Latest update March 28th, 2023 12:59 AM
Jan 31, 2023 Features / Columnists, Peeping Tom
Kaieteur News – The economy of Guyana has enjoyed a sustained period of economic growth. Real GDP growth has been increasing for more than a decade.
However, in recent years, and with the discovery of oil, GDP growth has skyrocketed. In 2020, when oil production commenced real GDP growth increased by more than 40%; in 2021 it was almost 20%; and last year, it surpassed 56%. But during these years of spiraling growth, inflation has become a problem. Last year, the annual inflation rate was recorded at 7.2%. The government offered public servants an 8% increase.
There have always been questions marks over the official inflation rate. The reality on the ground is that the prices for food, rent and construction have surged. And these are signs that the economy may be overheating. The government, of course likes to downplay these factors. But housing rentals are now out of the reach of the poor. Some astonishing rentals are being demanded by property owners. The poor are being pushed increasingly towards squatting and towards the suburban areas, and even there housing rentals are unaffordable.
The situation is made worse by the bourgeoisie class buying up real estate like if they are shopping cupcakes. Residential premises are being allowed to be converted almost without question in business premises thereby aggravating the shortage of housing units for rentals in urban areas. Like the proverbial ostrich, the government claims that its housing programme is allowing more low-income persons to own their own homes. It points to the qualification ceiling for low interest, low-income loans being increased from $8M to $20M. It also points to the removal of taxes on construction materials.
But the government is only deluding itself. It has not done its homework and has failed to see to what extent the prices of construction materials have declined as consequence of the removal of taxes. Even with the supply chain crisis coming to an end, construction costs continue to soar. The price of cement of now $1700 per sack, steel prices are high and stone is trading at $12000 per ton and that is if you can source supplies. This is increasing the cost of housing and placing it out of the reach of the poor. The rising construction costs points to an economy that is overheating, especially the construction sector Poor people cannot build a house for $8M at these prices. And while the ceiling for low-income mortgages has now increased to $20M, poor people cannot afford the monthly mortgage payments. The so-called low-income interest measure is benefitting middle income earners more than low-income persons. Traditionally, roads were built with asphalt and bitumen. But now the contractors cannot wait to source bitumen and so many community roads are being built with concrete. This will further push the price of cement and ready-mix upwards.
But the situation is becoming worse. Labour is now a problem, both in terms of supply and price. Employers are complaining about an acute shortage of workers. And this will push labour prices further up, unless labour is imported. Labourers working on construction sites are now demanding $10,000 per day. And they are working no more than 7 hours per day. Skilled carpenters are demanding $12,000 and more. Imagine what this is doing to the poor man who is trying to construct his low-income home. The signs of an overheated economy cannot be overlooked. The government financial gurus have failed to control the pace of development. They have mistakenly treated the economy as having an endless supply of workers and the ability to absorb all private and public investment.
The government has long been forewarned about the absorptive capacity of the economy. They were advised to moderate growth so as to avoid problems. The International Monetary Fund (IMF) warned the government in June last year to moderate its public expenditure, noting that a large increase in public investment could add inflationary pressure, affect competitiveness of the non-oil economy, drain foreign exchange reserves and might be unsustainable over the medium-term. Further, the World Bank has told the government that a rapid increase in public expenditure can distort production and prices in the non-oil economy and hamper the private sector’s ability to seize new opportunities.
But the government is not paying keen enough attention to these recommendations. It has gone ahead and once again tabled a Budget which is 40% higher than last year. Guyana’s economy is showing all the signs of overheating. And this can lead to the eventual tanking and collapse of the economy.
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