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April 4, 2021

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The government’s overdraft (negative balance) as at end February 2021 stood at G$139.7 billion. As at end 2020, the number was negative G$135.4 billion. The present government inherited a negative balance of G$92.8 billion in August 2020. One can think about this balance as the level of water in a bathtub. The water level increases in the tub when the inflow from the faucet is greater than the drain at the bottom of the tub. If the leak or outflow is larger than the inflow, the level of the water will fall.

Similarly, the government has its core account at the Bank of Guyana that it uses to make payments to other sectors of the economy, namely households and businesses in the private sector. The government, of course, cannot make payments to foreign nationals from this account since they would not accept the Guyana dollar as settlement. Foreigners will want US$, Euros or some other major world currency. Nevertheless, if there are excessive payments from the said account, there can a steep increase in demand for US$ and other hard currencies, as well as foreign goods. Excessive use of the account would cause scarce hard currencies to exit Guyana.

When the government puts in more money than it spends, the balance will increase like the water level in the tub. The fact that the balance is continually negative means that the inflows into the account are less than the outflows or leakages. The inflows and outflows are connected to the fiscal balance which we will define as revenues (taxation, etc.) minus expenditures (public sector wages and salaries, road construction, maintenance of buildings, financing of prior debt, etc.).

If in a given month a household spends more than its salary and other gains, then the household has a deficit that that must be financed by using previous savings, asking a relative for a cash gift and/or borrowing using credit card. Similarly, a government’s deficit must be financed each year by borrowing, seeking foreign grants, and/or using money from its account at the central bank (the BoG). In general, spending from the BoG account should not exceed the deficit. At least, according to accounting, economic and mathematical logic.

However, we are talking about Guyana where politicians across the divide have assumed control of every aspect of the society. Politics is contentious because of the objective to capture the government. Those who control government are able to steer goodies to agents – foreign and local – who finance election campaigns and to their respective solidified ethnic base. Of course, this patronage flow is not the whole story. The PPP/C government spends enormous amounts of money in communities outside its primary ethnic base in the hope of expanding future votes. On the other hand, the core partner, PNCR, in the APNU + AFC coalition, was not too willing to extend outside its ethnic base, except to a few business people who financed its election campaign. In a few columns, I will back this statement up with mind-blowing data.

There is just one task in today’s column: to point out a connection between the BoG overdraft and the government’s fiscal deficit.

The table at left below presents data from the official accounts that I pieced together. Various observers and myself in the past have shown the stock of money (the water level in the tub) in the account. However, for the purpose of this essay what matters is the change in the amount of money in the account from one year to the next (the flow of water draining out from the tub compared with the inflow).

As can be seen, in the years 2008, 2009 and 2010, the change in the account’s balance was positive, implying that the government was putting in more than it was taking out from the account. However, the change in the balance turned negative since 2011 when the PPP/C was in government. This means that more money was going out than flowing into the account. The year 2011 is pivotal in the post-1992 political economy of Guyana. The PPP/C lost the majority in Parliament but kept the presidency.

The table shows that the PPP/C cranked up the fiscal deficit from G$16.4 billion 2011 to G$34.9 in 2014. How did the then government finance this? It did so by expanding money creation more than debt sales (T-bills). Money can be created out of thin air when government spends from its account at the BoG, making it the most special bank account in the land. This is what monetary sovereignty means, albeit Guyana’s sovereignty is much narrower compared with say that of Japan or the United States. More of this in my forthcoming academic paper.

Important for our purpose, however, is the sturdy desire to regain the parliamentary majority would result in a significant amount of political patronage in this period. In a future column, I will provide some data to show on what items the PPP/C spent by generating money. In the year just before the 2015 election, the G$34.9 billion fiscal deficit was financed by money creation to the level of G$30.8 billion. This means that 88.3% of the deficit was financed by creating money from thin air.

As can be seen, the year 2015 is very interesting. First, the PPP/C lost government to a historic coalition under APNU + AFC. Second, and more interesting from my viewpoint, the deficit was smaller at $9.3 billion, possibly because of the disruption to the budgeting process. However, the spending did not stop. The government’s account moved into a deeper overdraft by an amount of G$23.7 billion. This is what I meant earlier by a violation of accounting, economic and mathematical logic. Is this a statistical error? Well, it happened again in 2018 under the APNU + AFC government when the overdraft of G$28.7 billion exceeded the fiscal deficit of G$26.8 billion.

