PNCR 2004 BUDGET PRESENTATION by Winston Murray, C.C.H., M.P. National Library Auditorium - Monday, April 05, 2004
The budget of the public sector for any year should be seen and placed within the context of an overarching, or underlying, medium term strategy for the country as a whole. It is difficult for me to honestly say that any clear strategy over the medium term is discernible here or for that matter, in any of the budgets presented by this administration.
There have been some generalised references to the National Development Strategy (NDS) in previous budget speeches but the status of this document is at best dubious and for all practical purposes, appears to have been shelved though, I believe, the administration would like us to think it is still under consideration somewhere. Let us assume it is still relevant and of consequence to the Government.
The overview of the strategy states as follows: “If all our strategies are followed, it is forecast that the average annual growth of the country’s GDP, between 2001 and 2010, would be 9%. We are convinced that, even if the strategies are not followed optimally, at the very worst, barring a series of cataclysms the average GDP growth would be of the order of 6 %”. Against those benchmarks we are clearly in the wilderness right now.
Of more recent vintage has been the Poverty Reduction Strategy Paper (PRSP) which may be viewed as a sub strategy of the NDS, although it seems in effect to have taken the place of the NDS,
Having perused the budget the strongest statement or indicative action I can find in the budget speech on that strategy is at P22 where it is stated “….the Government remains committed to implementing the broad policy reforms that are outlined in the PRSP. The focus of the PRSP is to raise the level of development and generate sustainable growth so that all Guyanese can enjoy prosperity and a higher quality of life”. This is followed by a paragraph of generalisations on the PRSP.
Perhaps we need to remind the Government of two salient prerequisites under the PRSP which, it is my understanding, would be necessary, if not sufficient, conditions for the strategy to be successful.
The first relates to GDP growth. P38 of the PRSP states as follows: “On balance the economy is projected to grow at an average annual rate of 4% between 2000 – 2005….”. Here are the facts. In 2000 GDP contracted by 0.8%, in 2001 it grew by 1.9%, in 2002 by 1.1% and in 2003 it contracted by 0.6%.
The second prerequisite relates to the public sector deficit (after grants) as a percentage of GDP. At P35 of the PRSP it is stated that the Government will “contain expenditures and raise revenues in order to bring the public sector deficit down to about 1.3% of GDP in 2003 and eliminate it in 2005”. The fact is that in 2002 the deficit as a percentage of GDP was 5.7%, in 2003 9.1% and it is projected to rise to 10.1% in 2004.
Such external financing as is projected under the PRSP would have been predicated upon the achievement of the above. Already we know that financial resources from the United Kingdom will be reduced and there is every reason to believe that this is a likely scenario for other sources of financing.
The combined effect of the above is that achievements under the PSRP are way, way off target.
The Minister of Finance owed it to this nation, I believe, to have given a full and thorough report on why these divergences have occurred, and even more important, given us a clear and firm plan as to how the PRSP will be put back on course. For now we can forget about the NDS not because it is unimportant but because our goodly Government seems to have put it aside.
At P3 of his budget speech, the Minister says “…. An exciting period lies ahead. The successful implementation of this agenda will see our country making a quantum leap into the second decade of the millennium”. Any excitement ahead in my view could only be with respect to the almost insuperable challenges we face to put the economy right and under the present dispensation the only quantum leap we seem on the verge of making is one into a veritable abyss of hopelessness and despair.
On 16th December, 2003, the President assented to the Fiscal Management and Accountability Act 2003 which is, among other things, intended to improve on the presentation, the context and the execution of the budget. Section 1 states that the Act shall come into operation on such date as the Minister may, by Order, prescribe which, according to the Minister, will be during this year, I believe. That notwithstanding, having failed to provide a firm and clear plan re the PRSP he should, at the minimum, have cast his budget in the context of the requirements of the Fiscal Management and Accountability Act. This Act at Section 15 requires that “The annual budget proposal shall include –
a statement of the fixed policy objectives that the Government has set for the medium term;
tabulations and analyses of actual and projected expenditures for the next ensuing fiscal year and the next following three fiscal years, including a discussion of any new or changed expenditure policy by the Government;
estimates of all statutory expenditures for the next following three fiscal years;
estimates of expenditures for investment by each budget agency for the next following three fiscal years;
details of the fiscal relationship between the Government and the regions, including proposed general and special purpose transfers to the regions for the next following three fiscal years”.
