Stabroek News April 1, 1998 A review of the 1998 Budget By Christopher Ram & Company ................................... .....Target 1998 ...................Actual 1997 .....................Target 1997 Real GDP growth ...............3.2% ................................6.3% ................................7% Inflation rate .......................5.5% ................................4.1% ................................4% Current account deficit of the balance of payments as a % of GDP ................13.61% ............................ .16.78% ...........................5.62% Increase in the money supply .....................................5% ...............................11.7% ................................13% The Economy A combination of factors conspired to undermine the partnership theme of and favourable expectations underlying the 1997 Budget. The meltdown in South East Asia from which the country attracts a number of investors affected their currencies and therefore their capacity for overseas investments. The international price for gold collapsed to its lowest level in eighteen years affecting royalties to government and investments in the sector. Many countries in the European Union strengthened their currencies as they sought to qualify for the Euro (the single currency). This adversely affected the amount received for exports of sugar and rice in particular in the premium European market. The innocently named weather pattern El Nino (the boy) has seen reduced activity in the mining and agricultural sectors due to drought conditions which affected both the principal foreign exchange earners, rice and to a much less extent sugar. At the political level an acrimonious elections campaign continued several months after general elections as a Caricom team of auditors attempt to resolve the concerns raised principally by the main opposition party over the process employed following the close of poll on December 15. The year was not without its bright features. GDP grew by 6.3% against a target of 7%. However this increase came principally from an increase in production by Omai Gold Mines Limited which does not have the same spin-off effect on the economy as say rice and sugar. Inflation was 4.1%, marginally up on the 4% target but less than the 4.5% in 1996. The stock of external debt continued to decline from the suffocating level of US$2.1Bn at December 1995. At December 1996 this had declined to US$1.5Bn following relief and rescheduling provided by the Paris Club under Naples Term. In December 1997, the country benefited from a further relief amounting to US$253M under the HIPC (highly indebted poor countries) Agreement. The exchange rate remained stable throughout 1997 but the current account deficit increased to US$105.1M against a budget of US$35.5M. The current account deficit was largely financed by net capital flows of US$125.7M of which medium and long term capital from private capital flows amounted to US$90M. A net outflow of foreign exchange of $4M occurred during the year compared to a new inflow of $1.4M in 1996. The agriculture sector grew by 3.1% against a target of 5% and growth of 7.7% in 1996. Cane sugar output declined by 1.8% over 1996 and 4.3% below target. Rice grew by 1.9% over 1996 compared with target growth of 11%. Strong growth was experienced in the forestry sub-sector (20%), due mainly to round logs and sawn timber production; fisheries 8% and mining, principally gold, which reflected a 16% in output despite a 16.3% decrease in declaration from independent operators. Total gold output of 429,639 ounces however fell short of target by 20,361 ounces. The manufacturing sector registered a growth rate of 4.5% compared with a target of 4%. The improvement came principally from growth in the production of processed rice, paints, stoves and aerated drinks. The construction sector grew by 13% on account of an expansion in the public sector investment programme and increased activities in the housing sector. This had been projected to increase by 20%. Despite continuing poor performance in tourism the services sector grew by 5.2% against a target of 3.3%. Significant progress was made in reforming monetary management and development of the financial system although there is still a long way to go. The Bank of Guyana has taken responsibility for the compilation of the balance of payments and has strengthened the supervisory system for banks. This very positive feature could have been further enhanced if the Bank of Guyana Bill tabled in the National Assembly on July 10, 1997 had been passed. This Bill sought to enhance the role and purpose of the Bank to allow it to conduct its affairs in an effective manner, thus promoting the creation of a stable financial system. The Bill also sought to increase the authorised share capital from $4.3M to $1Bn; to increase the number of directors and to re-define the Bank s independence in matters of monetary management. Comment This draft legislation on the Bank of Guyana is critical to the maintenance of a non-inflationary macroeconomic environment and a stable financial system. It would also lessen the influence of the Minister of Finance over the operations of the Bank. It is vital that this Bill be re-introduced as a matter of urgency with amendments limiting the sole authority of the Minister to appoint the directors. Banking and Interest Rates Private sector credit increased by 23.6% in 1997 compared with a 30.8% growth rate in 1996. Credit to the manufacturing sector grew by 52% whilst major increases were recorded