Both 2015 and 2018 suggest that monies were created outside of the budgetary process and extended to political groups. Indeed, there were numerous reports of monies being paid to various groups who were not official employees of the government. Many were PYO, YSM and other party members. There was liberal contract employment under the early PPP/C government, but substantially more under APNU + AFC.  Finally, the year 2015 was also interesting because of the Grangerian D’Urban Park fiasco and the possibility that a few elements inside the PPP/C might have received a percentage of these funds as exit patronage.

Imagine how this narrow monetary privilege could be used if there was a more cohesive society. There would be no more homeless people, help with mental health will be available for those who need it, and pensioners would receive good care. However, these funds have disappeared and there is nothing to show, perhaps except a few fancy SUVs (that have to be imported) and homes in poorly drained neighbourhoods with lots of rum shops and noise, but without green places and space for physical activities. In closing, it will take several more essays to fully explore the angles. I hope you will stay tuned.

Comments can be sent to: tkhemraj@ncf.edu

Replies sorted oldest to newest

TK is at it again.  During Jagdeo's tenure, he wrote a paper every week denouncing the economic mastery of the Supreme Leader.

Now he is teaching us maths, not economics.

The PPP inherited G$92.8 billion negative balance from the Coalition Government.  At the end of Feb 2021 that negative balance went up to G$139.7.  What Dr. TK didn't mention was that the Interest alone on that debt went up to G$139.7.

The PPP has been spending and spending to better the lives of all Guyanese, only to be accused of mis-managing and stealing by anti-coolies. The aftro_Guyanese are so happy with the progressiveness of the PPP. There coolies oppose the PPP rebuilding the infrastructure.  They are happy when Indians suffered under the hands of the Coalition.

The Coalition Government bankrupted the country and TK is attempting to through blame on the PPP.

The Coalition raised salaries and cut taxes. They destroyed the sugar Industry and tried to jail their opponents for crimes they have committed in the past during The Burnham regime.

If TK is so smart why doesn't the PPP want him in their fold?

R

Dis fkn Kakakant is a dumb idiot.  Why do people engage him in serious exchanges?  I have no time for his crap.  He is dumb, lies, changes people posts and overall is a fkn moron.  Why has he not been banned from participating on this forum?

T
@Ramakant-P posted:

If TK is so smart why doesn't the PPP want him in their fold?

Because he is too smart for them, they don't like that. They like those that agree with everything and follow blindly...the sheeple

cain
Last edited by cain
@Totaram posted:

Dis fkn Kakakant is a dumb idiot.  Why do people engage him in serious exchanges?  I have no time for his crap.  He is dumb, lies, changes people posts and overall is a fkn moron.  Why has he not been banned from participating on this forum?

Your outburst has nothing to do with the topic.  If you read your own post you will realize that you are a dumb idiot.

You use the 'F' word and you want them to ban me. Disguising the "F" word does not cut it. I can only say that you have bad manners.  Why do you engage me in conversations?  Why don't You block my posts.? You call me Kakakant and you can't even tell us anything about yourself. You are rude and crude.

Your family must be very proud of you. That is hard to believe. 

R
Last edited by Ramakant-P
@cain posted:

Because he is too smart for them, they don't like that. They like those that agree with everything and follow blindly...the sheeple

Because he is arrogant and egotistical.

Why did the PNC kick him out from the Coalition?

R
@Ramakant-P posted:

You are saying that TK is smarter than all members of the PPP and APNU/AFC.

? Follows a question or is that a statement?  Both parties contain idiots who are in it for themselves and no one else.

cain

As can be seen, in the years 2008, 2009 and 2010, the change in the account’s balance was positive, implying that the government was putting in more than it was taking out from the account. However, the change in the balance turned negative since 2011 when the PPP/C was in government. This means that more money was going out than flowing into the account. The year 2011 is pivotal in the post-1992 political economy of Guyana. The PPP/C lost the majority in Parliament but kept the presidency.

The table shows that the PPP/C cranked up the fiscal deficit from G$16.4 billion 2011 to G$34.9 in 2014. How did the then government finance this? It did so by expanding money creation more than debt sales (T-bills). Money can be created out of thin air when government spends from its account at the BoG, making it the most special bank account in the land. This is what monetary sovereignty means, albeit Guyana’s sovereignty is much narrower compared with say that of Japan or the United States. More of this in my forthcoming academic paper.

