Feb 13, 2024 Peeping Tom
Kaieteur News – In one swoop, the PPPC government has corrected the historic imbalance within the country’s national Budget. In 2024, the government is spending almost 60% of its Budget on capital expenditure and the almost other 40% on current revenues, thereby inverting what has been occurring within the economy for decades.
Guyana’s Budget had been imbalanced for a long, long time. The financial gurus were faced with this imbalance and have not done anything to correct it because to do so requires courageous and controversial action.
The Budget has two sets of expenditure – capital and current expenditure. Capital expenditure is the monies which are used to build and upgrade physical assets such as roads, schools, bridges and airports, hospitals, police stations, power plants, vehicles, machinery, etc. It is comparable to the money a person would spend on a car or a house.
Your current expenditure, on the other hand, is your day-to-day operating expenses. It refers to the monies you have to spend on things such as wages, rentals, supplies, fuel and water, electricity, security and janitorial services. It would equate for a household for the monies you would spend on food, electricity, water bill, gasoline for the vehicles and paying your domestic help.
The ratio between your current and capital expenditure is a good idea of how well you are managing your finances. If you are building a house and the labour cost is equal to the material costs, then something is wrong. It makes no sense building that house because you are overpaying for labour.
And it is the same with the country’s Budget. If your current expenditure – which amounts to the cost of running the government – is higher than your capital expenses, it means that you do not have the resources to invest on long-term and long-lasting infrastructure which will allow you to expand the economy.
Professor, Tarron Khemraj, did an analysis of this ratio in the country’s Budgets over the period 2008 to 2020. What he found was disturbing. Guyana was spending 66 percent on current expenditure and 34 percent on capital expenditure. What this meant was that the country is carrying an over-bloated bureaucracy which is absorbing monies which should be used for increasing the physical assets of the country to grow the economy even more and to make it more efficient.
In comparison, Khemraj found that over the same period 2008-2020, Jamaica spent on average 34 percent on current expenditure, Barbados 23 percent and Trinidad and Tobago 17 percent. Guyana had been spending on average 66 percent, leaving only 34 percent for capital works. And guess what? A great deal of the expenditure on major infrastructural works was borrowed adding to the country’s public debt.
The country is saddled with an unwieldy bureaucracy with the result that there are limited resources for long-term and long-lasting capital investments. This imbalance is unsustainable; the country will go nowhere so long as it exists.
One of the main contributors to this problem is the size of government. Instead, however, of trimming government, the APNU+AFC had been expanding it.
The expansion of government had been costly to the economy. Professor, Tarron Khemraj, did an analysis of the government’s overdraft. He found that the PPP/C government inherited in August 2020 an overdraft at the Bank of Guyana of G$92.8B as opposed to G$9.3B in 2014 just prior to demitting office.
In his analysis he sought to examine the link between this overdraft and employment levels in central government. What he found was that when the PPP/C left office there were 14,905 workers in central government. But within a mere three years of the APNU+AFC taking office, this had ballooned to 26,354 or an increase of 76.8 percent, while non-central government employment such as at GuySuCo declined by more than 40 percent.
Today, in 2024, the current expenditure remains high at over 40% of total expenditure. And one of the disturbing features of the PPPC since it resumed office has been the absence of public sector reforms. The President of Guyana had promised that there would be a job evaluation exercise but this is more in relation to salaries than to size.
The PPPC needs to set a threshold as to the ratio between current and capital expenditure. That ratio should ideally not be more than 20%, if the government is to be considered efficient. Since spending on maintenance is already low, there is only one way in which the PPPC can trim recurrent expenditure: through retrenchment.
But that is the bullet it has to bite if it is to make the country’s future Budget more balanced. The public bureaucracy must be trimmed. Based on the numbers that Jagdeo churned out at his press conference last Thursday, there is overstaffing within the education sector. And we know that there are far too many insecure appointments within the public service.
There are many areas in which cuts can be made. But the matter is best approached through public sector reform, something that the Public Service Ministry has been strangely silent on for the past four years. But these reforms will have to come sooner rather than later if public sector wages and recurrent expenditure are to be sustainable. (The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)
AUBREY NORTON FRIGHTEN RENEGOTIATION AND RING-FENCING
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