Govt tax­ing Guyana to death

Weekend Mirror - - FRONT PAGE - By Ir­faan Ali, MP

Growth: The econ­omy con­tin­ues to “limp along” as ev­i­denced by the mea­ger 2.2 per­cent such as sugar, live­stock and forestry as well as the sharp con­trac­tion in min­ing and quar­ry­ing in­dus­tries dur­ing the first six months of 2017 (see fig­ure 2).

Sources: Bank of Guyana and Min­istry of Fi­nance

The sugar, live­stock and forestry in­dus­tries de­clined by 12.4 per­cent, 10.9 per­cent and 18.2 per­cent re­spec­tively. The con­trac­tion in the sugar sec­tor was due to the clo­sure of Wales es­tate while the down­siz­ing of Barama Com­pany Limited con­trib­uted to the de­cline in the forestry sec­tor. The min­ing and quar­ry­ing sec­tor also de­clined by sured by the Ur­ban Con­sumer Price In­dex in­creased by 1.1 per­cent due mainly to price in­creases for the cat­e­gories of food, med­i­cal and per­sonal care, and ed­u­ca­tion, re­cre­ation and cul­ture. While the in­fla­tion rate for the first half of 2017 was iden­ti­cal to rate for the cor­re­spond­ing pe­riod in 2016,it was well above the lev­els re­ported for the cor­re­spond­ing pe­ri­ods be­tween 2013 and 2015 (see fig­ure 3).

Sources: Bank of Guyana and Min­istry of Fi­nance

The over­all prices for food in­creased by 2.3 per­cent partly due to the tax mea­sures im­ple­mented dur­ing

FIG­URE 1: MID-YEAR REAL GDP GROWTH RATES; 2011-2017 FIG­URE 3: MID-YEAR IN­FLA­TION RATE: 2013-2017

driver of price in­creases for the cat­e­gories of med­i­cal and per­sonal care and ed­u­ca­tion, re­cre­ation and cul­ture(see fig­ure 4).

Bal­ance of Pay­ments and For­eign Exchange Mar­ket: The over­all bal­ance of pay­ments moved to a deficit of US$46.0 mil­lion from a sur­plus of US$12.1 mil­lion. This out­turn was due pri­mar­ily to a de­te­ri­o­ra­tion in the cur­rent ac­count which registered a deficit of US$100.1 mil­lion for the first six months of 2017 com­pared with a sur­plus of US$27.0 mil­lion dur­ing the cor­re­spond­ing pe­riod in 2016. Lower ex­port re­ceipts from the ail­ing sec­tors such as sugar, gold, tim­ber cou­pled with the no­table growth in im­ports con­trib­uted to the deficit in the cur­rent ac­count dur­ing the first half of 2017.

The over­all deficit in the bal­ance of pay­ments was fi­nanced by the gross in­ter­na­tional re­serves which de­clined from US$ 596.7 mil­lion at end- De­cem­ber 2016 to US$578.4 mil­lion at end-June 2017 (see fig­ure 5). Con­se­quently, the im­port cover re­duced to 3.4 months dur­ing the first six months (see fig­ure 5).

Sources: Bank of Guyana and Min­istry of Fi­nance

Mean­while, the prin­ci­pal exchange rate (G$:US$) con­tin­ued to slide dur­ing the first half of 2017. The av­er­age buy­ing and sell­ing rates de­pre­ci­ated from $206.35 and $210.11dur­ing De­cem­ber 2016 to $211.80 and $214.25 dur­ing June 2017. This is the sharpest de­cline in the prin­ci­pal exchange rate since the lib­er­al­iza­tion in the for­eign exchange mar­ket (see fig­ure 6). It is note­wor­thy that the de­pre­ci­a­tion oc­curred be­cause de­mand for US dol­lar re­mained strong while the in­flow of US dol­lar dwin­dled due to the poor per­for­mance of the non-gold ex­port sec­tors.

