The unprecedented rising cost of living and some suggestions on the approach for policymakers to tackle it

By Joel Bhagwandin
Financial Analyst
THE rising cost of living that we are experiencing is driven by global supply chain disruptions, owing to the impact of the COVID-19 pandemic, and, more recently, this situation is now further compounded by the on-going war between Russia and Ukraine.
The impact of the war is largely because Russia is a major global exporter of several commodities, such as wheat, crude petroleum, refined petroleum and petroleum gas. These events ultimately led to further increases in shipping costs, globally, and supply shortages of a number of traded commodities. To this end, a number of countries, including the US, UK and European countries imposed a series of economic sanctions on Russia. As a result, Russia now cannot export its major commodities to the rest of the world, except for a few countries. This naturally created a supply shortage globally of these commodities, such as wheat; and when there is a shortage with growing demand, prices increase as a consequence.
This is now a new challenge in the 21st Century that not only Guyana but the rest of the world would have to deal with that are going to feel the effects of these, albeit the gravity of the impact on each country might be felt at varying degrees.
With respect to the specific question where sections of civil society have been suggesting to the government to institute price restrictions, this is really not an option, as it would be difficult and unfair to so do on the part of the firms that have to incur rising input costs and/or import costs for their products, wherein firms would be unable to absorb such exorbitant price increases. Therefore, such costs would have to be passed on to the end consumer, unfortunately.
In response to this, the government has to examine a comprehensive menu of measures to cushion the impact of the rising costs. Already, in the case of Guyana, His Excellency Dr. Mohamed Irfaan Ali said that there will be no increases in electricity costs and water rates. This means that the government will continue to subsidise these entities so that the cost burdens are not passed on to the consumers.
Additionally, through Budgets 2020, 2021 and 2022, a multiplicity of fiscal measures have been implemented, for example, the removal of VAT from electricity, water and basic food items. In Budget 2022, there is also a provision of some $5 billion, among other measures, to aid in cushioning the cost of living increases, given that the underlying causation of the rising cost of living explained earlier are unprecedented, especially now with the Russia/Ukraine war that the world economy is in an era of deeper uncertainty.
Further, His Excellency Dr. Mohamed Irfaan Ali and the Vice-President, Dr. Bharat Jagdeo, stated publicly that there will be a consultation process with stakeholders to best determine how to administer the cost of living measures to bring relief to both consumers and firms, and what type of measures can be pursued. In this respect, the $5 billion provision in Budget 2022 may now have to be increased to $10 billion.
It would not be prudent, as such, to experiment on what type of measures should be implemented, and, therefore, the consultation with stakeholders to gather empirical evidence and data to understand the gravity of the impact, for example on shipping cost, is the prudent thing to do at this point, so as to undertake an informed policy intervention.
Be that as it may, within a broader framework, some of these interventions should be geared around the following:
1) With the rising fuel cost which Guyana will benefit from the sale of crude, we would have to examine to what extent government can further subsidise fuel costs so that consumers don’t have to bear a significant burden in that regard;
2) Examine further how shipping costs can be subsidized, and to what extent, at least on a temporary basis;
3) Provide temporary incentives to local food manufacturers/producers, and shipping companies.
4) We also, now more than ever, have to work with our farmers and food producers on two fronts: (i) Bringing relief through incentives to farmers, where the cost for input materials have increased due to the impact of rising costs globally, and (ii) incentivising farmers by providing access to more resources in the form of land and capital to increase production; by increasing production, this would help to stabilise prices to equilibrium levels.
These are, of course, short-term measures that would have to be considered and studied before making informed decisions on the part of the government.
The long-term solutions are, of course, to pursue, aggressively, the major transformational projects such as the Amaila-hydro and the gas-to-energy projects which are designed to reduce the country’s high energy cost by more than 50 per cent. These, among the many other long-term development programmes that are on the government’s development agenda for implementation will be critical in this regard.
In view of these eventualities, and provided that we are able to, as a country, resolve our major challenges that are inhibiting a competitive and more dynamic private sector, we would be able to better guard against and/or minimise the impacts of external shocks such as those that we are now grappling with in the foreseeable future.

About the Author
J.C. Bhagwandin has been providing insights and analyses on economic and finance issues and public policy for the past 5+ years. The views, thoughts and opinions expressed in this article belong solely to the author. He is the holder of a master’s degree in banking & finance.
LinkedIn: https://www.linkedin.com/in/joel-bhagwandin-57481470/.
Email: jbbankingadvice@gmail.com