Important for our purpose, however, is the sturdy desire to regain the parliamentary majority would result in a significant amount of political patronage in this period. In a future column, I will provide some data to show on what items the PPP/C spent by generating money. In the year just before the 2015 election, the G$34.9 billion fiscal deficit was financed by money creation to the level of G$30.8 billion. This means that 88.3% of the deficit was financed by creating money from thin air.

All those IDIOT PPP supporters who chant "progress, progress, progress" should read the above carefully. Labba man is on point. Note especially the bolded parts (my emphasis).

PPP sleight of hand with numbers, a grand foking optical illusion of "progress" while shithead drunks on Liberty Avenue, genetically racist base men and brahmins from Canada engage in orgasmic screams while the nation is being bankrupted.

Someone here was wondering why the Guyana dollar hasn't appreciated in spite of oil money. Your answer is in the above.

FM
@Former Member posted:

All those IDIOT PPP supporters who chant "progress, progress, progress" should read the above carefully. Labba man is on point. Note especially the bolded parts (my emphasis).

PPP sleight of hand with numbers, a grand foking optical illusion of "progress" while shithead drunks on Liberty Avenue, genetically racist base men and brahmins from Canada engage in orgasmic screams while the nation is being bankrupted.

Someone here was wondering why the Guyana dollar hasn't appreciated in spite of oil money. Your answer is in the above.

Iggi, At least the PPP knows how to spend money. They are rebuilding the Infrastructure that the coalition destroyed. It takes time for things to materialize. In the meantime, if you and your buddies are going to accuse the PPP of wrongdoings don't waste time.  Everything you read about in the Papers is real progress. The notion that the PNC can do better is figment of your imagination.

R

Of course, It's all in your contradiction of the PPP and the progress that they are making. The thing is with anti_PPP boys, they say one thing and then deny it afterward. Guilty people always ask for proof.

R
@Ramakant-P posted:

Of course, It's all in your contradiction of the PPP and the progress that they are making. The thing is with anti_PPP boys, they say one thing and then deny it afterward. Guilty people always ask for proof.

You are FOS, because someone contradicts the PPP they must be PNC?

Asinine people make stupid accusations and when confronted they can't provide proof of what they accuse others of.

cain
Last edited by cain
@Ramakant-P posted:

TK is at it again.  During Jagdeo's tenure, he wrote a paper every week denouncing the economic mastery of the Supreme Leader.

Now he is teaching us maths, not economics.

The PPP inherited G$92.8 billion negative balance from the Coalition Government.  At the end of Feb 2021 that negative balance went up to G$139.7.  What Dr. TK didn't mention was that the Interest alone on that debt went up to G$139.7.

The PPP has been spending and spending to better the lives of all Guyanese, only to be accused of mis-managing and stealing by anti-coolies. The aftro_Guyanese are so happy with the progressiveness of the PPP. There coolies oppose the PPP rebuilding the infrastructure.  They are happy when Indians suffered under the hands of the Coalition.

The Coalition Government bankrupted the country and TK is attempting to through blame on the PPP.

The Coalition raised salaries and cut taxes. They destroyed the sugar Industry and tried to jail their opponents for crimes they have committed in the past during The Burnham regime.

If TK is so smart why doesn't the PPP want him in their fold?

Mr Persaud. I don't know who TK is. Me hear how he ungrateful and how he betray we people. He side with black people on we.

FM
@Ramakant-P posted:

Iggi, At least the PPP knows how to spend money. They are rebuilding the Infrastructure that the coalition destroyed. It takes time for things to materialize. In the meantime, if you and your buddies are going to accuse the PPP of wrongdoings don't waste time.  Everything you read about in the Papers is real progress. The notion that the PNC can do better is figment of your imagination.

Rama, what nonsense you talking? Read my post again, it's not about govt. spending money, infrastructure and all the other horseshit you wrote.

FM
@cain posted:

Rama, can you point me to where there is mention the PNC can do better?

This is the thing with these PPP people. They cannot embrace thinking which criticizes BOTH the PPP and PNC in their current forms. I have stated here unequivocally that Guyana has had over 50 years of corrupt, underachieving governance. It is insanity to keep supporting either of these parties in their present form.

The PPP supporters defend all the malfeasance of the PPP by pointing to the PNC. They go back to the 73 elections, the Burnham years and Burnham himself, who has been DEAD for 36 years I think. They live in the  past.

Meanwhile with just about equal time in office by both these parties, the country is a shithole! These fking PPP morons cannot see that. Or perhaps they are so blinded by race and "ahwe pan tap" that it doesn't matter if the country descends into the abyss, as long as Indians rule it.