Pub­lic Fi­nance: Amidst a con­tract­ing econ­omy the Cen­tral gov­ern­ment recorded an over­all sur­plus of $8,259.5 mil­lion, $ 7,441.7 mil­lion higher than the $817.8 mil­lion sur­plus last year. The over­all sur­plus re­sulted in an ex­pan­sion in net do­mes­tic sav­ings of $9,249.4 mil­lion dur­ing the first six months com­pared with $1,317.1 mil­lion one year ago.

The ex­pan­sion in the tax rev­enue of the Cen­tral gov­ern­ment was largely re­spon­si­ble for the over­all sur­plus and higher cur­rent ac­count sur­plus for the first half of 2017. The to­tal tax rev­enue in­creased from $85,920.5 mil­lion at end-June 2016 to $97,165.8 mil­lion at end-June 2017 due to the higher in­come (13.3 per­cent), con­sump­tion (13.0 per­cent), trade (9.1 per­cent) and other taxes (41.1 per­cent).

Mon­e­tary: Pri­vate sec­tor credit in­creased marginally, by 1.8 per­cent. How­ever, there was no­table con­trac­tion in credit to all the ma­jor sec­tors, ex­cept the ser­vices sec­tor. Loans to the agri­cul­ture sec­tor de­clined by 12.6 per­cent, while loans to the man­u­fac­tur­ing, min­ing and quar­ry­ing sec­tors de­clined by 5.1 per­cent and 7.1 per­cent

re­spec­tively. The con­trac­tion in credit to the key sec­tors pro­vided ad­di­tional con­fir­ma­tion that our econ­omy is un­well and suf­fer­ing from a pro­longed coma.

Yet another sig­nal that our econ­omy is in dis­tress is the high and in­creas­ing lev­els of non- per­form­ing loans. The non-per­form­ing loans in­creased from $26,585 mil­lion at end-June 2016 to $29,945 mil­lion at end-June 2017. The ra­tio of non-per­form­ing loans to to­tal loans was 13.1 per­cent at end-June 2017, al­most twice the level

at end-Septem­ber 2014. Given the low pro­vi­sion­ing the fi­nan­cial sec­tor is stand­ing at the precipice of im­mense uncertainty.

Con­clu­sion: The econ­omy posted neg­li­gi­ble growth of 2.2 per­cent dur­ing the first half of 2017. While the in­fla­tion rate was sta­bi­lized at 1.1 per­cent, lo­cal con­sumers are forced to pay more for food,

FIG­URE 5: IN­TER­NA­TIONAL RE­SERVES AND IM­PORT COVER: 2013-2017

hous­ing, t rans­porta­tion, med­i­cal and per­sonal care, ed­u­ca­tion, re­cre­ation and cul­ture. To a large ex­tent, the tax mea­sures in­tro­duced in the 2017 is re­spon­si­ble for the price in­creases. Mean­while, our ex­ter­nal over­all bal­ance of pay­ments has de­te­ri­o­rated re­sult­ing in the re­duc­tion in the gross in­ter­na­tional re­serves and im­port

cover. Notwith­stand­ing the dra­co­nian mea­sures im­ple­mented by the cen­tral bank to sta­bi­lize the exchange rate, the prin­ci­pal exchange rate de­pre­ci­ated by more than $4 dol­lars; the largest de­cline in the exchange rate over the past two decades. Mean­while, credit to the key sec­tors de­clined markedly as the com­mer­cial banks

re­spond to the slow­down in the econ­omy and high lev­els of non- per­form­ing loans. Based on all the macroe­co­nomic in­di­ca­tors, the econ­omy is strug­gling or ‘limp­ing along’. In­stead of adopt­ing counter cycli­cal poli­cies to help the econ­omy the APNU-AFC gov­ern­ment is com­fort­able tax­ing the econ­omy to death.

FIG­URE 4: MID-YEAR IN­FLA­TION BY CAT­E­GORIES, 2017

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