IN a gradually contracting global economy where commodity-producing countries continue to record a crippling growth rate, the seven pillars of Guyana’s economy: sugar, rice, bauxite, gold, diamonds, timber and remittances have all suffered major setbacks for the first time in recent memory.This revelation was made by Minister of Finance Winston Jordan on Wednesday, during his address to participants at the opening of the 47th edition of the Annual Monetary Studies Conference hosted by the Bank of Guyana. These major setbacks, the minister said, are a result of Guyana not being spared the backlash of weakening global economic performance.
In 2014, commodity-producing economies recorded a weak growth rate of 2.5 per cent, which was a reduction from the 3.2 per cent achieved in 2013, partly due to the drastic drop in commodity prices in the latter part of 2014.
The Caribbean Region’s average performance in external accounts deteriorated, with the average deficit on the current account increasing from 8.6 per cent of GDP to 9.2 per cent between 2013 and 2014. Only Trinidad and Tobago, it was noted, had recorded a surplus of 4.8 percent of GDP in 2014.
But even in this case, the performance had deteriorated from a surplus of 7 per cent of GDP in 2013.
Additionally, in all other countries, deficits were recorded in 2014. The tourism-based economies of Jamaica, Barbados and the Eastern Caribbean Currency Union (ECCU), however, were able to reduce their deficits relative to 2013.
But despite this, the International Monetary Fund (IMF) estimates that the Region will grow by approximately 2.2 per cent in 2015, and improving to 2.4 per cent in 2016. And according to Minister Jordan, this marginal improvement is unlikely to be reflected in commodity-producing countries, the outlook of which is for generally slower growth relative to service-based economies.
However, as it is presently, with the existing conditions of the regional and global financial sectors, Minister Jordan revealed that for the first time in recent memory, the seven pillars that have been the foundation of the economy’s upbringing continue to suffer.
Remittances, which are considered the seventh pillar and account for more than 25 per cent of the country’s GDP, have also recorded a decline. “Remittances are critically important for poverty reduction across the Region and every effort must be made to ensure that the Region continues to have access to that flow,” he noted.
Remittances to Guyana amounted to US$415 million ($86,506,748,733) in 2013 – a $54 million decline from 2012 when the figure stood at over $97.8 billion, the Multilateral Investment Fund (MIF), a member of the Inter-American Development Bank (IDB) Group had said.
The figure also represents close to 17 per cent of the country’s Gross Domestic Product (GDP).
“Remittance flows to Latin America and the Caribbean remain an important source of income for millions of poor and vulnerable families,” said MIF General Manager Nancy Lee.
“Remittance recipients need more access to financial tools that will help them use remittances to save and make investments for their future in areas like education, housing, and starting and growing businesses.” In 2014, remittances amounted to US$438M.
But with 35 years of experience in the financial sector, Minister Jordan suggested that one of the most intractable problems which Guyana faces is the weakness of the country’s external accounts.
Offering what he described as the obvious solution to this mostly deteriorated performance in the Region, the minister expressed that persistent and sustained growth of the Region’s economies, while steadily reducing or managing macro-economic and financial vulnerabilities, is the key to addressing this issue.
An important area for action, Jordan opines, is the strengthening of the fiscal accounts which is key to rebalancing the external accounts. He reasoned that service-based economies should use lower commodity prices, in particular the very low fuel prices, to accelerate the fiscal-consolidation process with a view to improving debt sustainability.
And while commodity producers may have lower debt burdens, he says that lower commodity prices require a disciplined policy framework to shore up revenues and prevent similar sustainability issues from developing.
“The fiscal consolidation that this implies in some cases requires increasing the efficiency of government expenditure programmes to weed out waste, without compromising the level of services provided to citizens and businesses,” Minister Jordan said.
In other cases, however, it requires significant adjustment of expenditure priorities and enhanced revenue collection so as to increase the fiscal space for undertaking growth-inducing projects.

Additionally, stronger macro-prudential frameworks are necessary to remove the major drag on growth implied by high levels of non-performing loans, he noted.

But while the Finance Minister sees these policies as necessary, he suggested that it is not sufficient for the resumption of strong sustainable growth.

He noted that it also requires an improvement in competitiveness which implies a range of actions in connected areas, including the improvement of the business environment, increasing labour productivity and improving the quality of public infrastructure.

Finally, he opined that the legal and regulatory framework for financial risk assessment and mitigation, to deal with any financial vulnerability which can threaten the resumption of sustained growth in the Caribbean, must be strengthened. (Ravin Singh)