…Economist Raw Lucas posits
…urges adherence to IMF caution on scaling up public spending

By Lisa Hamilton and Vishani Ragobeer

IN recent years, Guyana’s economy has matured in its management and it is highly likely to continue this upward trend in keeping with the most recent predictions of the International Monetary Fund (IMF).

This is according to local Economist Rawle Lucas, who took time out to analyse the IMF’s statement on Guyana, which was issued last week.

His analysis however, contrasts with that of the Leader of the Opposition Bharrat Jagdeo, himself an economist who on Thursday last at his weekly press conference, referred to the report as ‘whitewashed,’ stating that it covers up the true damage to the economy.

“He knows how an economy grows and he is fully aware that the economy has grown,” Lucas told the Guyana Chronicle. The recent report shows a 4.1 per cent real Gross Domestic Product (GDP) growth in 2018 and a projected 4.4 per cent growth for the same in 2019.
“I don’t think the IMF would make a statement that they didn’t believe was true. So, obviously based on its own assessment, would recognise that the economy did grow by 4.1 per cent in real terms in 2018 and was likely to continue that growth into 2019,” Lucas said on Saturday. “Persons and investors have been pursuing various initiatives to position themselves to support the industry; and it’s not only local investors who have been doing that, it’s also foreign investors.”

In Guyana, United States (U.S.) oil giant ExxonMobil is preparing for first-oil early in 2020, with Liza Phase 1 development expected to produce up to 120,000 barrels of oil per day. Liza Phase 2 is expected to start up by mid-2022 and, already, there have been 13 oil strikes offshore Guyana for the company. Meanwhile, the Stena Forth drillship to be utilised to drill two wells in the Orinduik Block is now en route to Guyana for a June 24, 2019 arrival.

The companies involved in the block, Eco (Atlantic) Oil & Gas Ltd.; Total and Tullow Oil, which have stated that they have enough capital for a “multi well-drilling campaign” in the near future.
With investors looking on, Lucas said that the IMF statement indicates to them that Guyana has been on an upward growth trend for several years and, bolstered by a new industry, its economy will continue to grow. Lucas stated that some of the most recent remarks of Leader of the Opposition Bharrat Jagdeo which sought to discredit the IMF’s statement are misconceived. “There’s no cause to [doubt what the IMF has stated]. The numbers are there and anyone can see,” Lucas added.

The opposition leader said he had told the IMF team about the rapid growth in recurrent expenditure under this government. He said he also spoke about the issues affecting the sugar industry and shared his strategies with the IMF for reopening closed estates in a cost-effective way. According to him, he also complained about government’s record on transparency and accountability.

However, reacting to a report on the Bank of Guyana’s Annual 2018 Report, Lucas stated that Guyana’s GDP table showed that from 2009 to 2018, Guyana’s production has increased every year. “That is the evidence that you have. So, I really don’t know what it is that the leader of the opposition might be referring to when he says that they’re ‘whitewashing’ their report. Until he produces the evidence I can’t make a comment on that,” Lucas said.

Meanwhile, in 2019, the Georgetown Chamber of Commerce and Industry (GCCI) through its own survey stated that there was a drop in commercial activities due to “political uncertainty.” However, Lucas stated that while the bank’s report shows that here has been a decline in spending in households, private investment has increased.

“It is true that household spending did decline and some amount of government investment did decline — there’s a slowing down of expenditure by those two groups—but private investment and public consumption did good,” he said.

Lucas added that there are various reasons as to why public spending would decline: persons choosing to invest more of their money, which he highly believes is the case based on the number of new small businesses he has observed; he also noted another possible reason as persons being unable to find the type of goods which they were interested in purchasing. Even with Guyana’s current political climate, the economist stated that he doubts this will slow the IMF’s positive projections for 2019. “The only thing that will damage that prospect is if there was some kind of instability and I think that Guyana is mature to the point where they understand how much they could hurt themselves by destroying what they have worked so hard to build,” he said.

REMAIN FOCUSED
However, he observed the IMF’s cautionary note to Guyana advising that it pace the scaling-up public spending gradually to avoid challenges such as the ‘Dutch Disease’. “A substantial amount of money will go into the public coffers, which means therefore that the government will probably have money flowing in faster than normal, but it doesn’t necessarily mean that is has to spend it as fast as it gets it. The government has to ensure it controls the speed with which such money enters the economy, because, if it does enter faster, then you will have an inflationary effect,” the economist explained.

Lucas added that the government also has to ensure that local investors in particular are encouraged to expand their businesses and discouraged from leaving low-paying industries to head to higher-paying ones. “We’ve actually had that experience before, but we never really saw it the same way as we’re expressing concerns about the oil industry,” he said in relation to when gold boomed for Guyana around 2009.

“When gold took off in 2009 and prices started to soar, people left the sugar industry and other industries and were heading straight into gold; and that’s part of the problem that the sugar industry experienced. So, that was an example of the ‘Dutch disease,’ but we never paid attention to it because it’s not oil.”

In its report, the IMF mission welcomed the passage of the Natural Resource Fund (NRF) legislation to be used for managing the country’s natural resource wealth, saying that it underscores the commitment of local authorities to fiscal responsibility.

Speaking to the NRF, Lucas said: “That’s another way in which it will control the flow circulating in the economy and, in that way, we should be able to keep inflation within reasonable rates.”

Altogether, the economist believes that the Bank of Guyana and the IMF’s report show an economy that has been gradually increasing, which he believes is due to better management. The IMF also highlighted Guyana’s first Extractive Industries Transparency Initiative (EITI) Report in 2019, which will work to enhance transparency in the extractive industry and the re-establishment of the Integrity Commission which encourages declarations. “I think the data that I see suggests that the economy is being managed very well,” Lucas said.

He said that greater efforts have more recently been given by agencies such as the Guyana Revenue Authority (GRA) and the Guyana Power and Light Inc. (GPL) towards ensuring that citizens abide by the law.
“You’re seeing a more disciplined and a more professional approach to dealing with a number of issues that trouble people in the economy. So, you wouldn’t find, for example, as many people being able to beat the system where taxes are concerned,” he said.

The IMF report came on June 17, while its Executive Board is expected to discuss Guyana’s Article IV consultation in August 2019.