The Best of the Ram and McRae Budget Focus 2015

The Best of the Ram and McRae Budget Focus 2015

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No one can analyse the budget like Ram and McRae…institutional knowledge stretching back 25 years, awesome graphs and criticism based on principles of transparency and accountability. It’s a long read so we have picked out the best of this year’s edition….For the whole report go to this link

 

Surprise Budget from Unlikeliest Minister 

This is the first Budget of the Granger Administration, the first for the Eleventh Parliament and the first for
Mr. Winston Jordan, perhaps the unlikeliest Finance Minister ever in post-Independence Guyana. A sound
economist and technician, Mr. Jordan was plucked out of semi-retirement and appointed to the post when
everyone thought former Finance Minister Carl Greenidge would be a shoo-in,

But Jordan captaining NICIL is not Cricket 

Our main beef with the Minister is his being designated Chairman of the much-maligned NICIL and equally seriously, Chairman of the Bureau of Statistics, making him lead batsman and scorer. This is simply not cricket.

Banks enjoy minimum 9% interest spread  

There was a slight increase in the 91-day Treasury bill rate to 1.67% while the rate of interest on savings
declined from 1.33% to 1.26%. The weighted average lending rate decreased by 0.30% to 10.86% still
reflecting the wide spread which fuels the profitability of the banking sector. Most borrowers pay rates that
are higher than the weighted average lending rate while the banks’ effective borrowing rate is lower than
the savings rate as most demand deposit accounts earn no interest. Despite the spread, both loans and
deposits have continued an upward trajectory.

Need to speed up digital financial legislation  

The Minister in his Speech referred to legislation for electronic transactions, electronic commerce, digital
signatures, and data protection which will be enacted by 2020! It is strange that in an age of e-commerce that Guyana is targeting five years to have such legislation completed. Commercial banks for example have
already rolled out electronic banking while local vendors are already allowing purchases to be made from
their website. Such legislation ought to be accelerated.

Four years later for Census results 

Proposals to improvement at the Bureau of Statistics are welcome but the planned release of the final
report from the 2012 Census in the second quarter of 2016 warrants review.

 

Current expenditure increased as capital expenditure has shrunk 

Since 2002 interest expenditure has been declining slightly and has been reasonably flat over the past four
years as a result of the debt forgiveness and various restructurings that we have been beneficiaries of.
During the same period capital expenditure showed steady increases until declining relatively sharply in
2007, then inexplicably climbing steadily from 2008 through 2012 at the height of the world financial crisis.
From 2012 on there has been a steady and consistent contraction in capital expenditure reflecting the low
level of investment that the country has been able to attract. On the other hand current non-interest
expenditure fuelled by deficit spending has had a steeply and unsustainable upward trajectory.

Change at GRA must be managed 

While the government’s plan relies heavily on tax revenues, the Minister expressed some very strong
concerns regarding the independence, integrity and structure of the Authority. Indeed even as the Budget
was being presented a large number of senior staff were on leave. Tax expertise is only acquired after
several years of training and experience. While the government may have good cause for significant change,
it must make sure that the change process itself is properly managed.

$347M on a road to nowhere?  

Expenditure of $347 million is allocated for the construction of Amaila Falls Access Road. We are unsure of the reason for this allocation since it appears that the hydroelectric project will be abandoned. In fact, the Minister in his Budget Speech reported that “…it would not only be irresponsible, but a downright criminal act of deception, were we to proceed with the Amaila Falls”.

Bloated Gecom still cant deliver timely results 

The Budget Speech does not mention the Guyana Elections Commission (GECOM) but the rising cost for the administration of elections is extremely troubling. Guyana now ranks among the countries with the most expensive elections yet GECOM is unable to: (a) deliver timely results of elections (b) make recommendations on campaign financing (c) weed out ineligible candidates  (d) offer reassurance of local government elections Incredibly the 2015 current expense allocation for GECOM at $5.547 billion is more than 125% of the current expenditure of the Ministry of Public Infrastructure and 69% of the budget of the Guyana Police Force.

Toshao concessions open to abuse 

We are concerned that such measures are very susceptible to abuse and corruption. For example, the measures to target Toshaos will not necessarily help the entire community if the Toshaos engage in exploitative practices. A better option would be to grant any concessions to vehicle(s) owned by the community and used by the Toshaos for official business. To overcome some of the dangers the Government should put in place objective measures to regulate the granting and oversight of the concessions.

