Revised outlook even more threatening – former Minister

first_imgBalance of Payments…wider deficit expected if mining sector underperforms – economistWith the overall Balance of Payments (BoP) recording a deficit of US$139.8 million in the first half of 2018, compared to a deficit of US$46.0 million recorded in June 2017, former People’s Progressive Party (PPP) Government Minister Irfaan Ali has said this trend is becoming even more worrying.Ali, the finance spokesperson for the Opposition in Parliament, told Guyana Times that in order to finance this humongous deficit, the Government usurped US$110 million from the Bank of Guyana’s (BoG) Foreign Assets Reserve, tanking the reserve to a 10-year low of US$473.4 million.The overall Balance of Payments, by end 2018, is projected to record a total deficit of US$182.1 million. He said it is also important to note; the initial projection of the BoP deficit was set at US$79.7 million for 2018. In other words, we haveOpposition MP and former Minister Irfaan Alisurpassed that amount by 130 per cent within the first half of 2018.Moreover, the former Minister, noted that the current account deficit is expected to weaken to a deficit of US$366.3 million by end 2018, down from an initial projection of US$292 million.“In other words, the revised outlook for our Balance of Payments is even more ominous than initially anticipated,” he explained. According to him, this means there would be a greater need for more foreign exchange by end 2018 to cover Guyana’s import bills, something that may be difficult.Ali said another critical element of the BoP is factor services (net). And according to the report, net factor services is projected to record a higher than anticipated deficit of US$66 million, compared to US$11.5 million last year. This is mainly the outcome of lower investment income and higher interest payment.Widening deficitMeanwhile, economist Collin Constantine told Guyana Times also that based on the report, the widening BoP deficit is driven largely by higher import prices for fuel and lubricants. “When this is juxtaposed with lower export earnings in sugar and gold, we must expect a worsening of the external accounts,” he opined.Constantine reasoned that part of the widening deficit is also related to the recovery in the construction sector, a recovery in real estate increases the importation of capital goods. Further, the economist noted that the downsizing of the sugar industry will definitely have an adverse effect on the BoP balance.“It (sugar) served as a major source of foreign exchange earnings… since gold isEconomist Collin Constantineunderperforming a wider deficit is expected,” the economist added, while reiterating that projection is it will widen further.Despite this this, Constantine feels that the projected 3.7 per cent growth rate is achievable because as he explained, the wider BoP deficit is not driven by consumption but by intermediate imports, which are key inputs for production and therefore growth could be experienced.“I cannot speak to specific numbers but the expectation of a growth rebound seems plausible. However, construction recovery and so on will have an impact. We also have to see how gold performs for the remainder of the year,” he added.The Mid-Year Report warns that global risks, such as rising commodity prices, climate change and turbulent international trade relationships, do pose a threat to the stability and progress of Guyana’s economy. And it warned that increased importation will put a strain on the country’s foreign reserves.“Specifically, the issue of climate change, which brings with it unpredictable weather patterns, has the ability to adversely affect the agriculture and mining and quarrying sectors, and, consequently, restrict production. On the other hand, while commodity prices are expected to strengthen, in 2018, this will have mixed effects.”However, on the positive side, it states that rising prices offer favourable prospects for the exporting sectors – gold, rice, timber and aluminium. However, the increased importation of intermediate goods, especially fuel and lubricants, and consumption goods, could likely offset the gains from export earnings.This could put a strain on Guyana’s international reserves, reinforcing the urgency with which economic diversification and resilience.Balance of Payments is statistical data on a country’s fiscal transactions, including imports and exports. To therefore record a deficit, Guyana would have had to spend more on imports, among other things, that it derived from exports.According to the 2017 Macro-economic Report, Guyana’s overall Balance of Payments in the last fiscal year showed a deficit of US$69.5 million. This is a hike when compared to US$53.3 million the previous year.last_img read more