…Contingency Fund abused; economy left in disaster
Settling into his office, Finance Minister Dr Ashni Singh has a momentous task before him as he contended that the former Government spent $1.2 trillion in the last five years and left the economy in disaster, an abused Contingency Fund and US$400 million in new external debt.
In one of a series of statements he sent out on Saturday, Dr Singh explained that from 2015 to 2019, the former Government overburdened the population with taxation and collected revenues totalling $992 billion and then proceeded to squander $1.2 trillion.
“Despite this huge revenue collection, the then Government utilised these funds in an unproductive manner through wasteful and inefficient Government expenditure with total Government spending amounting to $1.2 trillion Guyana dollars. After accounting for grants received, the aggregate fiscal deficit of the central Government amounted to $130 billion over the five-year period,” Singh said.
Singh explained that when the People’s Progressive Party entered office, it was to find the economy in a state of disaster. He noted that the economy went through a challenging period over the last five years and this has manifested itself in a number of areas, including very modest, sluggish growth.
“At a time when oil production was imminent, we should have seen much more rapid growth given all of the investments that have been coming on stream in preparation for oil production. A large part of this was due to the political environment,” Dr Singh explained.
“For the last two years the country was in a situation where a No-Confidence Motion (NCM) had been passed in December 2018 but was not being respected with the constitutionally stipulated election that should have come within three months of an NCM and that effectively created a political environment that was severely harmful,” he said adding that there was limited economic activity with both investor and consumer confidence drying up.
Minister Singh lamented that things got even worse during the period between March 2, 2020, to August 2020, when the political environment deteriorated even more dramatically bringing the economy to an effective standstill.
When it comes to external debt, the Minister revealed that the previous Government contracted new external debt of US$400 million during their five years in office. In the domestic financing category, Singh pointed out that when the PPP/C demitted office in 2015, Government had left a net deposit at the Central Bank of $16 billion.
After five years of economic mismanagement by the previous Government, the new Government is now burdened with a net overdraft of $93 billion at the Central Bank… a situation highlighted by the International Monetary Fund (IMF).
He added that if this overdraft is counted as domestic debt, this would result in an effective breach of the domestic debt ceiling. In addition, Government is also currently saddled with the $30 billion NICIL bond of which $17 billion has been drawn down, and a staggering $12 billion owed to the Guyana Power and Light (GPL) by Government entities, including $7 billion owed to the utility by the Guyana Water Incorporated (GWI).
Contingency Fund
Dr Singh also revealed that despite being a caretaker Government, the former A Partnership for National Unity/Alliance For Change (APNU/AFC) coalition abused the Contingency Fund, withdrawing large sums long after losing the No-Confidence Motion, and leaving a total of $4.2 billion of uncleared Contingency Fund advances.
“Much to our astonishment and during the latter part of 2019… after the Caribbean Court of Justice’s (CCJ) ruling in June 2019….no less than $4.2 billion dollars was drawn from the Contingency Fund to meet a variety of expenditure that had not been budgeted for,” he explained.
The Finance Minister reminded that despite an impending election and the fact that they were in caretaker mode, the former Government nevertheless dipped into the Contingency Fund to draw down $4.2 Billion from July 2019 onwards until as late as December 2019.
“Ironically, the Government had boasted the previous year that they had not used the Contingencies Fund in two years, 2017 and 2018, and it appeared to have been a matter of great pride to them…yet in the second half of 2019 when they were clearly in caretaker mode, they appeared to have no reservations about turning to the Contingencies Fund and drawing down no less than $4.2 billion,” he stated.
Déjà vu
Reflecting on the terrible state of the country’s economy in 1992 when the People’s Progressive Party/Civic (PPP/C) Administration entered office, and its track record of sound and responsible economic management, Dr Singh described the current situation as déjà vu.
“In some sense, I feel as though we are almost in déjà vu…because those of us who are old enough would recall we also inherited a country in which the economy was in disarray with unsustainable levels of debt which then had to be restructured and the public finances had to be literally rebuilt from scratch.”
According to Singh, however, the PPP has the track record for sound and responsible economic management and for policies that create an environment that is conducive and attractive to investment.
The senior Finance Minister noted that one simply has to look at what was achieved during the period 1992-2015 to remember when the country was returned from the brink of bankruptcy to a state where it was clearly on a path to prosperity.
“Notwithstanding the gloomy state of affairs that has been inherited, we have set about in earnest immediately, to turn the situation around on a number of fronts: First of all, a non-negotiable pre-requisite for an attractive investment environment is democracy and respect for the rule of law. No international investor will come to a country that does not respect democracy,” Minister Singh emphasised.
