The Opposition’s Budget Debate incoherent and contradictory

Dear Editor, Having listened to the recently concluded policy debate on budget 2023 in the National Assembly, the Parliamentary Opposition’s contribution was found to be incoherent and contradictory, specifically, on the macroeconomic and public finance matters.

The Opposition Leader in his closing debate proposed several alternative policies and initiatives. These alternatives included a number of initiatives that the Government is already pursuing (he just presented it in a different form), for example, community development initiatives. This is already being pursued by the Government and provisions are made in the 2023 budget for community development across the country.

The Opposition Leader also advocated for a 50 per cent increase in wages and salaries in public services. In this respect, it should be pointed out that the total employment cost for the public sector from FY 2020 when the Government assumed office to FY 2023; with the budgeted amount for employment cost in budget 2023, a cumulative increase of $33.9 billion or 47.13 per cent is reflected. This rate of increase in just three years is due to the incremental increases together with the salary adjustments for the various categories of public service workers. At this rate and trend, it is safe to deduce, henceforth, that by 2025, cumulative salary increases for public servants will surpass 50 per cent in the five-year period.

Other Opposition Members of Parliament (MPs) argued that the

Central Government’s fiscal deficit is indicative of a crisis in the making and that the Government is borrowing excessively to service other debt. On the other hand, the Opposition’s proposal, if considered would result in almost doubling the size of the current expenditure side of the budget, reducing the capital side of the budget (to finance the current expenditure), which in turn would delay critical capital investments to expand and diversify the economy that will generate long term revenue. Noteworthily, borrowing excessively (which is what the Opposition is proposing) to finance current expenditures is unsustainable and a recipe for bankruptcy. Further, even if the Opposition is suggesting that the Government use the Natural Resource Fund (NRF) to finance the current expenditure, this is also dangerous to the extent that when oil prices fall below a certain level, such an event would culminate into a spontaneous financial and economic disaster.

Some other key criticisms of the budget by the Opposition are as follows:

The budget does not sufficiently address the cost of living (COL), for example, the Opposition argued that less than 1 per cent of the budget is allocated for COL intervention (s).

The Opposition argued that the budget does not contain any poverty reduction mechanism or strategy.

The expansionary monetary policy stance of the Administration is inflationary. The Opposition also contended that the budget is heavily focused on infrastruc- ture and as such it is not a balanced budget in terms of providing adequate allocations for the social services sector and increase in public sector wages and salaries.

The impact of cost-ofliving measures on the budget

The budget contains several measures to combat the cost-of-living issue which is largely impacted by external factors within the global economy. To this end, the inflationary pressure is driven by two forces: (1) imported inflation attributable to the fact that Guyana imports more than 80 per cent of consumer goods, intermediate, and capital goods. This aspect of inflation is impacted by events in the global economy such as supply chain disruptions leading to cost-push inflation and demand-pull inflation. (2) Secondly, the inflationary impact within the domestic economy is also driven by strong domestic demand across all sectors as demonstrated by the vibrant double-digit growth in the overall economy and in the non-oil sectors.

The total estimated cost of the COL measures implemented by the Government in terms of direct cost to the treasury and foregone revenue to the treasury–is approximately $89 billion. This represents 11.3 per cent of the total budget, 28 per cent of current revenue, and 43 per cent of the NRF withdrawal to finance budget 2023. Effectively, the impact of these measures altogether would translate to about $404,545 on an annualised basis per household using a total estimated household of 220,000 as per the 2012 national census data.

Consequently, this is demonstrative of the effectiveness of the Government’s series of interventions to combat the COL and evidently, Guyana has managed to contain the COL impact on the domestic economy much better than most countries globally. To corroborate this, Guyana’s inflation rate remained in the single-digit range and is projected to slow below 5 per cent by the end of 2023, thus remaining below the global average. On the other hand, the average global inflation rate is above 7 per cent while noting that many other countries are experiencing double-digit inflation. To this end, the World Economic Forum reported that inflation rates have doubled in 35 of 44 advanced countries over the past two years.

Turkey had the highest inflation rate in the first quarter of 2022 at 54.8 per cent while inflation has grown the fastest in Israel, with a 25fold increase.

Expansionary monetary and fiscal policy and mitigating inflation

Indeed, the Government is pursuing an expansionary fiscal and monetary policy framework to facilitate the accelerated development trajectory of the economy. In theory, it is true that expansionary policies are inflationary. From all indications, however, the Government is mindful of this and has managed to contain inflation while preventing the economy from overheating. It is precisely for this reason that the Government has been careful to not significantly increase the current expenditure side of the budget.