- Resilient and inclusive growth remains key to development
- Infrastructure gaps must be closed, while maintaining debt sustainability
- The country should tap both domestic and external resources to sustain growth
Low-income economies in transition such as Guyana need to diversify their economies, promote inclusion, and close infrastructure gaps by tapping both domestic resources and foreign funding to sustain growth.
The global environment is clearly causing some real difficulties in low-income and developing countries. This is partly due to lower commodity prices, which have been declining for more than a year and a half. For countries which are reliant on the extraction of resources, this is a major problem; low commodity prices are here to stay. Also the economic slowdown of China—a significant client of and direct investor in many low-income and developing countries—created further difficulties.
A weaker external environment and tighter financing conditions are exacerbated by longer-term mega trends in climate change, demographic changes and technology.
Resilient growth remains the key to the sustainable development of low-income countries such as Guyana. Such growth is still lacking in many developing countries: severe growth collapse episodes hit low-income and developing countries frequently and with devastating effect. Cumulative losses in growth decelerations in the 90 recent episodes were larger than 20 percent of GDP (Gross Domestic Product).
Moral imperative of equality
Resilient growth must be maintained through rainy day buffers, inclusiveness, public investment, and structural reforms in low-income countries the same way as in advanced economies.
Almost all economic policy errors take the shape of doing today what you wish you had done yesterday. Things are likely to get worse in the next couple of years and the tools available in the last two recessions are not going to be available on the scale they were. Otherwise, the greatest victims will be the world’s poorest countries. It’s a moral as well as an economic imperative.
Inequality and a lack of resilience, a lack of sustained growth may really be the two sides of the same coin. When inequality is rampant, all sorts of individuals are excluded from education, credit markets, adequate health, and nutrition. Inequality does not have a single solution.
Not doomed to be poor
Fighting inequality on a micro level works, as long as help comes in a big enough push. Cash to buy assets, with some training and hand-holding brings results. The poor are able and willing to grab real opportunities.
Diversification of economies, a political will to save in good times to be able to tap buffers during bad times, and mobilizing domestic resources were essential to ensure resilient growth in low-income and developing countries. Hence, if we don’t struggle to process the goods that we produce and create jobs for our young people, we cannot build a diversified economy. We cannot have resilience unless we encourage manufacturing, services, and agriculture. Job creation is the best way to fight inequality. Thus, what one has to deal with is the current account balance and taxes, and that the rest of economy contributes proportionately to the revenues.
Better tax administration, a larger tax base, removal of tax incentives, financial inclusion and increasing transparency and improving governance are essential to better mobilize internal resources. That, in turn, has to feed into building high quality infrastructure that allows diversification, while keeping an eye on debt sustainability.
Infrastructure development without jeopardizing debt sustainability
Guyana is hungry for infrastructure, besides infrastructure, the country also has other priority spending needs to achieve their sustainable development goals, such as in health and education. Development areas must be prioritized, bringing in long-term concessional resources to finance the projects in a time when low-income and developing countries sovereign bond issues are no longer feasible due to high risk premiums.
To be able to develop infrastructure without jeopardizing the sustainability of debt—and in a global context which will be much less favorable than in the last decade—affordable sources of external financing should be explored.
Fiscal Capacity Development Can Boost Inclusive Growth
- Demand for capacity on taxation and spending on the rise
- Efficient public spending promotes inclusive growth
- International engagement and partnerships key to boosting capacity
Capacity development is essential for helping countries such as Guyana build strong fiscal institutions that are capable of supporting sustainable, inclusive growth and development.