This is why Guyana is a shithole country.

FM

Yep, a shithole regardless which party ran it thus far.

For all the years I've been on GNI there were COUNTLESS posts such as yours criticizing both of the main parties, these posts were/are done by those who supported PNC/APNU/AFC. On occasion (perhaps FIVE times in twenty years) a mention would be made by those who supported the PPP about their mishandling of matters etc.

Even though these criticisms were made we still heard the same bullshit as we hear now about backing PNC and PPP angels being better than everyonelde. Pathetic people they are.

cain
Last edited by cain

Mr Rama Persaud, I contact people in high up place. They say Mr Khemraj want minister big wuk and dem did not give he. And that is why he write bad things about we innocent virgin PPP. What you say?

FM
@Former Member posted:

Mr Rama Persaud, I contact people in high up place. They say Mr Khemraj want minister big wuk and dem did not give he. And that is why he write bad things about we innocent virgin PPP. What you say?

The PPP doesn't trust Traitors. Jagdeo once offered a job to Moses and look what Moses did. There are many like Moses and who would like to get back into the PPP's fold but it is a matter of trust.

R
@Former Member posted:

Mr Persaud. I don't know who TK is. Me hear how he ungrateful and how he betray we people. He side with black people on we.

TK is an associate Professor at Florida College. He joined the AFC and was very disappointed with them, so he joined the PNC. He wrote many papers denouncing the PPP and the implementation of their economic plans.

although he and I are on opposite sides, I admire him a lot.

R
@Ramakant-P posted:

TK is an associate Professor at Florida College. He joined the AFC and was very disappointed with them, so he joined the PNC. He wrote many papers denouncing the PPP and the implementation of their economic plans.

although he and I are on opposite sides, I admire him a lot.

I dont know why you admire he. He betray we great leader Dr Jagdeo and we party. He side with blackman.

FM
@Former Member posted:

I dont know why you admire he. He betray we great leader Dr Jagdeo and we party. He side with blackman.

He is an expert in economics and that's what I admire about him. He tells it as it is.

R
@Ramakant-P posted:

Iggi, At least the PPP knows how to spend money. They are rebuilding the Infrastructure that the coalition destroyed. It takes time for things to materialize. In the meantime, if you and your buddies are going to accuse the PPP of wrongdoings don't waste time.  Everything you read about in the Papers is real progress. The notion that the PNC can do better is figment of your imagination.

Yeah? They now have access to ile money so you can now prematurely  boast while you ignore the facts of their past bungling! I've said before that I'm willing to give President Ali.a chance and see what unfolds by year end! His religious beliefs as a Muslim should benefit Guyana, provided he.doesn't allow Jagdeo to run the government! He's young and certainly not stupid!

FM

The BoG overdraft, central bank independence and corruption

April 11 ,2021

Source

The previous column (April 4: ‘The government’s overdraft at BoG, the fiscal deficit and corruption’) explained that the government’s fiscal deficit — which must not be confused with current account deficit as one online commenter did — has to be financed by (i) borrowing, (ii) seeking foreign grants, (iii) using previous savings, and/or (iv) creating money from its deposit at the Bank of Guyana (BoG). Nothing stops the government from using a combination of the four sources of finance. However, the money financing out of the BoG account in a given year cannot exceed the entire fiscal deficit (revenues minus spending).

As I have shown previously, the amount of money exiting the BoG account exceeded the fiscal deficit in 2015 and 2018. In other years, central government used some combination of debt and BoG finance. For example, in 2014, 88.3% of the deficit was financed by running down the BoG account, while in 2019 the number was 51.8%.

The BoG account is the most special account in the land. The government cannot create money out of spending from the Consolidated Fund, for example. It does not mean that the Consolidated Fund cannot under certain circumstances be used for monetary management, as is the case with the Treasury Tax and Loan Accounts (TTLA) of the United States Treasury. The law prohibits the US federal government from spending out of the TTLA. However, the Treasury (their Ministry of Finance) often transfers money from the TTLA (their Consolidated Fund) to the Treasury’s account at the Federal Reserve (their BoG account). The federal government can only spend out of its account at the Federal Reserve.

This raises an interesting question. Is the Guyana government allowed discretionary spending from the Consolidated Fund? We know Parliament has to approve any spending from the account. A lot of shenanigans can be done via the Consolidated Fund (CF). As some readers might remember, I complained a few years ago in this column space that the summary table of the CF has been removed from the Estimates.

