Foreign reserves in trouble

first_imgDear Editor,In March 2018, the Statistical Abstract published by the Bank of Guyana reported that the net international foreign currency reserves at the Central Bank were US$498.5 million, a 16 per cent decrease from 12 months prior. So let us examine these numbers.The general understandingSince 2016, the current account situation has started to deteriorate drastically. Why is this occurring, and what effects might it have on the future economy?A current account deficit implies that, in a given year, the expenditures made by consumers, investors and the Government in Guyana exceed the value of goods and services produced in the country. Of importance, the Government expenditures have skyrocketed since 2016, with the biggest Budget ever declared for 2018 with no certainty on how this will be funded.The figure below shows Guyana’s current account balance from 2014 to the projections in 2018, which was sourced from the National Budgets and the Bank of Guyana Annual Reports and shows a massive deterioration in this situation.Indeed, Guyana’s increasing current account deficit has been mainly driven by a flatlining of exports and a creeping increase in oil prices since June 2017. But in a case of increasing oil prices, how is it being funded? Our export sectors are under a clear and present danger as the Finance Ministry continues to under serve them. The outcome – rapid decline in the international reserves. These international reserves are composed of cash and other assets denominated in mainly US dollars. According to the Bank of Guyana Statistical Abstract from March 2018, these international reserves at the Central Bank have declined by US$110 million since the arrival of the Granger Government, as seen in the figure below in blue. The red line is a reflection of the situation when the stocks of foreign currencies at the private banks are included, but the trend is the same – a decline.In an economy like Guyana that is constructed around the six productive sisters (gold, rice, sugar, bauxite, timber, and seafood), any government must place their focus there, not on pageantry projects like the D’Urban Park Parade Ground and idle arches. As an example, the actions taken by the Granger Government in the sugar belt have caused the US dollar cash inflow from that one sector alone to drop by US$40 million since their assumption of power in May 2015 to the end of December 2017. The decline in foreign currency inflows from the Guyana Sugar Corporation (GuySuCo) is set to decrease by a further US$10 million over 2018 as a result of the closure of three more estates. The fact remains, closure of these estates can be an option if you have a replacement foreign currency earner to take its place. Unfortunately, the Granger Government had no replacement for the reduced foreign currency inflows from GuySuCo but continues to sell the incomplete analysis that some GY$9 billion was being used to subsidise the industry annually. But when the disaggregation is done, some GY$3 billion of new funds had to be pumped into the Central Government Drainage and Irrigation efforts because GuySuCo is not footing that bill any more. This is set to increase as GuySuCo reshapes its interventions in the drainage and irrigation efforts in Berbice and Demerara.The empirical data on the developments in the Guyanese economy remains quite worrying. Anyone who is committed to progressing the welfare of the poor and the working class has to recognise that our economy needs immediate surgery (financial policy interventions). Guyana’s greatest national threat today in 2018 remains the economy; not Venezuela. The main agenda should be to attract new foreign direct investments but this is a tough road to travel when the majority of the local population has now lost confidence in the economy and in how it is being managed by President David Granger and his team. An even bigger agenda is the enhancement of our people’s productivity, who are still underpaid and even more demotivated today.There is no time to waste on sloganeering like the “good life for all”, just get on with the job at hand or get out!Sincerely,Sasenarine Singhlast_img read more

Guyana must use depletion policy to avoid Dutch Disease

first_imgOil and gas development– says former BP executiveAs Guyana prepares for first oil in 2020, experts from across the world have been advising Government to make all the necessary preparations to avoid an oil curse or “Dutch Disease”.Former Vice President for Strategy and Policy Development at BP, Nick ButlerFormer Vice President for Strategy and Policy Development at BP; London and visiting professor at King’s College, Nick Butler, said one way to do that is by setting the pace of growth in this new sector with a depletion policy.Butler was speaking on KBIA’s Global Journalist, a radio and podcast channel out of the University of Missouri, School of Journalism, which is aired on Missouri and California radio channels.The former oil executive was joined by analyst at Control Risks; Raul Gallegos, from Bogota, Colombia; senior fellow at the Institute of International Relations, University of the West Indies; St Augustine, Anthony Bryan; and senior journalist at Guyana Timesand TVG’s Evening News, Samuel Sukhnandan.He said the idea behind this is to phase production over a long period, avoiding a gold rush and allowing local companies to build up their capabilities to enable them to win a share of any oil-related activity.“They don’t need to develop it all at once. I would support a depletion policy where you limit what you produce year by year to manage the inflow of money so that the exchange rate is not destroyed by this one single, successful industry,” he said.That covers everything from the development of a new port, infrastructure, engineering support and all the other essential onshore services from food to accommodation for the oil workers.Butler noted that if Guyana is to get this wrong, it would have devastating effects for agriculture and local businesses. It would also mean employment will become less.In other words, if there is a huge wave of foreign currency, the exchange rate here could get “out of balance” and it becomes cheaper to import commodities that are already produced in Guyana.”The former BP Vice President also said Guyana’s oil discovery seems promising because there is potential for more massive discoveries to be made. However, he noted that based on how things will play out here, he said it could take years before Guyana starts to benefit from the revenues.“It will take at least three years before any production and I would imagine that it would take another three years or maybe five years before the companies involved would recover their investment. So, there isn’t going to be a massive inflow of revenue into Guyana for five years or more,” he added.Although there are some plans already being made to have locals trained to take up employment in this new sector, Butler said there is still a need for more training programmes for locals. He said while the more specialised oil jobs will go to Americans and other foreign nationals with the expertise and skills, he said there will be a lot of other jobs and interest in the sector.Meanwhile, Bryan spoke to the need for Guyana to develop sound environmental policies when it comes to the oil sector, noting that the country should use Trinidad as an example of what could go wrong. He said with most oil producing countries, oil spills are inevitable and broken pipelines are a major concern.Gallegos, on the other hand, told the programme that Guyana is no different from other countries that have found oil, but their finances are poorly managed. He said it is therefore a huge responsibility that would require great efficiency. He used Venezuela as an example of one of those countries that did not manage its oil resources and revenues properly that did not work out well in the end.Adding his take from a journalist point of view, Sukhnandan in his contribution to the discussion stated that the relatively new Guyana Government has been taking steps to prepare for this sector.He noted that the Government has been looking at various models and polices in major oil producing countries that have been successful like Norway, among others. However, he did point out that the Government made a huge blunder when it kept secret a signing bonus worth US$18 million in the Central Bank.last_img read more