Real GDP growth/(decline)
Current account deficit of the
balance of payments as a % of GDP
Increase/(decrease) in the money
After recording negative
growth in 1998 and the first quarter of 1999 following seven years of
positive growth, the economy recovered particularly well from the second
quarter of 1999 with a 6.8% growth for that quarter.
The crippling 57-day
public sector workers’ strike in the early part of the year had seemed
certain to ensure further negative growth. However good performances by
the sugar (39.1%) and rice (37.7%) sectors in the first half of 1999
neutralised the effects of the strike and in fact recorded net positive
growth for that period of 2.1%.
Growth was reported in
fishing, forestry, mining, quarrying, transport, communication,
manufacturing, rent of dwellings, financial and other sectors. There was
decline in the distribution, engineering and construction sectors.
The improvement in the
economy continued thereafter to record GDP growth of 3.0% for the year
whilst inflation ended the year at 8.6%. Mid-year inflation had been
reported at 5.8%.
Sugar production, the
highest since 1978 and rice production were the principal contributors
to growth during 1999. Comparatively better weather conditions, the
introduction of new varieties of cane and the use of artificial ripeners
for cane contributed to improved yields for both crops.
increased by a massive 25.8% to 321,438 tonnes surpassing the projected
output rate by more than four times. Rice production increased by 7.6%,
4.6 percentage points more than the projected output for 1999.
rebounded with production being more than 12.9% over 1998. Fisheries
fell short of the budgeted increased output of 1.9% by 0.9%. Livestock
production increased sharply by 10.2% while egg production increased by
7%. The Budget Speech did not comment on the performance of traditional
The mining and quarrying
sector and the engineering and construction sector continued their
decline. The mining and quarrying sector registered a decline of 8.4%
compared with a projected decline of 3.6% due to falling gold prices and
an 11.8% decline in production by Omai Gold Mines Limited. There was a
slight overall increase in the production of bauxite though the
higher-value grade declined significantly.
Despite a 10% decline in
the engineering and construction sector compared with projected growth
of 4%, the manufacturing sector made remarkable recovery growing by 6.8%
against a projected 1% growth.
Growth in financial
services and transport and communication was 2%, in Government 1% and
other services 1.7%. There were declines in land transport and
distribution services of 20% and 8% respectively.
Other services which
include tourism and hospitality grew by 1.7%.
The 91-day treasury bill
rate climbed to 11.07% from 8.84%. This followed the removal of the
interest rate ceiling on treasury bills which had previously constrained
bidders to no more than 2% over than the previous auction as a measure
to stem the slide in the Guyana dollar.
As is now a familiar
refrain in Budget speeches, the Minister lamented the high
intermediation spreads of the commercial banks which the Government had
sought to address by a lowering of the statutory reserve applicable to
all liabilities and deposit-taking financial institutions from 14% (time
liabilities) and 16% (demand liabilities) to 12%.
The weighted average
lending rate declined to 18.08% while the average savings increased from
7.06% to 8.12% in 1999.
Loans and advances to the
private sector increased by 7.7%, the manufacturing sector being the
main beneficiary averaging 27.9% over the last three years. Mortgage
loans grew dramatically by 44.6% reflecting the demand for housing loans
arising from the accelerated distribution of house lots.
finances improved significantly in 1999. Collections increased from 1998
by 10.5% to $34.9Bn, 4.7% more than the budgeted amount. Increased
production of the two principal crops, changes in customs valuations
rate and a switch in method of assessment of companies by the IRD
accounted for surpassing of the target.
Collections by the IRD
increased by 13.2%, 7.5% more than budgeted. This included collections
of $850M more in personal income taxes and $795M more in company taxes.
Customs revenue collection was short of the budgeted target by almost
$200M, although it exceeded collections for the previous year by 6.1%.
Again it seems as though the public sector strike which affected the
operations of the Customs and Excise Department during that period had
little overall effect on its revenues.
Though revenue collection
was significantly higher than in 1998, there was also increased
expenditure. Non-interest expenditure in 1999 was $24.1Bn (an increase
of 22.5%). Personal emoluments increased by 20.8% from $9.8Bn to
$11.8Bn. Expenditure on other goods and services was $6.9Bn and transfer
payments $5.4Bn. Domestic interest was $3.6Bn ($200M less than budgeted)
whilst scheduled external interest payment amounted to $6.5Bn but under
the HIPC Initiative only $3.9Bn was actually paid.
There was a decrease of
$600M in capital expenditure and net lending. Overall total expenditure
was $46.5Bn, approximately $3.5Bn less than projected for 1999. This was
despite the fact that Budget 1999 did not provide for increased wages
for public servants which were being negotiated with unions at the time
of presentation of the Budget.
The overall deficit
before grants improved to $9.9Bn and after grants $3.3Bn.
Slower growths in imports
accounted for the merchandise trade deficit narrowing from US$54.2M in
1998 to $25.2M in 1999. The Balance of Payments suffered from falling
prices in the country’s major export products - sugar, rice, bauxite
exports declined by 4% to US$525M, merchandise imports declined by 8.5%
to $550M, both in consumer and capital goods.
The overall balance of
payments reduced from a deficit of US$22.7M in 1998 to a deficit of
US$4.4M in 1999.
The inflation rate
recorded for 1999 was 8.6% against a target rate of 5.5%. The Minister
cited the reasons for the increase being:
the weakening of
in electricity tariffs
increases in fuel prices
He also noted two
Ram & McRae’s
Inflation close to double
digits appears to be returning to the economy destroying one of the
macro-economic fundamentals, a pillar of the IMF Programme. Inflation
discourages savings and creates uncertainty for investors. Measures need
to be put in place urgently to remove this specter.
The importance of
Government’s contribution to the economy is emphasized by the more
than coincidental and equal decline in the Public Sector Investment
Programme and the negative growth in the engineering and construction
Economist Dr. Kenneth
King had criticized the rationale for reducing the interest rate cap on
treasury bills as “confused” pointing out that “you can’t
increase the value of the Guyana dollar by limiting its supply, but only
by increasing the supply of the US dollar.”
Whilst interest rates in
the economy have by definition to be market determined, the commercial
banks operating in Guyana display all the signs of a cartel and firmer
Government persuasion may be called for if businesses are to enjoy more
acceptable interest rates.
As a professional
services firm with regular contact with the Inland Revenue Department,
we are unaware of any switch in the method of assessment of companies
and find it difficult to speculate what the Minister might have meant.
Omai’s production will
necessarily start to decline in another year or two and the country
badly needs major, medium-scale and small investments with a focus on
value-added exports and/or import substitution.
The business community
has lamented the falling value of sales which is confirmed by the
Balance of Payments statistics. The suggestion is that consumers do not
have sufficient disposable income to maintain their needs.
The Balance of Payments
statement tellingly reflects the vulnerability of Guyana’s economy,
with its focus on primary products to the vagaries of the international
commodity market. Despite all the talk about added value the over
dependence on our primary products will forever stultify our growth.
The Government has noted
the increases in fuel prices internationally and has reduced the
consumption tax on fuel to reduce the price at the pumps.