A better designed government accounting system would allow for the Consolidated Fund to be the receiver of all tax and other revenues (as the Guyana constitution requires), including revenues drawn down from the proposed Natural Resource Fund (NRF) (whatever happened to the NRF?). Absolutely no spending should be done from the CF, approved or discretionary. However, all government spending can and must be done only from the BoG account. The Minister of Finance can instruct the transfer from the CF to the BoG account, as is done with the equivalent accounts in the United States and other economies. This provides a better tracking system, as well as another instrument for monetary stability in times of financial crisis. Moreover, such an accounting system will provide for a better integration of monetary and fiscal policies.

Another question has been raised by observers regarding my April 4 column: isn’t the central bank independent? It turns out that mainstream macroeconomics usually throws the light in directions it does not want us, particularly marginalized people, to look. Central bank independence is a misnomer. The central bank is never truly independent since it is the government’s bank. That is why one of the first acts of independence is to establish a central bank. The Chair of the Federal Reserve, for instance, cannot stop a payment from the federal government that was approved by Congress. The Chair cannot stop the transfer of funds from the TTLA, which are in commercial banks, to the government’s account at the Fed. Monetary sovereignty means there is deep coordination between the central bank and Ministry of Finance.

Central bank independence means that the Bank must be free to determine its target variable such as the exchange rate and/or interest rate. It must be free to take countervailing actions to prevent excessive government spending from destabilizing the economy. There are numerous ways central banks can accomplish this task and it must be free from political pressure as it seeks to stabilize the economy. However, once Parliament approves a spending, including a drawdown from the NRF, the BoG is not in a position to resist the payment.

Specifically, as it relates to the overdraft at the BoG, the Governor and his staff can only figure out that account is being used in excess of the deficit after the data have been aggregated. It would be hard to figure this out beforehand. Around the world, spending from the government’s central bank account is a standard operating procedure. What is not standard procedure is the spending, even parliament-backed spending, directly from the various ‘consolidated funds’.

Let us return to 2015, one of the years when the withdrawal from the BoG was greater than the deficit. Mr. David Granger was sworn in as President on May 16, 2015, meaning that the year was divided almost half and half between a PPP/C and APNU + AFC government. We would like to answer the question as to which party was most responsible for the negative balance exceeding the deficit. This outflow does not include the spending that could have occurred from the CF.

Accomplishing this task requires that we again look at the change in the account balance from one month to the next, and not the end-of-month balance. In other words, we must look at the leakage from the bathtub, not the water level. This is indicated in the table that shows the data from Jan: 2015 to Dec: 2015.

Summing the monthly changes from Jan to April indicates that the PPP/C was responsible for G$5.54 billion, while APNU+AFC was responsible for G$12.79 billion. I would let the reader decide how to apportion the month of May, for which the draw down in the level was G$5.43 billion. Is that a PPP/C or APNU+AFC month?

Nevertheless, there are two interesting pieces of information in the public domain. The first relates to the Amerindian Community Support Officers (CSOs) under the previous PPP/C government. In spite of all the ruckus in Parliament over the almost 2000 CSO officers that the APNU + AFC supposedly defunded, we learned that these people were not official employees of the government (SN: Aug. 20, 2015 ‘PPP/C did not budget to pay Amerindian support officers beyond April’). The CSOs were not contract or state employees, they were offered recurring cash stipends that were not given full account (cash being the key word here).

The second pertains to the D’Urban Park fiasco, a sin which far exceeds that of PPP/C’s cash payments to the CSOs. The Auditor General’s (AG) report noted that no approval was given for a large percentage of the funds used for the project (see SN: Feb 3, 2019: ‘Audit Office still awaiting response from Infrastructure Ministry on D’Urban Park spending’). The non-approved spending was associated with 2015 cheques that were paid.

Finally, and relating to the 2018 negative change that also exceeded the deficit. Another report from the AG noted that the previous government failed to account for G$800 million (SN: Jan 5, 2020: ‘Gov’t failed to account for over $800M spent in 2018’). All these examples only account for part of the observed discrepancies. They just scratch the surface of overspending associated with a broken accounting system.

There is 0.85 probability that I cannot write a column this week. That means I will be back in a fortnight, when I will present some eye-popping data for the last two columns on this issue.

Comments: tkhemraj@ncf.edu

Django
@Former Member posted:

How come dem PPP boys does cuss up this man Tarron when he giving them fair and balance?

Nobody cusses up TK.  His papers are very commendable. He should be given credit where credit is due.  My contention with him is that he ignored the shortcomings of the PNC.

