Review 2001

2001 Global Facts

• Output expanded by 2.4% compared to 4.7% in 2000

• Growth in advanced economies was 1.1% compared to 3.9% growth in 2000

• Unemployment level of 8.4% in regional countries

• World trade in goods and services increased by 1% compared to 12% in 2000

• A general increase in output of regional countries of 0.5%

2001 Local Facts

The Global Economy

There was real growth in the global economy of 2.4% (2000 – 3.9%) with growth of 1.1% (2000 – 4.2%) in the advanced economies and of 4% (2000 – 5.8%) in the developing economies. This resulted in a sharp rise in unemployment, particularly in the US.  World trade grew by a meagre 1% compared with 12% in 2000. Regional growth was 0.5%, attributed to reduced activities following the September 11^th attacks and the slowdown of the world economy. Of the Caricom countries only Guyana and Jamaica reported positive growth.

The Domestic Economy

The economy recorded a positive growth of 1.9% following a contraction of 1.4% in 2000 and a positive overall growth of 3.0% in 1999. In 1998, the economy declined by 1.3% following positive growth in the preceding seven years.

The growth in 2001 was due partly to improved performance in sugar and rice production by 3.9% to 284,474 tonnes and by 10.4% to 322,310 tonnes respectively.

The mining and quarrying sector grew by 1.2%, with gold output being the major contributor, with the highest declaration of gold by the industry, surpassing by 4.8% the production target. Production of bauxite suffered a significant decline to 2.01Mn tonnes, a decrease of 25.2%.

The manufacturing sector grew by 0.2% as compared with a negative growth of 13.9% in 2000. The main contributors to the growth were the pharmaceutical industry (4%), beverages (43.8%), footwear (79%) and garments (45.5%).

There were shortfalls in output of beer and stout (10.1%), malta (7.8%), paint (2%) and plywood (26.6%).

The services sector recorded positive growth in most of the sub-sectors particularly in transport and communication which recorded a 5.5% growth. Engineering and construction grew by 2.1% while distribution recorded marginal growth of 0.5%. There was no growth in government services while financial services declined by 5%.

Per capita GDP for 2001 was US$737.9. (Per Capita GDP is the total output produced inside a country during a given year divided by the total population.)

Debt Relief

The country missed the completion point for the Enhanced HIPC Initiative but benefited from debt write-off of US$6.97Mn by the Commonwealth Development Corporation. In addition, the country hopes to benefit from re-scheduling of debt with Canada and OPEC within the HIPC Initiative.

Balance of Payments

September 11^th weakened the balance of payments position due to the falling commodity prices and high import prices for fuel. Trade declined by US$13.6Mn. Earnings from exports continued to decline as it did in 2000 mainly due to a decline of US$15.3Mn in bauxite exports. Sugar receipts also fell significantly due to the fall in the Euro, the currency in which a large portion of the country’s sugar output is sold.

Public Sector Investment

The Public Sector Investment Programme (PSIP) again demonstrated an almost perfect achievement ratio of 99%, an increase of 8% over the rate in 2000. The key areas were roads, bridges, air transport, sea defence, the agriculture sector and the social sectors.

The Minister announced that 1,375 house lots were allocated in various areas in 2001. This is a steep fall in the distribution of house lots which were 22,500 in 2000 and 6,500 in 1999.

Banking and Interest Rates

The 91-day Treasury Bill declined to 6.25% from 9.2% in 2000. Despite the significant reduction in inflation, the weighted average lending rate of the commercial banks remained almost unchanged at approximately 17% and the savings rate reduced to 6.7% from 7.28%.

Loans and advances to the private sector increased to $59.3Bn. Significantly, credit to the major economic sectors declined.

The Exchange Rate

The exchange rate of the Guyana dollar to the US dollar remained fairly stable, depreciating by 2.6% and settling at $189.50 at year end. In 2000, the rate declined by 2%.

Issues in the Financial Sector

The sector showed mixed performances.  The Government approved two additional institutions to offer mortgage-lending services, but the country also witnessed the closure of the Globe Trust Investment Company Limited, a non-bank institution which accounts for less than 1% of the assets of the commercial banks.

Ram & McRae’s Comments

The fall in inflation appears to have as much to do with the monetary policy as with depressed demand due to falling business and personal income.

The Minister was extremely badly advised on the Globe Trust issue. The matter of a plan submitted for Section 33 of the Financial Institutions Act is quite different from any plan which the Bank of Guyana or an administrator develops under Section 49 which precedes any application for liquidation.

The Minister offered no reasons for the country’s failure to meet the Enhanced HIPC decision points, any other implications for the failure and the steps being taken to meet the conditions.

It is difficult to understand the annual complaint by successive Ministers of Finance at the unresponsiveness of the lending rates to the fall in inflation which means that the real rates of interest are increasing. These Ministers seem to forget that they have a controlling interest in a commercial bank and, through the Bank of Guyana, can exert significant influence over the others. Ministers certainly can appreciate that low inflation affects the real value of debt service making repayment more costly.