Revamping the economy

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August 9, 2020 The Economy & Finance, Article No. 31/2020

Revamping the economy

This column wishes to extend sincere congratulations to His Excellency, Dr. Mohamed Irfaan Ali, the 9th President of the Cooperative Republic of Guyana, Vice President, Dr. Bharat Jagdeo, and all the Honourable Ministers of the new Government. The new regime has a humungous task ahead of it to address the impacts of the COVID-19 pandemic, focus on an economic recovery plan and nation building – for a country that is badly wounded for the last one and a half years. I must commend your Government and yourself for the hands-on approach immediately upon swearing in to combat this national issue with urgency. Whether fortunately or unfortunately, the new Government has once again inherited a broken economy and virtually bankrupt, similar case in 1992, and in the midst of a global pandemic. This is no doubt a challenging task ahead and at the same time, it is imperative that the Government work assiduously on a carefully designed plan, linked to the national budget – to advance a swift recovery of the economy within six months. Contrary to the views of a few economists where it is believed that Guyana will take years to recover, the economy can rebound in six months because Guyana is not a tourism driven economy. Guyana has a thriving manufacturing sector, and is a commodity producing economy. The Government has also entered office with tremendous goodwill and the support of almost the entire world, and therefore, with the swearing in and peaceful transition that is taking place, Guyana is instantly back on the path of political stability and investors’ confidence will soon skyrocket. As such, in order to turnaround the economy in a six months period, there needs to be injection of significant capital in the economy and swiftly – both public and private capital, and of course, foreign direct investment.

In view of the forgoing, the following recommendations outlined below can be considered in the crafting of the 2020 national budget:
  • Opportunities to rebuild the economy should start with food security. It is uncertain when the pandemic will be over but, in such times of difficulty, the growing demand for food in the region presents opportunity to scale up the country’s productive capacity and channel the appropriate investments in this sector;
  • On the fiscal side, the opportunity to negotiate debt forgiveness and restructuring to create the much-needed fiscal space to facilitate the rebuilding of the economy – ought to be of paramount recognition and importance;
  • The current economic situation has also necessitated the need for creative solutions to support Small and Medium Sized Enterprises (SMEs) and the impact on the labor market to avert a severe social and humanitarian crisis. To this end, the Bankers Association through collaborative efforts with the Small Business Bureau (SBB), the central bank, Ministry of Finance and the Ministry of Business can consider the establishment of a $20 billion COVID-19 FUND to administer these relief and support measures. The banking sector has well over $150 billion liquid assets that can be utilized to partially finance and manage and administer the said Fund;
  • However, an evaluation criterion will have to be established, and the Fund backed by Government support, inter alia, Government guarantee of the Fund. The Small Business Bureau (SBB) for example, operates a US$5 million revolving Fund administered through the commercial banks. This fund can be re-calibrated towards support measures to keep SMEs going concerns throughout this COVID-19 period and to keep employees on their payroll;
  • Other unemployment support for persons directly affected due to COVID -19 responses can also be administered through the National Insurance Scheme. In fact, the Governing Structing of this fund should include the NIS, SBB, Bankers Association, Bank of Guyana, Ministry of Finance and Ministry of Business.
The proposed sum of $20 billion for the COVID-19 relief Fund is premised on the hereunder mentioned analysis:
  • Based on the level of household non-performing loans in the banking sector which accounts for about 17% of total households in Guyana of 250,000, this would give rise to approximately 42,476 households that are on the poverty line. We can safely presume, therefore, that about 25% or 62,500 households would need financial support as a result of loss of income due to COVID-19. Therefore, if we are looking at a six months’ recovery plan, these households can benefit from a monthly voucher of $40,000 per household which will amount $15 billion in a cash relief support, over a six months period.
  • The other $5 billion can be utilized for the support of SMEs. SMEs, however, would require retooling, business continuity planning and crisis management training and technical support to build resilience and ensure their continued survivability. This kind of technical support through this recovery period can be provided by JB Consultancy. As the Principal Consultant, I will be more than willing to partner with the Government in this regard.
  • For companies on the other hand that require relief or support in some form, this can be administered, for example by granting a six months waiver from taxes which will cost the government about $20 billion in tax revenues.
  • Finally, simultaneously with the above relief measures, the Government also needs to allocate resources in capital projects, for example construction projects, drawing from its manifesto, housing development project as well, which in turn, would help with the six months turnaround plan – together with an anticipated foreign direct investment.
  • This also means that the Guyana Office for Investment (GOINVEST) will have to look at ways to fast track the application process for tax incentives for investments.
About the Author:
  1. Bhagwandin is a macro-finance and research analyst, lecturer and business & financial consultant. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to jbbankingadvice@gmail.com.