I cannot believe that TK and I used to distribute pamphlets for the PPP.

R


Where did the BoG overdraft money go?



My previous two columns showed that the overdraft or negative balance was used to finance the government’s large annual fiscal deficits. A debt ceiling was in place since 1994 and it is a mystery why the previous administration never bothered to increase the ceiling restraining the domestic debt. Take note of the fact that I wrote domestic debt, not foreign borrowing. It might be that they were concerned with the public’s reaction, but such an increase was not going to be difficult to justify given the favourable macroeconomic environment at the time. It should be noted that the Ali administration has increased the debt ceiling for both the domestic and foreign debt.

The two columns also noted that the overdraft, which is a form of money finance, was greater than the deficit for two years and as high as 88% in another. Interestingly, the Auditor General’s reports noted serious financial indiscretions for the same years when money finance exceeded and was exceedingly high relative to the fiscal deficit.

In today’s column, I want to explore where the overdraft funding went. The first chart, Figure 1, shows the number of central government employees from 2007 to 2018. I obtained this data from the Bureau of Statistics, which has not reported the numbers for 2019 and 2020. It was not clear whether this series includes contract workers. However, given the astounding increase in the size of central government employment, I want to believe these numbers do include contract employees as well. I made several enquiries in order to figure out the composition of the contract employees versus career civil servants, but no one answered. This data is top secret in Guyana.

Nevertheless, my view on Guyana’s modern political economy is probably known: politics is about winning the prize of government for allocating financial resources to political constituents and middlemen who financed the election campaign. The best engineering firms, for instance, are not chosen for public works nor are the best ideas and people with skills.

The necessity of rewarding the base dominates all other actions. In recent years, the PPP/C appears to be winning the public relations as it relates to reaching out beyond its East Indian base. Mr. Granger, who mobilized a historic alliance to win in 2015, allowed the ball to fall by depending on the AFC to maintain the East Indian support, a major miscalculation. It also shows that the PNC is incapable of thinking out of the box once it is in power.

Figure 1 is quite revealing. I start from 2007 to get a good enough period to compare several PPP/C years with the APNU+AFC period. In 2007, there were 8,711 central government employees. The number increased to 14,905 in 2015 when the PPP/C left office, thereby representing a 71.1% increase over that period.

In 2018, the number was 26,354, indicating a 76.8% increase. It took the APNU+AFC regime just three years to get up to that number. It would be very interesting to know the 2019 and 2020 numbers. On the other hand, the PPP/C took eight years to increase the public service by 71.1%.

These numbers indicate how important the central government has become in employment. I also have the data for non-central government public sector employees (GuySuCo and the like), but I am not reporting them in a chart. In 2007, suffice to say, there were 18,370 such employees. That number declined by 40.3% to become 10,962 by 2018.

We cannot say for certain who are getting these jobs. However, it is fair to assume that the majority of the employment increase after a change in government went to supporters of the APNU+AFC. Similarly, during the long reign of the PPP/C, it is safe to assume that the majority went to their supporters. The public service is now a political battleground where suspicions, spying and possibly sabotage are rife. Standards were reduced to increase employment. One programme at UG removed the mathematics requirement. What an idea for the 21st Century! Remove maths and statistics but focus on buzz words and such things as how to use a knife and fork.

All of this implies that the building blocks of a developmental civil service are gone. There is no embeddedness and autonomy as in the South Korean, Japanese or even the Mauritian case.  The Weberian bureaucracy is gone. It should be no surprise that projects are sub-optimally conceptualized, sequenced and implemented. Apparently, lowering electricity rates will cause a manufacturing take-off just like that.

Another major implication is that of redistribution. There are two aspects to distribution. First, there is income distribution. This tells us how the gross annual income, usually measured as GDP or Gross National Income (GNI), is distributed amongst the citizens of the country. Second, there is the issue of wealth (or asset) distribution. I cannot say anything about who owns the largest percentage of the stock of wealth given the data presented herein.

However, we can infer something about income distribution if we look at the public sector wage bill relative to GNI. I was able to obtain the annual public sector wage bill by extracting them from the budget Estimates, which is a document outlining central government’s budgeted and actual incomes and expenditures for a given year.

The first column in the table shows the percentage of government expenditure spent on wages, salaries and benefits. These numbers are striking because they show that most of government expenditure goes towards paying the wage bill. As most readers will agree, there is little left for capital expenditures such as critical infrastructure that are essential for promoting long-term development. The government wage bill out of expenditure was very high for the PPP/C periods, but got even higher during APNU+AFC.

