The Economy: The US$5,000 Cash Transfer Debate
Earlier this month, a prominent Guyanese economist proposed that a portion from the net cash flow from oil should be dedicated to be given as cash transfers to every household in the country.
The economist went on to suggest a figure of US$5,000 which is equivalent to approximately $1 million Guyanese dollars per household. Of course, this proposal stimulated much debates at the national level – both in the print and online media outlets and social media platforms.
Proponents of this proposal are of the view that a policy of this nature would aid in poverty reduction and is perhaps the best mechanism in which every Guyanese would be guaranteed direct benefit from the oil & gas production operations in Guyana – especially since this new sector would not provide a fantastic amount of job opportunities for locals.
The contrary view of other analysts and economists alike, is that such a policy would engender hyperinflation and may not be fiscally sustainable. This article therefore seeks to explore a broader spectrum of implications of the proposed cash transfer policy.
Guyana’s population is roughly 750,000 people; so assuming that each household in Guyana has an average number of four (4) persons, then using four as the denominator and the population size the numerator, this computation would give rise to 187,500 households. For simplicity, the total average number of household is rounded to 200,000.
Therefore, an annual cash transfer of US$5,000 from the potential oil revenue will give rise to US$1.0 billion or GY$206.5 billion annually. This figure of GY$206.5 billion is equivalent to 50.8% of real GDP (2017) which was
GY$406 billion, and represents 82.6 % of the size of the National Budget for 2017 which was GY$250 billion.
Further, considering competing priorities and opportunity costs, the new Demerara Bridge is estimated cost some US$150 million; the Cheddi Jagan International Airport expansion project is some US$150 million; the engineer and design cost to build the road linking Guyana and Brazil is about US$10 million – assuming that road might cost about US$20 million.
These figures combined give rise to a sum total of US$320M or GY$66 billion which means that a total cash
transfer of GY$206.5 billion annually to each household could cover the combined cost to build a new bridge over the Demerara river, the International Airport expansion project and the road linking Guyana to Brazil – almost three times.
That being said, it is important to note that the net cash flow from oil commencing from 2020 will not reach US$1.0 billion which means, if considered and at whatever figure, such policy is unlikely to take effect at the immediate onset of oil production.
The first two years into production net revenue from oil is estimated at just over US$300 million, from 2022 – 2025 at a production rate of 220,000bpd, net revenue is estimated to be about or just over US$750 million but less than US$1.0 billion until production is significantly increased to over 300,000 – 500,000 bpd, net revenues will reach and/or surpass the US$1.0 billion mark (note that these estimations are based upon ExxonMobil’s production alone).
But this level of increased production is likely to occur until after 2025. In the synthesis of current global evidence of the impact of cash transfers in developing countries, and of what works in different contexts, and/or for different development objectives, it was found that such have proven potential to contribute directly or indirectly to a wider range of developmental outcomes. Essentially, cash transfers are direct, regular and predictable non-
contributory cash payments that helps poor and vulnerable households to raise and smooth
The term can be administered through a range of instruments such as – social pensions, child grants or public works programmes and a spectrum of design, implementation and financing options (DFID, Evidence Paper, 2011).
Henceforth, perhaps if the Government of the day were to decide on the cash transfer policy, the current proposed methodology inter alia the direct cash transfer to each household – may indeed fuel hyperinflation – an undesirable outcome policymakers would have to guard against. As such, it would probably be better to consider other instruments or even better, a combination of different instruments to administer such programmes, for example grants geared towards promoting entrepreneurial activities – might be a better way to do so, as against direct cash transfers annually to each household.