Guyana is on the verge of taking off after years of economic stagnation
By Stabroek staff | Letters | Tuesday,
November 1, 2011
Source - Stabroek News
Dear Editor,
As you are aware, Guyana experimented with two diametrically opposed development paradigms after gaining political independence in 1966. Between 1970 and 1985 the country pursued ‘Cooperative Socialism’ where the state (at that time, the PNC-led government) assumed dominant control over the economy by nationalizing most of the production and distribution entities. Under this development paradigm the economy suffered a total collapse for reasons which have been comprehensively documented by various academics. Thomas and Bynoe, for instance, argued the planned economy model was unsuccessful because the state did not maintain the social and economic infrastructure and failed to offer sufficient incentives to farmers. Egoume-Bossogo, on the other hand, noted that the poor economic performance under this development model was due to the inability of the then government to attract international capital since it had large external arrears and instituted many policies that resulted in resource misallocations. More recently, Grenade and Lewis-Bynoe attributed the failures of this development paradigm to “inefficient public investment, prolonged fiscal mismanagement, and weak institutions.”
Apart from highlighting the causes for the failure of Cooperative Socialism, the existing academic literature also provides an extensive account of its consequences, which included massive migration, unsustainable fiscal and external balances, and the expansion of the underground economy
Owing to the failure of Cooperative Socialism, the country was forced to adopt the Economic Recovery Programme (ERP), a comprehensive economic strategy that was aimed at encouraging sustainable economic growth, correcting unsustainable imbalances in the country’s balance of payments and integrating the official and parallel economies. Following the implementation of the ERP, the country enjoyed robust economic growth between 1993 and 1997 primarily on account of the strong performance in the agriculture sector. However, the economy grew at a much slower pace between 1998 and 2005 because of a combination of factors, including political and social unrest, adverse weather conditions (El Nino and La Nina), declining commodity prices and the contraction in the mining sector.
From 2006 to 2010, the economy again rebounded by posting positive economic growth amidst the global recession. Based on the official statistics, the annual average growth rate between 2006 and 2010 amounted to 4.2 per cent, making Guyana the country with the fastest economic growth rate in the Caribbean over the past five years. It is noteworthy, that apart from the strong growth rates, there were marked improvements in key macroeconomic and social indicators. For instance, Grenade and Pasha noted the following: “Not only have Guyana’s rates of GDP growth improved, but so too have the macroeconomic fundamentals and key social indicators. Fiscal deficits and public debt have been on a downward trajectory since 2006. At 4.0% of GDP, the fiscal deficit is considered manageable, while public external debt, estimated at 47.0% of GDP is a marked improvement relative to ratio of over 600% in 1989. Inflation has been contained in the low single digits and the nominal exchange rate is broadly stable against the US dollar. Meanwhile, key social indicators have improved; extreme poverty was estimated at 18.6% in 2006, down from 29% in 1992 (Inter American Development, Bank, 2008).”
Indeed, Guyana’s economic performance was so remarkable over the last five years, that it prompted several academic studies. These studies attributed much of Guyana’s recent success to prudent macroeconomic management, improved governance and greater social cohesion and political stability. Grenade and Lewis-Bynoe, for instance, found that macroeconomic consolidation, institutional strengthening, social and political stability contributed significantly to the exceptional performance of the Guyanese economy over the past few years. The study showed that the growth rates posted recently by Guyana were not only approaching but surpassing those of Barbados. The authors also noted that at the time of independence the socioeconomic indicators of the two countries were almost comparable, but there was significant divergence in their economic performance due to “economic and structural policies, years of social and political discord and institutional weaknesses in Guyana.”
Meanwhile, Grenade and Pasha, who focused specifically on the recent growth performance of the Guyanese economy, also showed that improved governance, sound macroeconomic management, greater social and political stability coupled with favourable terms of trade have been the propellers of growth between 2006 and 2010.
Against the backdrop of Guyana’s recent achievements, the purpose of my letter is to draw attention to the following: (i) Guyana is on the verge of taking off after years of economic stagnation and (ii) there is significant economic benefit to be derived from maintaining social and political stability, strengthening our institutions and pursuing sound macroeconomic policies. It is my hope, therefore, that all and sundry will commit their efforts to peaceful elections this year so that there will be a continuation of social and political stability. Moreover, it is hoped that the new government will continue to strengthen our institutions and maintain sound macroeconomic management in order for economic progress to continue.