The average for the entire period is 66.4%. For context, I also downloaded the same data for Barbados, Jamaica, and Trinidad and Tobago over the exact 2008 to 2020 period, as well as their respective GNI. The number was 33.8% for Jamaica and 23% for Barbados. Trinidad and Tobago came in with the lowest at 16.5%. Space does not allow me to explain my thoughts for the differences across the Caribbean. However, it is clear that Guyana’s average is higher than that of the other three CARICOM economies.

The other column in the table is very important for inference regarding the changing picture of income distribution in Guyana. As noted earlier, this wage bill (and benefits) excludes state-owned companies such as GuySuCo. It is clear from the table that the share of national income going to central government workers is increasing. Adding up the shares earned by all sectors must equal to 100%. Therefore, if public sector workers are earning a larger percentage over time, then all other Guyanese sectors combined must be getting a smaller share.

Of course, it would be better if we knew what the percentage of the total government wage bill was earned by the top 1% or earners, the top 5%, top 10%, top 20% and so on. But this is all a mystery. We have to work with the data we have. For now, the income shares are the best we can do.

Nevertheless, we can infer something else. The 15.9% of GNI earned for 2015 was shared by a smaller government workforce. The APNU+AFC took it up to 20.1% in 2020, at which time we can infer that this was shared with a much larger workforce. This is consistent, but does not prove, a running hypothesis of mine that the PPP/C’s redistributive patronage is more inequality-inducing compared with the PNC’s. However, the PPP/C is more likely eager to induce inequality-promoting redistribution amongst a relatively more multi-ethnic grouping. On the other hand, the Grangerian PNC was willing to induce relatively more egalitarian patronage amongst mainly one ethnic group. It means that a small number of East Indians, African Guyanese and other ethnicities benefit remarkably from the PPP/C’s largesse. The East Indian masses are big losers.

In closing, we should have one more essay on this issue. Then we move on to gas to shore.

Article printed from Stabroek News: https://www.stabroeknews.com

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© 1985 - 2019 Stabroek News. All rights reserved.

:)

FM
Last edited by Django
@Ramakant-P posted:

Nobody cusses up TK.  His papers are very commendable. He should be given credit where credit is due.  My contention with him is that he ignored the shortcomings of the PNC.

I cannot believe that TK and I used to distribute pamphlets for the PPP.

You graduated to propaganda since, huh?

FM

Mr Rama Persaud come see TK cuss PNC and PPP.

=========


The public sector wage bill and the BoG overdraft

The past three columns explored the government’s overdraft at the BoG. We learned that spending from the account intensified from around 2011 and the balance turned negative towards the end of 2015. This is an example of monetary financing in the presence of a previous domestic debt ceiling. Guyana is teaching the world monetary economics, a gold mine for academics like me.

Guyanese politicians have demonstrated that money financing of deficits does not only occur when a central bank directly buys bonds or Treasury bills from the government. Guyana uses a different framework (known to Neo-Chartalists) in which the government emits payments from its central bank account. This injects money into the economy and the BoG, in turn, mops up the excess reserves by selling Treasury bills to the banks and other institutional investors. All of this raises several questions regarding inflation and other macro pathologies. The inflation issue will be looked at in a future column.

Today I want to explore the largest current expenditure of the government: wages and benefits. These amount to the largest category of government spending, which we learned in the past three columns was increasingly financed by money creation. The increase in the domestic debt ceiling will now address this issue by switching out the excess reserves with Treasury bills and possibly other forms of sovereign securities.

It was noted in the previous column that for the period 2008 to 2020, wages and benefits account for 66.5% of total government expenditure. In 2016, it went up to an astounding 92%. This is an anomaly by Caribbean standards and perhaps many other parts of the developing world. The implication is not a lot of money remains for capital expenditure on things such as drainage and world-class infrastructure. Had Guyana not had the good fortune of discovering oil, I believe this imbalance would have had serious implications for development spending and would have required retrenchments and social unrest in order to address.

Oil will now allow the political leaders to push the problem a decade down the road. The public service is likely to be expanded more because the political pressure requires that PPP/C brings in its activists as the PNC did earlier. It furthermore implies that capital expenditures will be funded by mainly the Natural Resource Fund, which defeats one of the purposes for having such a fund in the first place. It is likely that the government is going to borrow externally to finance development projects. It was noted that the gas-to-shore project will likely be financed by a de facto loan from ExxonMobil. The loan will run over a billion US$ once we consider the interest rate and lurking expenses that I noticed have not been disclosed to the public. One of the sins of public management is to borrow from foreign private banks or entities which are beholden to shareholders and Wall Street.

