Monday, November 30, 2009

Economy firewall malfunctions

Economy firewall malfunctions

Posted By Christopher Ram On November 29, 2009 @ 5:11 am In Features, Sunday | 1 Comment
Business Page

Business Page is dedicated to providing objective information and opinion on issues of interest to the business community and the public at large. The articles in Business Page are prepared and contributed by Christopher Ram who is the Managing Partner of Ram & McRae, Chartered Accountants, Professional Service Firm. This and previous columns can be found at [1]
Part 2


During the past week, I received the Bank of Guyana (BOG) Report for the first half of 2009 which the bank is required under the law to submit to the Minister of Finance. As usual the report is comprehensive, contains valuable economic data, is very professionally written and therefore considered generally quite reliable. I will take into account the contents of that report as I continue my review of the 2009 mid-year report of the Minister of Finance, but before doing so, let me draw attention to certain matters touched on last week that are also addressed in the BOG report.
Christopher Ram [2]

Christopher Ram

The first and perhaps the most important relates to performance of the economy in the first six months of the year. The Minister of Finance reported in unambiguous terms that the economy declined in 2009 by 1.4%, supporting this in Appendix A1 of his report, sourced to the Bureau of Statistics. The Bank of Guyana on the other hand, reports, both in narrative form and in a graph, a positive growth of an identical percentage and projects that the economy will “continue to grow during the second half of the year.”

There is an obvious conflict between the numbers and it is disappointing that the Minister of Finance did not detect the discrepancy on such a fundamental matter, given that the BOG’s half-year report is submitted to him. This failure suggests either gross carelessness, or, heaven forbid, that the Minister did not read the BOG report, both of which would be sad indeed. The country would no doubt expect a clarification from one or both of the parties responsible for these reports.

Another issue is the different approaches to inflation. While the BOG uses the identical percentage of 1.3% reported by the Minister of Finance, its report describes the inflation number specifically as the Georgetown Urban Consumer Price Index which is obviously different from a national inflation rate. The Minister of Finance on the other hand, was not as specific and importantly, gave only an estimate of inflation, inevitably inviting speculation about the margin of error.

In last week’s column, there was a comment that sugar was becoming the scapegoat for the poor performance of the economy with its field workers being increasingly blamed not only for the industry’s, but also the country’s economic woes. The BOG report offers some perspective. While the number of work stoppages increased by 22.9% to 102 from 83 in the corresponding period last year, the number of man days lost was only 18,785 compared with 33,389 in half-year 2008, a 44% drop in production days lost.

The BOG also informs us that exports to the European Union accounted for 97.5% of Guysuco’s exports, up from 91.7% in 2008. For all the noise that the President made about the EPA and its adverse effects on sugar prices, our dependence on the EU market in 2009 was practically total, despite the corporation’s attempt at market diversification. It would seem unfair to place that at the feet of the field workers.


When the 2009 National Budget was presented earlier this year it was followed by the usual chorus of the biggest budget ever, no consideration given to the absorptive capacity of the economy. Business Page of November 16 last year in commenting on the expenditure side of the 2008 mid-year report, noted that it was “a matter of speculation why only 38% of the full year budget has been expended on what a table in the report described as key sectors.” That column went on to draw attention to the Health, Infrastructure and Agriculture sectors where only 41%, 27% and 33% respectively, had been spent in the first half of the year and asked whether the country was “going to see a mad and irresponsible rush to spend during the second half of the year, simply because the money has been allocated.” That indeed is what appears to have taken place in 2008.

Mid-year expenditure of Key Sectors – G$ million

20091129table [3]

Source: Mid Year Report 2009
Note: H1 refers to the first six months.

As the table above shows, we are faced with a very similar situation in 2009, even as the number of sectors identified as “key” is reduced from nine in 2008 to five in 2009. Those excluded this year are Culture, Office of the President, Public Service Ministry and Social Welfare for which billions were allocated in the 2009 Budget. The Minister’s report did not indicate why he considered that these were no longer “key” and his discussion was therefore more than limited in this regard. In 2008 the expenditure on the Minister’s key sectors in 2008 accounted for 37% of the full-year budget allocation, compared with 34.6% this year. Yet, the Minister did not think it necessary to make any significant adjustment to the full-year projections, in fact marginally increasing the total non-interest budget expenses for the full year. If technical and administrative skills are regarded as critical to delivering on the 2009 Budget programmes, it is difficult to see how those programmes could be achieved given that there is no greater implementation capacity in the second half 2009 than in the first half.

