Guyanese Diaspora
But as the data show, the situation could have been worse if the Guyanese Diaspora was not making a constructive contribution to the economy. Not only does it show how much higher the current account balances would have been without the Diaspora input, it amplifies the threat to the country’s capacity to invest.
The balances in the current account would have been almost twice as large as reported in the Bank of Guyana reports, but the Diaspora input has mitigated that impact. It also indicates the positive impact that the Diaspora has on the country’s ability to manage its external financial relations.
Notwithstanding the Diaspora input, Guyana must find money to pay its debts. Guyana has relied on two ways to tackle the current account deficit. It has sought to do so by increasing its exports and by attracting foreign investments. The two courses of action are not necessarily mutually exclusive, especially in cases where foreign investment is export-oriented.
Not only do they have consequences for two separate parts of the current account, each course of action on its own is significant for what it means for savings and investment in Guyana and the control that a government has over managing its economy. Herein, one would see too that the Diaspora contribution is not inconsequential.
Balance of trade
The attempt to increase exports affects the balance of trade. A favourable increase in the balance of trade puts Guyana in a better position to increase its savings. Higher levels of savings mean higher levels of domestic investment. Foreign trade that produces favourable balances therefore enables Guyana to have greater control over its investments and the management of its economy.
The chance of this happening increases with the inclusion of oil and gas in its production structure. Oil revenues were likely to be generated at a faster pace than revenues from other exports which means that the balance of trade could increase at a rapid rate. The savings rate would increase and so would the rate of investment.
Working and investing
Though not the subject of this article, the issue becomes what Guyana invests in. An examination of the composition of Guyana’s imports reveals that trade is a significant driver of domestic investment. In the country’s national accounts, imports are classified in a manner that reflects the economic use of imports.
The classification is given as consumption, intermediate-consumption and capital goods. Capital goods cost plenty money and are therefore not things that people buy to play around with. But one could reclassify the imports as productive and non-productive imports with intermediate consumption goods and capital goods as productive and consumption goods as non-productive. Even though Guyana runs a trade deficit, 75 per cent of the value of what it imports is used for productive purposes. Guyanese therefore should not feel discouraged by the perennial trade deficit. A high import bill of productive items shows that the country is serious about working and investing. If Guyana continues to maintain this type of trade profile after the inclusion of oil and gas in its production structure, oil revenues will serve it well.
(To be continued)