By Jainarine Deonauth
Although the International Monetary Fund (IMF) has revised Guyana’s Gross Domestic Product (GDP) growth estimate down twice – first from 85.6 to 52.8 percent and now to 26.2 percent – it is still considered to be “a remarkable growth figure and the only positive one among the 26 Latin American and Caribbean countries”.
This is according to a new report by the Inter-American Development Bank (IDB) which recently carried out a detailed analysis of the economies of Guyana, Jamaica, Barbados, The Bahamas, Suriname and Trinidad and Tobago amid the huge negative impact of the coronavirus pandemic.
The report – “A Pandemic Surge and Evolving Policy Responses” – is part of the Quarterly Bulletin Series put together by the economics team of the Caribbean Department of the IDB. According to the IDB, it comes at a time when COVID-19 cases are rising worldwide and in most Caribbean countries, negatively impacting the tourism industry just as it enters its peak season.
The study highlights that in the medium term, Guyana’s GDP growth is expected to average 14.9 percent over 2020 – 2025. While oil production is driving these growth figures, the authorities estimate that non-oil GDP contracted by 4.9 percent in the first half of 2020 and is projected to fall between 1.4 and 4.3 percent in the full year.
The report explains that the pandemic has had varied outcomes on different sectors of the non-oil economy.
The largest productive sector of the economy, agriculture, suffered a contraction of 4.1 percent in the first half of 2020. However, rice production is expected to expand by around 3 percent in 2020, which would contribute to mitigating the contraction in agriculture, the study points out.
I relation to the mining industry; Guyana’s second largest sector with 14.9 percent of GDP (and which now includes oil production), expanded by 343.7 percent in the first semester, after oil production began in December 2019.
The report outlines that gold production, representing almost 10 percent of GDP, grew by 2.1 percent in the first half of the year, bolstered by historically high prices of gold.
According to the study, the services sector, which makes up 45 percent of the economy, is potentially the most exposed sector to social distancing policies. This sector declined by 3.8 percent the first half of the year, with wholesale and retail trade falling by 14.7 percent, transportation and storage by 25 percent, and accommodations and food services by 32.9 percent.
The construction sector, which had been growing at relatively high rates prior to the pandemic, fell by 5.6 percent, the report explains.
The report notes that as GDP per capita is relatively low, poverty rates in Guyana are relatively high and suggest important regional disparities.
“Guyana’s GDP per capita increased from approximately US$950 in 1990 to US$6,600 in 2019, moving up from 20th to 13th out of 26 countries in the region. The poverty rate in Guyana declined from 43.2 percent in 1992 to 36.1 percent in 2006, the last year of available data from household surveys”.
The report further explains that the poverty data captures large disparities within Guyana. It points to the 2012 census, which shows that approximately 89 percent of the population lives in the administrative regions along the coast, which includes the capital city of Georgetown, with approximately 26 percent of the population. The remaining 11 percent of the population resides in the rural interior, also known as the hinterland. The urban coastal areas have generally had lower levels of poverty ranging between 27 percent in 1992 and 35 percent in 2017,
However, the report highlights that while rural coastal areas have levels of poverty similar to the national levels. The rural interior areas recorded poverty rates greater than 70 percent in 1992 and 2006 and 55 percent in 2017. “This is indicative of regional disparities, but it also suggests important ethnic disparities, since about 65 percent of the population in hinterland areas is indigenous”.
“In this context, the Government of Guyana has several social protection programs to support vulnerable populations, including both contributory and non – contributory social assistance programsn,” the report states.
In relation to the country’s response to the pandemic, the authorities have introduced additional tax policy measures and extended flexibility in the financial sector, support to the health sector, and relief to vulnerable households.
“With respect to the fiscal response, the new Government introduced a series of tax measures to provide relief and support to the private sector. The main policy developments include the removal of the 14 percent value – added tax (VAT) on electricity and water, medical supplies, building and construction materials, inputs for the poultry sector, domestic travel, and mobile phones.
“In addition, both the VAT and import duties were removed for machinery and equipment in sectors such as mining, forestry, agriculture, and manufacturing. The auuthorities estimate these measures will generate savings of approximately US$96 million (G$20 billion) for the private sector.
“Additionally, the government announced the allocation of US$21.6 million (G$.5 billion) to support household welfare with cash transfers of US$120 (G$25,000) per household.
Meanwhile, in the face of rising COVID-19 cases, the IDB has suggested that Caribbean economies will need more aggressive fiscal actions to protect their productive assets and invest in ways that ensure more sustainable growth in the future.
While fiscal space is a constraint, as a nascent economic recovery emerges additional resources should be channeled to high-productivity infrastructure products to further stimulate growth, the study notes.
“Countries will need to use sophisticated tools that look at closure or reopening of their economies with decisions based on susceptible, infected and recovered models, both at source and destination countries,” said David Rosenblatt, regional country economist for the Caribbean at the IDB
Looking ahead, Caribbean economies face a challenging peak tourist season with double digit contractions, plus commodity shocks on non-tourist economies of Trinidad and Tobago and Guyana, though Suriname and Guyana will see a boost from high prices for gold. Early tourism booking data suggest sharp declines for Jamaica, The Bahamas and Barbados.
“A well-designed public investment program can help stimulate a lasting economic recovery, and several governments are already considering the options,” said Henry Mooney, the Research Economics Advisor for the Caribbean department.
