hedging its bets on oil. But it should note that Norway has decided to divest the oil and gas investments of its sovereign wealth fund. This, the Norwegians say, is strictly a financial decision, but observers believe it has to do with Norway’s projections about the future of oil prices.
Oil may not save Guyana. As this is being written, crude prices are dipping. And this is not a healthy development for a country like Guyana whose policymakers seem bent on placing all of the country’s eggs in the oil basket.
A political crisis is brewing. But when this is coupled with economic problems, it means that Guyanese have to be more than concerned about elections. They have to be concerned also about from where their next meal will be coming and what it will cost.
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