But alas even this was too much to expect.
The last half a decade or so of marginal growth, no growth or negative growth stands in stark contrast the growth rates of between 6 and 8.5% per annum during much of the 1990s.
That growth was fuelled by the Hoyte Economic Recovery Programme embarked upon in 1989 with the assistance of the International Community. In fact Mr. Hoyte entered into a Structural Adjustment Programme with the IMF in that year. When he demitted office in 1992 after 3 years of structural adjustment, Guyana had been firmly put on the road to economic recovery and strong economic growth rates, with the clear indication that once the momentum was maintained the need for a formal Structural Adjustment Programme would be soon obviated.
Unfortunately, over the 11 full years of PPPC management of the economy we have never been able to shed the yolk of structural adjustment programmes in whatever disguised forms they have come or by whatever euphemisms they are known.
It is only by a comparative analysis that we could truly discover and appreciate the underlying root causes for the slippages (or calamities) that have occurred over these last 11 years.
Between 1989 and 1992 a virtual economic revolution was unleashed in Guyana. While the Structural Adjustment Programme was addressing the economic fundamentals it was always known and accepted that medium to long term growth had to be a function of private capital investment, both local and foreign, to develop the full economic potential of Guyana.
At the heart of the revolution was the jettisoning of socialist economic theory and practice and the unapologetic embrace of the forces of the free market with necessary safety net safeguards. This involved not only the formal passage of laws but also the evolution of a new ethos in the management of economic affairs. The constitution of the ruling party was drastically altered to make it consistent with the new dispensation.
That was the framework and context for success. The changing of the guard, as it were, clearly signaled a shift, if not in form, in substance; the body language of the new administrators did not gel with their talk.
It is true that much evidence abounds in words and even recently in legislation indicating that the economy was, and is, to be private sector led with a big role for foreign private capital. But the evidence shows that the absolute minimum is done to comply with what is required/ ‘suggested’ by the IFIs and the broader donor community in a valiant, if not yet, futile effort to keep Guyana on track for its rendezvous with prosperity. The situation is that we have IFI and donor community driven reforms with the Government doing the barest minimum necessary to give them effect. Yet the Government, at every opportunity, touts those reforms as evidence of its commitment and achievements in such areas as governance and private sector development.
Let us lay open the full context of operations:
The ruling party has by its ‘democratic processes’ found repugnant proposals to amend its constitution to excise the Marxist/Leninist principles enshrined therein;
The principle of democratic centralism is alive and well. It was not so long ago invoked by a most eminent member of the Government for overriding the decision of the Guyana Forestry Commission set up as an autonomous agency with its own governing board under a specific Act of Parliament.There is an even more recent example of an attempt by a public officer to collect monies inappropriately paid to a Regional Chairman being overridden at the direction of the said eminent member;
The business community, entrepreneurs in general and especially large scale investments are viewed with deep suspicion and it is only after, on an individual basis, a particular investor or businessman has passed ‘ the test of loyalty’ to the ruling party that the investment/investor is cleared. Thus apparently general rules are applied, in practice, by exception;
While formal agreements are being entered into bilaterally and with IFIs their execution are often undermined in content, spirit and practice.
An excellent example of this is the agreement (put in legal form) removing from the Minister of Finance the discretionary grant of remissions of duty and making such grants applicable only under law. One of the items affected is fuel. There is information which suggests that whereas the percentage and monetary amount of remission were previously shown on the customs documentation this information is no longer included and only the amount of duty paid is recorded. Thus whether there has been a remission of any duty is no longer detectable from the documents and an arbitrary or discretionary remission may thus be concealed.