Shrimp export allowance may be anti-WTO

Substitution of the word “shrimp” with the word “prawns”. This amendment removes the export allowance on prawns and by implication allows it for shrimp. This could become a definitional issue revolving around size. There is a view that this whole business of export allowance is Anti-World Trade Organisation, the reason for its abandonment by Trinidad & Tobago several years ago. We also wonder whether this was the only area warranting review given that the Schedule was last amended in 1997.

 

Removal of VAT on local food products may violate CSME  

We are concerned about the tag ‘locally produced’ on any item given the decision last year by the Caribbean Court of Justice in respect of Community sourced products

Tax concessions to miners/largest tax evaders  

It is our view however that concessions are not a permanent answer to volatility in commodity prices. Would the miners be prepared for the Government to reverse its position if the price for Gold recovers? Additionally, gold miners are suspected to be some of the largest tax evaders in the country and issues such as smuggling, illegal immigration and trafficking in persons carry a serious cost.

Pension increase ranges from 3% to 30% 

The gross increase in the OAP represents an increase of 30% over 2014 if the GPL and GWI subsidies are ignored. However when the full extent of the measures is considered the real increase is 2.9% to those who currently benefit from both the electricity and water subsidies. We understand that less than one in three pensioners benefit from the subsidies so the number of persons who will benefit from the 30% increase is considerably greater than those who will receive the more modest increase.

Largest Salary increase is effectively 13.3%

By some quirk of administration, only persons in the public service prior to 2014 were in receipt of the 2014 minimum wage of $42,703 per month. Those who joined later received the 2013 minimum wage. Accordingly, the annualised increase for persons in these two groups is 26.4% and 17.1% but since the increase only takes effect from July 1, the effective 2015 increase is 13.3% and 8.85%.

The Chang term limit ruling 

And we would have liked the Court to address the question by examining how the USA which has term limits and birth requirements is less democratic than Guyana whose Court has ruled that alterations to introduce those very measures are unconstitutional.

Why the ministry change up?

Ram & McRae is not convinced that the restructuring was necessary, desirable or beneficial. The concentration of power in the Ministry of the Presidency controlled by two former soldier colleagues needs greater justification. There was no discussion or consultation and this structure is unlikely to be adopted by any succeeding PPP/C Administration. Guyana can ill-afford twenty-six ministers with all the perks that go with the office. For us, it is a restructuring that went too far.

Harmon unduly burdened 

Compare this with the Minister of State within the Ministry of the Presidency. There are three pages of
functions and responsibilities including Cabinet Matters, Defence, National Security, Land Titling, Energy,
Natural Resources, Forestry, the Public Service, Citizenship, Climate Change, Births and Deaths, Science and
Technology and Scholarships. It is unreasonable to impose such responsibility on any single individual,
regardless of how many support staff or junior Ministers are assigned to the holder.

Agri ministry mystery 

Some ministries have as many as three ministers while the mega-Ministry of Agriculture has a mere one.

Zero legislation for the possible oil boom

For instance what legislation currently in effect deals with the question of oil rigs and their monitoring or
workers based on oil rigs? Is there regulatory infrastructure to address oil spills, gas flares and the effluent
and waste discharges from oil drilling?

Ministers or media hounds? 

Another problem is the apparent obsession of several of the Ministers, no doubt due to their inexperience, with the media and their photographs. It is as though they are trying to outdo each other. Work is not about Focus Guyana’s National Budget 2015 Ram & McRae 52 August 2015 Chartered Accountants being photographed for the media but the hard slog of briefing themselves about the law, the regulations and the objectives and challenges of their respective Ministries and ultimately getting things done.

Contract employee numbers/wage bill still rising

Having made all allowances for the reorganisation of the ministries, we note that the number of contract employees under the new Administration will increase in 2015 over the already huge numbers in 2014.
The increase is not great – 3,671 over 3,628. But they point in the wrong direction. What is troubling
however, is that employment cost for contract employees is projected to increase year on year by 15%. For
public sector wages as a whole the increase is only 11%. In other words, contract employees are receiving a
larger share of the pie.”

A Conditional Thumbs Up 

Having regard to all the challenges facing the economy, the resources at the Minister’s disposal and the fact that a Budget always is a choice from several and often competing objectives, Ram & McRae is in the camp of those who have endorsed this Budget

 

 

 

 

 

 

 

 

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