Protecting Public Sector Investment from worrying fiscal risks Pt 2
In the medium term, Finance Minister , Winston Jordan believes that increased avenues for open government will be explored in order to engage citizens in the monitoring of public sector investment projects.
Because Guyana’s exports are large relative to the size of its economy, he said that external demand for Guyana’s commodities are important to its economic and fiscal performance. He pointed out that slow global growth, especially among Guyana’s key trade partners, poses a risk to Guyana’s economy.
“Guyana’s export markets are highly concentrated, with the United States and Canada together accounting for about half of all of Guyana’s exports. This risk has been exacerbated by Brexit. Although the United Kingdom is a limited export market for Guyana, the wider effects of Brexit on the world economy could have a negative impact on external demand for Guyana’s goods,” expressed the Finance Minister.
To address this risk, the Government he said, is working to develop new export markets such as the Mexican market for rice paddy, and build a strong domestic economy.
Finance Minister, Winston Jordan also pointed out that slowing credit growth is an important risk in the monetary and real sectors. In this regard, he shared that access to credit fuels consumption (by providing consumer credit to purchase goods like vehicles and appliances) and investment (by enabling businesses and households to access financing to pay for a property and productive assets).
The Finance Minister said that the ability of businesses to borrow to make investments is especially important to the economy, as it provides the foundation for future growth.
He noted that the Bank of Guyana has attempted to encourage lending by pursuing an expansive monetary policy that allows commercial banks ample reserves. However, despite high reserve levels, Jordan expressed that commercial bank lending has been limited, due to risk aversion and high non-performing loans.
He noted however that the Government is taking a two-pronged approach to addressing the risk of slowing credit growth.The economist explained that first, the Government is working to improve the business environment and provide training in technical and business management skills to potential investors. Second, he said that the Government, in partnership with the Bank of Guyana, is looking into strategies to improve the efficacy of monetary policy in Guyana, including exploring the development of a longer-term government bond market. The Finance Minister asserted that more effective monetary policy will improve the Bank of Guyana’s ability to stimulate the economy through expansionary monetary policies.
According to the Bank of Guyana, Monetary policy recommendations were determined within the framework of monetary programming and the evolving circumstances impinging on inflation expectance, liquidity condition and macroeconomic stability. The Bank’s principal instrument of monetary control continued to be the auction of treasury bills in the primary market. The monetary policy stance was signalled through the volume of treasury bills issued with implications for the general level of interest rate.
Additionally, monetary programming allowed the Bank to set a targeted path for the growth of broad money, consistent with economic growth and inflation. Its foundation rested on the observation that the Bank controls the supply of reserve or base money, which comprises currency in circulation and commercial banks’ reserves at the Bank, to attain the targeted expansion in the money stock. The underlying assumption for the effective operation of the reserve money programme is the long-term stability of the money multiplier, which is defined as the relationship between reserve money and broad money supply.
As for the negative impact of El Niño weather patterns on production in the rice and sugar industries this year, the Finance Minister said that this has drawn attention to the risks posed by adverse weather events and natural disasters.
He said that El Niño is expected to be followed by another weather phenomenon, La Niña, which would result in higher than average rainfall in Guyana, together with the greater risk of flooding.
In this regard, the Finance Minister explained that Global climate change could heighten this risk by increasing the frequency, severity, or unpredictability of these events. To address this risk, the Government is investing in water and other infrastructure, and considering green initiatives. A more diverse economy and agricultural sector will also mitigate these risks.