There is an impressive list of legislation passed which has either built in advantages for administrative manipulation or which only remain in form. The list includes, but is not limited to, the following:
a) The Insurance Act 1998 – Although passed in the National Assembly in 1998 it did not come into effect until December 2002, and although the Insurance Arbitration Board was set up in 2003 the Insurance Board of Review required under the Act has not yet been established;
b) The Money Laundering (Prevention) Act 2000 – As of now in 2004 the Supervisory Authority required under the Act has yet to be set up. The Act is therefore not operational four years after its passage in the National Assembly.
c) The Public Procurement Act 2003 – Act was passed in haste in June 2003 without any consideration of serious flaws drawn to attention by the opposition PNCR. Under this Act the Minister retains wide ranging powers of appointment of the persons to administer procurement at all Board levels and even directs appointment of staff of the Public Procurement Administration. This put institutions under the Act under the effective control of the Minister;
d) Tourism Authority Act 2002 – This vests in the Minister the powers to appoint all members of the Authority’s Board and he must give sanction to appointment and termination of staff at the highest levels. This unfortunately makes the Authority a creature of the Minister;
e) Integrity Commission Act 1997 – This Act is seen to have no impact even in the face of mounting corruption all around us.
Under the heading ‘Stimulating Private Sector Investment’ in his budget speech, the Minister said “During 2004, we will continue to take initiatives to provide a more business-friendly environment….” and in that context he mentions two brand new Acts. They are respectively Act No. 1 of 2004 (Investment Act) and Act No. 2 of 2004 (Small Business Act 2004).
Permit me to spend some time on these Acts since they provide the most up to date evidence of the game the Government is playing in giving the appearance of promoting private sector development or providing a more business-friendly environment when, in effect, the Government wants to retain a veto and a paramountcy over private sector development.
Investment Act – Under this Act an Investment Promotion Council is established with the function of, inter alia, reviewing and recommending to the Government alterations to Priority lists (these contain the investment priority categories for benefiting from concessions. It also has the function to recommend to the Government alterations to the regime of fiscal incentives established for investment.
(a) Priority categories Section 36
(b) Deal with composition at P10 of the Act
(c) Time within which to establish IPC
Small Business Act
Establishment of Small Business Council. Functions on P7 of the Act. See composition on P5 of the Act.
The review of the 2004 Budget by Ram and Mc Rae in the
Stabroek News of Wednesday March 2004, sums up this situation accurately when it states: “It seems that in exchange for financial assistance, the
Government of Guyana is quite willing to enact legislation despite the absence of commitment, conviction or capacity. The consequence is that the objectives are seldom met even when the legislation is brought into effect.” I can only add that this amounts to an unforgivable deception of the Guyanese people and an attempt to mislead the International Community whose intention is to make a positive impact on the lives and circumstances of the Guyanese people.
Now to return to our economic condition. It is absolutely clear that whereas the Hoyte administration understood that a structural adjustment framework only bought time and opportunity for the necessary focused policies and measures to be put in place and assiduously pursued, the PPPC administration is clinging to structural adjustment process and the attendant resources it brings as the Alpha and Omega of its economic policies and this is my greatest worry about the future of our country.
Notwithstanding the most positive utterances by Government Ministers, the fact is that at best, then is but a trickle of private investment to and in Guyana, compared with the vastness of our resource base and our immense potential for economic growth. Within the Caribbean we are constantly lagging behind in economic development and at the wider international level serious and large investors are not looking in the direction of Guyana.
Let us look at some of the measures that have formed part of the armoury of the PPPC administration.
As part of the liberalisation process of the Hoyte administration the Corporate Tax Rate on commercial companies was reduced by 20% from 55% to 35% and the rate on non commercial companies was reduced from 45% to 35%.
In its first Budget in 1993, the PPPC increased the corporate tax on commercial companies from 35% to 45% with effect from year of income 1993.
Hotel Accommodation Tax of 10% was imposed with effect from March 1993.