Yours faithfully,
Sukrishnalall Pasha
By Stabroek staff | Letters | Tuesday,
November 1, 2011
Source - Stabroek News
Dear Editor,
As you are aware, Guyana experimented with two diametrically opposed development paradigms after gaining political independence in 1966. Between 1970 and 1985 the country pursued ‘Cooperative Socialism’ where the state (at that time, the PNC-led government) assumed dominant control over the economy by nationalizing most of the production and distribution entities. Under this development paradigm the economy suffered a total collapse for reasons which have been comprehensively documented by various academics. Thomas and Bynoe, for instance, argued the planned economy model was unsuccessful because the state did not maintain the social and economic infrastructure and failed to offer sufficient incentives to farmers. Egoume-Bossogo, on the other hand, noted that the poor economic performance under this development model was due to the inability of the then government to attract international capital since it had large external arrears and instituted many policies that resulted in resource misallocations. More recently, Grenade and Lewis-Bynoe attributed the failures of this development paradigm to “inefficient public investment, prolonged fiscal mismanagement, and weak institutions.”
Apart from highlighting the causes for the failure of Cooperative Socialism, the existing academic literature also provides an extensive account of its consequences, which included massive migration, unsustainable fiscal and external balances, and the expansion of the underground economy
Owing to the failure of Cooperative Socialism, the country was forced to adopt the Economic Recovery Programme (ERP), a comprehensive economic strategy that was aimed at encouraging sustainable economic growth, correcting unsustainable imbalances in the country’s balance of payments and integrating the official and parallel economies. Following the implementation of the ERP, the country enjoyed robust economic growth between 1993 and 1997 primarily on account of the strong performance in the agriculture sector. However, the economy grew at a much slower pace between 1998 and 2005 because of a combination of factors, including political and social unrest, adverse weather conditions (El Nino and La Nina), declining commodity prices and the contraction in the mining sector.
From 2006 to 2010, the economy again rebounded by posting positive economic growth amidst the global recession. Based on the official statistics, the annual average growth rate between 2006 and 2010 amounted to 4.2 per cent, making Guyana the country with the fastest economic growth rate in the Caribbean over the past five years. It is noteworthy, that apart from the strong growth rates, there were marked improvements in key macroeconomic and social indicators. For instance, Grenade and Pasha noted the following: “Not only have Guyana’s rates of GDP growth improved, but so too have the macroeconomic fundamentals and key social indicators. Fiscal deficits and public debt have been on a downward trajectory since 2006. At 4.0% of GDP, the fiscal deficit is considered manageable, while public external debt, estimated at 47.0% of GDP is a marked improvement relative to ratio of over 600% in 1989. Inflation has been contained in the low single digits and the nominal exchange rate is broadly stable against the US dollar. Meanwhile, key social indicators have improved; extreme poverty was estimated at 18.6% in 2006, down from 29% in 1992 (Inter American Development, Bank, 2008).”
Indeed, Guyana’s economic performance was so remarkable over the last five years, that it prompted several academic studies. These studies attributed much of Guyana’s recent success to prudent macroeconomic management, improved governance and greater social cohesion and political stability. Grenade and Lewis-Bynoe, for instance, found that macroeconomic consolidation, institutional strengthening, social and political stability contributed significantly to the exceptional performance of the Guyanese economy over the past few years. The study showed that the growth rates posted recently by Guyana were not only approaching but surpassing those of Barbados. The authors also noted that at the time of independence the socioeconomic indicators of the two countries were almost comparable, but there was significant divergence in their economic performance due to “economic and structural policies, years of social and political discord and institutional weaknesses in Guyana.”
Meanwhile, Grenade and Pasha, who focused specifically on the recent growth performance of the Guyanese economy, also showed that improved governance, sound macroeconomic management, greater social and political stability coupled with favourable terms of trade have been the propellers of growth between 2006 and 2010.
Against the backdrop of Guyana’s recent achievements, the purpose of my letter is to draw attention to the following: (i) Guyana is on the verge of taking off after years of economic stagnation and (ii) there is significant economic benefit to be derived from maintaining social and political stability, strengthening our institutions and pursuing sound macroeconomic policies. It is my hope, therefore, that all and sundry will commit their efforts to peaceful elections this year so that there will be a continuation of social and political stability. Moreover, it is hoped that the new government will continue to strengthen our institutions and maintain sound macroeconomic management in order for economic progress to continue.
Yours faithfully,
Sukrishnalall Pasha
.
