Most likely, November 27, 2017, will be National Budget Day. On this day, the Minister of Finance is expected to present the government’s budget for the fiscal year starting January 1, 2018. Generally, the budget presentation is an anticipated event as it provides families, businesses, investors, and creditors with the government’s spending plans and theoretically opens the budget process for public input and debate. However, this year’s budget presentation is much more critical for both political and economic reasons.
Politically, the 2018 budget represents the mid-term mark of the current administration and is widely viewed as a mid-term evaluation of its performance since taking office in 2015. With almost all of the administration promises of a ‘good life’ unfilled and public dissatisfaction at possibly an all-time high, the pressure is growing on the administration to deliver on its promises. In terms of the economy, the government’s scorecard is anything but encouraging. The jobless economic growth, a high unemployment rate, severe poverty, and widespread crime indicate a state of poor economic health and macroeconomic distress.
So, what should Guyanese expect in the 2018 budget? Will there be a shift to more common sense and effective policies that have been proven to create jobs, lift people out of poverty, and grow the economy? Or will the administration’s loyalty reside with counterproductive policies? While there is no way of knowing what the government priorities are until the budget is presented, it is important to reflect on the current state of the economy and recent budget and policy decisions that largely contributed to current economic distress.
Budget 2017 Policy Failures
A review of the core economic indicators suggests severe macroeconomic imbalances and policy shortcomings. For example, although economic growth was 3.3 percent in 2016, it was mainly due to activities in the mining and quarrying sector, e.g. gold and bauxite. Production in these sectors has more to do with chance and favorable world market prices than with government policies and are more prone to corruption. Thus, these activities are considered high-risk and are not sustainable sources of growth.
Conversely, sectors such as agriculture and manufacturing that employ a significant number of workers and account for almost a quarter of the economy contracted by 10 percent each in 2016. The agriculture sector alone employs 21 percent of the country’s workforce. Likewise, growth in the service sector, the largest sector of the economy (51 percent), fell to 1 percent in 2016. This slowdown of activities forced major businesses to cut payroll: for example, Gafoors, Laparkan, Guyana Stores Ltd, and Muneshwars Ltd together laid off more than 160 workers in 2016. Still, thousands of other jobs are hanging on by a thread with the government’s decision to gut funding for GUYSUCO and began to dismantle the largest employer in the country. The unemployment rate at the end of 2016 was estimated at 11.4 percent, according to World Bank data.
Perhaps the most discerning fact about the state of the economy is the alarming level of poverty. The most recent estimates show that 4 in 10 Guyanese are living in poverty, i.e. they cannot afford to pay for basic necessities. Worst yet, almost half of all children under the age of 16 and a third of those between the ages of 16-25 are living in poverty. When half of the future generation is struggling to stay alive instead of becoming productive citizens, it is not just a scar on the nation’s conscious but a policy failure that weighs heavily on the economic future of the country. Outside the borders of urban living, the level of poverty and extreme poverty are higher. More than 7 in 10 people in rural communities live in extreme poverty – three times higher than the national average.
Other major indicators of economic health also show signs of macroeconomic instability and deeply rooted inefficiencies. For example, despite the government expansionary fiscal policy, private consumer spending declined by 15 percent in 2016, suggesting that consumers’ confidence in the economic outlook has faded. Likewise, the level of crime claiming lives and burglarizing businesses continues to rise, despite a 24 percent increase in funding for the Ministry of Public Security for a total of $17 billion in 2017. These economic failures point to policy, operation, and management inefficiencies within the public sector.
Finding solutions to these problems requires the government to take a hard and serious look at its budget and public policies to ensure it is:
- appropriating sufficient resources to fund public services at the level of public needs,
- prioritizing those services with the largest potential economic and social gains while attending to immediate public needs, and
- ensuring strict monitoring and independent evaluation of all budgeting agencies to ensure public funds are used as intended and deliver on their objectives.
The problem, however, is in terms of public accountability, fiscal transparency, effective policy, and economic management the government’s scorecard to date has been less than encouraging.
A recent report on the 2017 budget by the Guyana Budget & Policy Institute shows that despite increasing total spending by almost $11 billion and adding more than $54 billion of debt on taxpayers, lawmakers failed to adequately invest and prioritize critical services that promote widespread economic prosperity such as early and tertiary education, community development and agriculture. Funding for the agriculture sector was cut by 3 percent while funding for early education and community development grew insignificantly. Conversely, funding for general administration services increased significantly: funding was increased for the Office of the President by 24 percent, Office of the Prime Minister by 34 percent, and Ministry of Foreign Affairs by 29 percent. Total funding for the Ministry of Foreign Affairs was more than $5 billion. This amount is almost three times more than total funding to the Ministry of Business to encourage entrepreneurship, private investment and job creation in sectors like industry, tourism, and commerce. The economic and fiscal rationale behind these allocations is at best unclear and at worse counterproductive.
Even more harmful aspects of budget 2017 were the changes in the tax laws that shifted $14 billion in taxes mostly to households and significant increases in licensing and user fees and service charges for basic government services. In some cases, fees were increased by more than 5,000 percent. These policies effectively taxed the 40 percent of Guyanese families including children currently living in poverty further into poverty, some likely into homelessness, and hunger. Equally, for families struggling to make ends meet on little income, increased taxes and fees increased their financial hardship and made it more difficult to put food on the table, keep a roof over their head, send their children to school, and invest in their future. Overall, instead of helping families achieve economic self-sufficiency and get on a path to economic prosperity, the 2017 budget pushed families farther down the economic ladder, some off of it.
A Better Approach
Sustainable economic growth and widespread social progress are not inevitable; they do not just arrive with time or even with the discovery of oil. Instead, they require a constant rethinking of policies to move the needle of progress one step further. The Guyana Budget & Policy Institute urges lawmakers to commit to common sense policies that have been proven to keep the engine of economic growth steaming forward. The following are policies that are successful in lifting families out of poverty, building a talented workforce, attracting investment, creating jobs and laying a solid foundation for long-term prosperity:
- Providing every child with a quality public education from pre-kindergarten to university to drive innovation, creativity, and entrepreneurship – all pillars of sustainable development.
- Improving the quality and affordability of, and access to, healthcare services. This ensures access to basic and critical care for a strong and healthy workforce.
- Modernizing the country’s dilapidated transportation infrastructure by upgrading and expanding its network of roads, bridges, drainage system, seaports, and airports. This is critical to attracting businesses, driving commerce and ultimately creating jobs.
- Investing in clean and cheap energy including hydroelectricity, which is necessary to lower the cost of production for businesses and increase private sector competitiveness.
- Undertaking public safety reforms for increasing the capability, technology, and efficiency of public safety systems to ensure businesses and families are safe and can pursue prosperity.
Adequately funding services alone does not guarantee success, public accountability, and transparency. Equally important is the need to ensure funds are used as intended and in the most effective and efficient way to deliver maximum public benefits. Accordingly, lawmakers should:
- Adopt legislation requiring annual review and evaluation of the cost and benefits of public investments allocated to the various Ministries. Such review and evaluation could help the government identify and reduce waste and inefficiency, reduce cost and increase resources for investing in services that actually serve a public benefit and deliver on outcomes.