Many of the numbers speak for themselves but with all the contracts being awarded, the almost daily appearances in the press of some of the ministers and the extent to which we have committed the country to borrowings, it is difficult to understand the low spending on these sectors, particularly given that several line items are of a fixed and constant nature. To put the figures in context, it means that Agriculture would have to spend in the current half of 2009 four dollars for every dollar spent in the first half. The same applies to Infrastructure, while for Education and Housing and Water it is a more modest $1.5 for every dollar.

The drug bonanza

Health is interesting. Successive annual reports from the Audit Office remind us that cabinet has hand-picked for unlawful but very lucrative, multi-billion procurement contracts to supply the government with drugs and medical supplies, one of the companies of the Ramroop Group, with which President Jagdeo announced he has a friendly relationship and for which new tax concession laws were passed in 2008. As if the selection by the President’s cabinet were not enough, the government makes up-front payment on those contracts. Perhaps not surprisingly therefore, of the $2.5 billion budgeted for Drugs and Medical Supplies, 66.5 % was spent in the first six months of the year, up from 53% for the corresponding period in 2008.

With this kind of abuse, the government ought not to be surprised that Guyana is ranked at 126 among 180 countries listed in the Transparency International (TI) Report, along with seven other countries that include war-ravaged countries such as Eritrea, Ethiopia, Honduras, Mozambique and Uganda. The government’s protestations about TI’s methodology would have credibility and resonance if the country was convinced that it had any interest in halting the abuses attendant on the procurement of drugs and other products and services and the Lotto funds, pursuing those who contribute to its party while engaging in the worst forms of corruption of revenue officers, keeping its promise on a Freedom of Information Act and observing good governance and the rule of law in all their forms and manifestations.

With corruption and the absence of any culture of accountability and transparency in religion, the trade union movement, civil society, the private and NGO sectors, the political parties, sports, in national and local government – in short in every area of life – many Guyanese find it hard to believe that there are countries more corrupt than Guyana. The fact is, however, that there are and we need to ensure that we do not slip further to the bottom. Like the rotting of the fish, the disintegration from corruption begins at the head.

Bloating the public sector

Another interesting line item is what is referred to in Appendix E4 to the Mid-year Report as Contracted Employees. There too we have spending very much on track as the government selectively employs more and more persons at the public expense. The 2009 Budget allocation for wages and salaries of contracted employees is $3.2 billion which the Minister projects will be exceeded, no doubt because more than 50% has already been spent in the first six months of the year. The Office of the President in particular now has a number of advisers and consultants, some of whose designations and functions are by no means clear, and who seem to be paid either for their past service to the party or to do political work on behalf of the party. The contracted employees do not come cheap. Some of them are paid in real currency, have 24-hour security, chauffeur, administrative support, enjoy valuable tax and duty concessions – all paid for by the poor taxpayers or financed by the donors who seem to be salivating at the prospect of giving to a poor country.

How much of the further $2.2 billion dollars in benefits and allowances goes to the contracted employees is not determinable but what is interesting is that the wages and salaries of the contracted employees exceeds that of the total administrative staff of the central government by more than 15%. And it is because of these contracted employees including permanent secretaries, many politically appointed, that the Public Service Commission is becoming increasingly sidelined and irrelevant. Is it because of the chauffeur-driven and state-provided vehicles that the Public Service Ministry has not seen it fit or necessary to revise the 1995 rates of travel allowances paid to public officers, many of them lower level operatives not important to the new order governing public finances in the country?

To be continued
1 Comment (Open | Close)

1 Comment To "Economy firewall malfunctions"

#1 Comment By tkhemraj On November 29, 2009 @ 10:19 am

Mr Ram,

I will make sure I save these columns for history. You have done a remarkable job to show how the PPP has exceeded PNC level corruption. Well done!

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