In the 1994 Budget the Tax Holiday as an incentive for investment was abolished although it was reintroduced in the 1998 budget and a new turnover tax based on gross receipts was introduced. This was limited to commercial companies in January 1997.
Note: In 1994 we were promised a Tax Court to be operational in Jan. 1, 1995 - never done
In the 1995 Budget 10% Consumption Tax on Overseas Telephone Bills was introduced.
In 1997 a progressive system of Personal Income Tax was reintroduced with a 20% rate and a 33 1/3% rate in place of the flat rate under the PNC administration.
In 2003 Consumption Tax of 10% on Local Telephone Calls was imposed along with an increase in withholding tax on savings etc. from 15% to 20%.
These measures could hardly be said to portray vigorous support for the private sector or for the encouragement of private initiative.
Every year in the lead up to the budget the ritual of ‘consultations’ takes place with stakeholders, including the private sector organisations and this is usually trumpeted as an act of achievement even though from all accounts precious few, if any, of the suggestions are incorporated within the budget.
The failure to convince private capital (both local and foreign) that it is truly welcome on a level playing field is the major bottleneck in both broadening the base of the economy as well as in bringing about the needed strategic alliances for backward and forward industrial linkages. There is a crisis of confidence in our Government which frightens away private capital. The Government must give up its insatiable appetite for control and leverage. It must also remove the red tape and bureaucracy that stifles the effort to bring an investment on stream. Many foreign nationals of Guyanese extraction recall the horrors of trying to bring investment to fruition. In the Stabroek News of March5, 2003 there was a report on President Jagdeo’s participation at two public forums where he addressed large gatherings of Guyanese. The report said in part (quote).
The abysmal failure to pursue serious and focused policies with commitment to attract private sector investment denies Guyana an exit strategy from Structural Adjustment Programmes.
It should come as no surprise, therefore, that in 2003, net domestic credit of the banking system fell by 8.1% to $25.9 billion, that credit to the private sector decreased by 17.2% or $10.1 billion, that loans and advances to the manufacturing sector declined by 14.5%, to the agriculture sector by 48.4% and to the rice milling sub sector by 42.6%. Total liquid assets to the commercial banks amounted to $40 billion or 7.2% more than in the previous year. The budget speech tells at P9 “The banks showed a marked preference for short term treasury bills”.
Look at what has happened in the bauxite industry. Fifteen hundred persons have been laid off at LINMINE with but a very small number being re-employed. We are told at P25 of the budget speech that “efforts to restructure the ailing bauxite industry will continue this year”. But the picture at best is very murky. The one thing that is clear is that “following the cessation of mining at Aroaima, the workforce will be reduced by about 150 workers by September, 2004”.
As regards sugar we continue to be very skeptical about the Skeldon expansion but obviously wish it well. I believe it to be wrong however to try to create an overly optimistic picture. It was only two years ago in the 2002 budget, at P25, that it was said that “the Skeldon expansion should result in …. reduced cost of production to US 11 cents per pound of sugar over the next 5 years”. But at P23 of the 2004 budget there is talk about lowering the costs of production from the current average of US 17 cents per pound to US 9 cents per pound by 2007. At least we should be told a believable story.
Additionally, it is my understanding, and I have heard the President himself say this, that GUYSUCO is, and will be, pursuing a profit maximisation strategy for the industry. In such a situation it will be misleading to give any assurance (as the Minister appears to have done in the budget), that the operations of the Demerara estates will continue.
As for rice, the position remains very insecure. We have seen that loans and advances to the sub sector fell in 2003 and we have heard in previous budgets about finding new markets in Brazil, Venezuela and Haiti. None of this is likely to happen in 2004.
What is disheartening is that the Government attempts to conceal its failure by touting our current condition as sound. It is fad in Government circles to speak of the soundness of our macro economic fundamentals such as inflation, monetary aggregates, reserves and exchange rate but the Government needs to be reminded that in a stagnant or contracting economy that is of little relevance. The situation can be likened to a citizen earning $5,000 per month who does not spend beyond his means, borrows from no-one and ensures his income equals his expenditure. What good is that to him if he is malnourished, homeless and cannot acquire his basic needs to make him healthy. While his economic fundamentals are excellent he is probably facing imminent death. Sound economic fundamentals must be a launching pad for economic growth and development. They are tools towards achieving objectives and not an end in themselves.