In the case of Barbados, wages and benefits account for 23% of government budget expenditure from 2008 to 2020, while it amounts to 33.8% in Jamaica and 16.5% in Trinidad and Tobago for the same period. It is also useful to compare the wage bill with gross national income (GNI), which is a cousin of GDP but a more relevant measure for us. As a percent of GNI, the wage bill for Guyana was an average of 15.3% over the period 2008 to 2020. The same average for Barbados over the period 2008 to 2020 was 2.6%, while it was 10% in Jamaica and 5.6% in Trinidad and Tobago. Again, we can see that Guyana is a leader in this problematic area. Guyana’s contentious politics and the need for the winning party to reward its electoral base could be a major explanatory factor as to why Guyana leads. It could also imply that government budgets are done in silos, whereby the capital expenditure side is done in isolation of the people responsible for current expenditures.

What does all of this imply for the average pay of a Guyanese public servant? How does the average compare with Guyana’s per capita income? As a refresher, the per capita income is the average income for all Guyanese, regardless of whether they work in the bauxite, gold or rice industry.  It is a rough measure, but a useful one nevertheless. The average pay of a worker in the public service is the total wage bill divided by the number of workers. In last week’s column, I noted that the government employment dataset ends at 2018. Therefore, all the numbers I report henceforth are for 2008 to 2018. I start my analysis from 2008 because it’s the furthest back I can find online on the website of Ministry of Finance.

Table 1 reports the average (per capita) income for Guyana and for the public service. The third column shows the ratio of pay for government workers to the average Guyanese income. Before discussing the trends in the data, let’s consider the average for the period under review. The average income is US$5, 185 compared with an average public sector pay of US$39, 473. This means that on average the public sector worker earns 7.8 times more than other Guyanese. At the current exchange rate, the average pay in the public sector is approximately G$8.3 million per year.

Now, I want to make it clear that I do not believe that this pay reflects the income of the nurse, the school teacher, the police officer and the clerks. As I noted in the last column, it would be better to have the data by seniority or rank and by contract workers. The total wage bill does include contract workers but it is impossible to know the pay by rank since the data is not made publicly available. I hope a researcher will pick this up one day. For now, I will rely on the rough measure that is the arithmetic mean.

Table 1: Average pay of government worker versus all Guyanese

It means that the public sector wage bill is largely shared by a few highly paid individuals who are likely to be political operatives. These folks have to be earning super salaries close to six-figure American dollar salaries. That is the only way the average can be so high. Moreover, the public service pay is unlikely to be structured in order to reward and promote meritocracy.

As can be seen, the ratio was higher – on average – for the PPP/C years, thereby being consistent with my thesis that its patronage system is relatively more inequality-inducing compared with the PNC’s. The logic is the PPP/C has to reach out beyond its base because it does not possess control of certain core power centres. However, the PNC is more likely to promote egalitarianism mainly within its ethnic base. The PNC’s strategy, moreover, is premised on a belief that it can seize power and hold on to it. Will the PNC be able to think out of its little box?

How does the average pay in the Guyanese public sector compare with that of the per capita income of Barbados, Jamaica, and Trinidad and Tobago? Table 2 answers this question. The final column in the table replicates the average public sector pay to make it easy for comparison. As the reader can observe, the average pay handsomely beats the level of per capita income of those three CARICOM countries.

Table 2   Average income in three CARICOM countries vs Guyanese public sector

Civil society groups are obsessed with oil and gas as they probably should be. But here is a big problem of misallocation of scarce resources which has been happening at least since 2008. An outcome of this misallocation is, going forward, growth-augmenting capital expenses will have to be financed by volatile oil revenues since most taxes are paying salaries. The only way to smooth this out in the short- and medium-term is to commit the “original sin”: undertake external debt.

Civil society has to demand a reform of the civil service. They must also demand a release of the data and pay of contract workers. They must demand that a career civil servant head the government services. They must demand that speakers at political rallies are not made permanent secretaries.  Finally, there should be freeze on pay for senior employees and only junior ranks should have a pay increase for a few years.

Comments can be sent to: tkhemraj@ncf.edu

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© 1985 - 2019 Stabroek News. All rights reserved.

FM
Last edited by Django

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