Response to former Finance Minister, Winston Jordan, who presented a disingenuous assessment of the economy under his stewardship (Part 1)

Dear Editor,
Background
REFERENCE is made to utterances by the former Finance Minister, Mr Winston Jordan, who appeared on a Globespan programme and wherein excerpts of his remarks were carried in certain sections of the media. Mr Jordan disingenuously lamented that after seven years, the government is yet to protect itself from being cheated on the oil revenues. In this regard, he pointed to the lack of capacity and regulatory framework among other things. However, Mr Jordan failed to acknowledge that five out of the seven years he was in charge, inter alia, the previous government’s term in office. It can be easily verified that there are absolutely no achievements that one can point to in terms of building capacity, developing and strengthening the regulatory framework for the sector, during this time. Then he went on to argue that Guyana being the fastest-growing economy in the world is “nothing but an illusion.” To support his claims, he pointed to the non-oil growth in 2020 which was negative and again failed to acknowledge the circumstances which in large part, his administration was responsible for during his tenure as finance minister. This was further compounded by the five-month-long political impasse with the national elections in 2020, coupled with the COVID-19 pandemic. More importantly to note, the non-oil sectors were neglected and virtually destroyed by the bad policies and economic management under his tenure as Finance Minister.
In view of this background, this article is dedicated to highlighting – empirically, the state of the economy and the results of his performance as the finance minister during the period 2015 – 2020.
The true state of the stock of Domestic Public Debt was understated by the former Finance Minister
In 2015 the government’s total deposit in the Bank of Guyana stood at a surplus of $15.3 billion, total public sector deposits in the commercial banks stood at $68.2 billion, giving rise to total government deposit of $84 billion surplus in the banking system. At the end of 2014, total public debt stood at $330 billion, which included external debt; and the overdraft on the Consolidated Fund (CF) at the end of 2014 which stood at $77 billion.
As at February 2020, the government’s deposit accounts at the Central Bank stood at a whopping $82.4 billion as a negative/deficit balance from a surplus of $15 billion in 2015, while bearing in mind that these deposit accounts over the last two decades had always recorded surplus balances as high as $60 plus billion at one point. The public sector’s total deposits in the commercial banks stood at$55.4 billion which would give rise – when taken together with the balance at the Central Bank– to a deficit of $26.5 billion or US$127 million, compared to a surplus position in 2015 of $84 billion or US$403 million.
The total public debt stood at $354 billion by the end of 2018, representing an increase of $24 billion from 2014, while the balance on the CF as of 2017 (the most recent publicly available data) stood at $137 billion deficit from a position of $77 billion in 2014, representing an increase of its deficit/overdrawn position by $60 billion. It is important to note that these huge deficit balances drawn on the Central Bank are in effect the creation of debt which ought to be repaid. These Central Bank balances should not be used as perpetual financing for government’s spending.
To further understand the gravity of excessive spending of public finances by the previous government during the period 2015 – 2019: total expenditure amounted to over $1.5 trillion compared to total expenditure of $2 trillion spent by the current administration (in their previous term in office) over a period of 23 years. In other words, the current administration expended less than $500 billion within a five-year period during their previous term in office, while the previous administration expended more than twice the amount to reach about $1.5 trillion in five years, or three times more than the current government.
The Bank of Guyana’s International Reserves stood at US$595 million which represented almost five months’ worth of import-cover in reserves at the end of 2014. By the end of February 2020, the reserves stood at US$548 million, but was equivalent to less than 2.5 months’ worth of import-cover – thus an indicator of a weaker position from almost five months equivalent in 2014.
The non-oil economy shrunk by US$840 million/G$182 billion cumulatively for the period 2015 – 2019 relative to the corresponding period 2010 – 2015, on account of bad economic policies and management of the economy by the former finance minister.
Not only did the former minister of finance, and by extension the previous government, engage in reckless spending; the evidence would show that there was huge misallocation of resources which resulted in the underperformance of the country’s many productive sectors. The former minister’s philosophy in administering fiscal policy was one that was contractionary rather than expansionary and devoid of any transformative developmental trajectory of the country. In this regard, from examining the economic data for the period 2010 – 2014, capital expenditure accounted for more than 30 per cent of government’s total expenditure. During the period 2015–2019 on the other hand, capital expenditure declined from a high of 35 per cent of total expenditure to as low as 23 per cent of total expenditure. Thus, more monies were expended on unproductive activities which resulted in excessive wastage of public funds – many of which are being uncovered almost on a daily basis.
Had it not been for oil discovery in 2015, today the economy would have been in serious trouble, especially since the Bank of Guyana (BoG) has been struggling to meet its international reserve target or three months of import-cover since the last quarter of 2017. This is in fact the main reason why it has had to sell off its gold reserves and has been buying up foreign exchange (FX) from the private FX market (commercial banks) since 2017. The BoG has had cause to buy up about US$300M to prop up its reserves.
Fortunately, the FX in the commercial banks has not been depleted and that is largely because of oil-and-gas-related activities, where there is a continuous inflow of FX coming into the system, and it is helping to maintain some stability. Bearing in mind that the BoG has never had cause over the last 10 years or so, prior to 2017, to buy up FX from the commercial banks. It has in fact always enjoyed a net sales position to the commercial banks.
Overall, the non-oil economy shrunk by $182 billion (US$840 million) cumulatively for the period 2015 – 2020, while the total losses in exports (except gold & other exports), public investments and private consumption combined, amounted to a whopping $647 billion or US$3 billion – when compared to the period 2010 – 2014. (To be continued)

Yours sincerely,
Joel Bhagwandin

Financial Analyst

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