In two of the last four years the economy contracted and over the four-year period grew an average at 0.4% per annum. Specifically last year the economy contracted by 0.6%. This occurred when, in 2003, world output expanded by 2.5% and world trade increased by 4.7%. I submit that a projection of 2.5% real growth in GDP in 2004 is most unrealistic.
In assessing performance in 2003 the Minister of Finance took us on an excursion into social sector and infrastructure spending, that is, spending in Housing, Education, Health and Water and Roads and Draining and Irrigation, and highlighted for us the percentage of GDP being spent on Health and Education. While such expenditure is welcome it should be clearly understood that under HIPC arrangements there are specific identified percentage targets for expenditure in Health and Education so in at least one sense the level of expenditure springs from a conditionality for resource access. The other point of note is that most of the expenditure in the social sectors is based on borrowings from the IFIs which creates debt to be serviced by the citizens of Guyana. The Government has already borrowed more than US$900 million or approximately G$180,000 million or G$180 billion. Thus each citizen’s burden for this debt is more than $250,000. This has occurred in the face of unprecedented levels of grant funds being made available to Guyana.
Added to this is the fact that instances abound where many projects were, and are being, executed with substandard specifications, substandard materials and in some cases, with no materials at all. Yet the full sums for the projects are disbursed. The classic case is that of the stone scam in which the sum of approximately US$250,000 was paid to suppliers overseas for stone which was never shipped to Guyana. This would have added a debt of some G$50 million which the taxpayers of this country will have to bear. The most amazing fact is that no one was brought before the courts even though the auditor general pointed in obvious directions. Almost every project being executed has some element of corruption. At one time it was estimated that approximately 10% of the capital expenditure leaked out of the system meaning that instead of being spent on capital projects the funds found themselves in unauthorised pockets. At a rate of leakage of 10% with a capital expenditure of over $20 billion in 2003 the sum of $2 billion, ie $2,000 million, would have gone into unauthorised pockets in 2003. But that is a debt that has to be paid by the people of Guyana. In such a situation I suggest that it borders on effrontery to tell the Guyanese people that 95% of the PSIP was implemented when what this in effect means is that 95% of the money was spent though with highly questionable results in many instances.
Yet in the budget speech for 2004 the word corruption was not once mentioned even though it is obvious to everyone that this is a major concern in Guyana.
It must also not escape notice that the Minister of Finance projects that there will be an overall deficit on the Central Government accounts of $25.9 billion in 2004 which means that the Government would be spending $25,900 million dollars more that it expects to receive in revenues in 2004. Of this amount, it is projecting to receive grants amounting to $10.3 billion leaving a gap of $15.6 billion to be financed. This deficit represents the equivalent of 10.1% of GDP compared with 9.1% of GDP in 2003. One of the macro fundamentals needs careful monitoring. The deficit will be financed by net external borrowing of $11.7 billion and net domestic borrowing of $4 billion (the bulk of this information is set out at P53 of the Budget Speech).
When one looks at the picture overall one sees a country with no or very low economic growth, borrowing heavily to sustain some level of programmed activity, largely in the infrastructure and social areas while very little is being demonstrated by way of vision based policies to put the economy back on a sustained path of strong economic growth. A policy of beg, borrow, tax and spend is untenable in the medium term.
But I am here to tell you today that all is not lost for our dear country. The PNCR has the vision and an accompanying Agenda for Development (of which I have a copy here) to make Guyana a truly prosperous country. We are in the process of updating this document and we are willing to engage all stakeholders in dialogue on this Agenda and to take their suggestions on board. The objective would be to fashion an updated broad based action plan ready to rescue Guyana from its sad and sorry state. We of the PNCR stand ready to execute that plan and we await your bidding to do so.
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