Thursday, August 6, 2009

Letter signed by Marissa Lowden, employee in the Office of the President

Guyana Chronicle Letter to the Editor, Thursday 06 August 2009 - "The challenge to sustain macroeconomic stability continues" -

ONE of the great achievements of Guyana is to acquire a stable macroeconomic environment which has stabilised price levels and exchange rates, control led fiscal deficit, reduced unemployment, and monitored the cost of borrowing money, enabled borrowing to be more attractive through a stable interest rate, and kept current balances within the balance of payments quite manageable.

And a country’s balance of payments shows the number of transactions between Guyana and overseas entities over a specified period. It is a record of all transactions between Guyana and the rest of the world. The government keeps track of the record of the actual transactions among countries, in order to know what is happening to their international trade.

The balance of payments is one of the macroeconomic fundamentals impacting economic and political stability through the country’s economic relationship with international trade.

At the end of 2008, Guyana recorded balance of payments of an overall surplus of US$7 million as opposed to a deficit of US$1.4 million in 2007.

Unfortunately last year, we saw higher import prices for the first half of the year, because of the rise in the cost of fuel and food, which led to a current account deficit of US$299.1 million, as against US$189.1 million in 2007.

Conversely, there were increases in export earnings, gold export earnings and rice export earnings, as shown in Table 1 below:

On the other hand, as a result of declining exports and the European price cuts, export receipts from sugar suffered an 11.2% decline to US$133.4 million.

Our imports also saw increases, as shown in Table 2 below:

Merchandise imports represent the freight values of goods acquired outside Guyana and it is valued in United States dollars ($US). Merchandise imports increased by 22.3% to US$1,300.2 million because of a 42.7% increase of imported fuel and lubricants. This eventually led to 18.3% increase in imports of non-fuel intermediate goods, a 17.2% increase in consumption goods, and a 9.1% increase in capital goods. However, for 2009, merchandise imports are projected to decline by 8.9% to US$1,184 million because of the reduction in fuel costs.

Net Current transfers are part of the balance of payments which stipulates the goods, services, income, or financial items provided and received by an economy without a quid pro quo. Our net current transfers inflated by 14.7% to US$328.8 million. On the other hand, worker remittances declined by 1.7%, but in-kind transfers increased.

Guyana’s outflow and inflow of financial securities are recorded in the Capital Account. In 2008, the capital account recorded a surplus of US$305.7 million as compared with US$168.7 million in 2007. This surplus was a result of a 78% increase in disbursements to the non-financial public sector of US$186.6 million at the end of 2008. Net private investments primarily occurred in the mining and telecommunications sectors, expanded to US$179.1 million

The current account shows the amount of goods and services transactions Guyana has had with foreign entities. The capital account improvements prevailed over the depreciation of the current account.

The external reserves of the Bank of Guyana increased to US$355.9 million as compared with US$312.5 million in 2007.

This year, expectations are that the overall balance of payments is expected to worsen to a deficit of US$13.9 million, while the current account should improve to US$288.7 million, as a result of lower oil imports. Should the current account attain a surplus, then the deficit will shrink.

The decline in gold, bauxite and rice export earnings is expected to be 18.8%, 12.5% and 3.7%, respectively. Private transfers will see a decline of 20.9% because of the reduction of worker remittances and in-kind transfers.

Because of the decline of foreign direct investments and capital transfers, the capital account will decline by 10.1% to a balance of US$278.4 million.

And for this reason, Government will continue to collaborate with the Bank of Guyana, so as to sustain the soundness of the country’s macroeconomic environment, despite the economic challenges posed by the global financial crisis. There are ongoing efforts to further stabilize price levels and exchange rates, control fiscal deficit, reduce unemployment, monitor the cost of borrowing money, and keep a lid on inflation.

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