in credit to distribution and household sectors. Declines were recorded in the agriculture as well as mining sectors. The Minister again lamented the ever widening intermediation spread of the commercial banks despite a significant decline in the 91-day treasury bill rate from 11.03% at the end of 1996 to 8.8% at the end of 1997. Budget Performance Budget performance declined when compared to 1996 largely as a result of a contraction in revenue collection and increased interest costs, and debt servicing. Capital proceeds were less than budgeted largely as a result of the privatisation programme being behind schedule. In must now be doubtful whether many of the entities previously brought to the point of sale can be sold given the present economic and political climate. Current revenue was some $4.3Bn below budget, made up mainly of shortfalls in collections at the Inland Revenue Department ($2.6Bn) and Customs Department (1.8Bn). Capital revenue fell short of budget by $1.03Bn largely as a result of the failure to complete several planned privatisations during the year. On the expenditure side, there were modest savings on budget in employment cost and other charges of 2.3% and 2.9% respectively. Interest expenditure was 8.36% above budget and actual debt repayment was 37.5% above budget. This would have been the consequence of meeting existing obligations as part of the rescheduling arrangement. The Government failed to achieve the targeted level of external financing which was $1.556Bn below budget. This shortfall forced additional local borrowing of $1.792Bn during the year when a decrease of $7.68Bn was budgeted. Overall the budget deficit declined from G$9.8Bn in 1996 to G$15.9Bn in 1997. External debt at the end of 1997 stood at US$1.5Bn. Inflation This fell from 4.5% in 1996 to 4.1% in 1997 against a target of 4%. The Minster pointed out that the slow down in the inflation rate was due to the moderate price changes in partner countries and lower domestic food prices. Comments The decline in overall GDP from 7% to 6.1% appears inconsistent with the decline in the major sectors. In any case, as we have previously contended, the emphasis on GDP in the National Accounts can give a false sense of well-being since in our case much of it accrues to non-residents often on a tax-exempt basis. The Minister expressed concern that in relation to the forestry sub-sector Guyana was losing vast opportunities for value-added and added that this will have to be reversed quickly÷. Yet in the targets for 1998, logs and sawn timber which made up 97% of total output, he projects a further increase. Similarly, in the area of commercial lending he continues to lament the interest rate policies of the commercial banks. Surely the Bank of Guyana and the state-owned Guyana National Co-operative Bank ought to be able to resolve this problem to the satisfaction of all concerned. ADMINISTRATION'S SECOND TERM AGENDA This being the first Budget of the Administration, the Minister used the opportunity to present the agenda for its second term. The Minister announced that the Government would respond to the challenges through an economic and social agenda. At the domestic level, he identified as specific concerns the provision of improved water services, housing and access to education and health the achievement of which the Minister conceded was made difficult by recent political developments÷. At the international and hemispheric level the Minister identified a rapidly changing economic and political environment including trade liberalisation, dismantling of preferential arrangements and elimination of controls on capital flows. Economic The focus of the economic agenda will be on improving the economy s competitiveness, growth and diversification of the economy through the maintenance of a sound macroeconomic framework through fiscal responsibility, sustaining high growth rates, monetary stability, maintenance of adequate reserves, streamlining the incentive system, expanding the economic infrastructure, making more land available for productive activities and improving the legal and regulatory framework of the business environment. Social The social agenda has as its focal points the provision of better housing, education, health services and potable water. In connection with housing the Administration is committed to distributing 30,000 house lots while US$40M will be expended to construct new schools and establish more technical vocational facilities. The continuing rehabilitation and refurbishment of the existing water systems and drilling of additional wells are the means to improving the distribution of potable water. Corporatising the Georgetown Hospital and strengthening the institutional capacity of the health sector will be the way forward to the overall improvement of the delivery of primary health care services. Comments As noted in the Introduction, the Speech included no reference to the National Development Strategy on which so much time and resources have been expended. Whilst the matters identified above may not be inconsistent with the National Development Strategy a statement on its future would have clarified the entire issue. THE GOVERNMENT OF GUYANA FINANCIAL PLAN 1998 The table on the next page presents a summary of the Government's projected fiscal operations for 1998. The Plan projects a current balance of G$7.908Bn compared with the latest estimate of G$4.946Bn in 1997. The overall balance is projected at a deficit of G$8.060Bn compared with a deficit of G$15.951Bn in 1997. Current revenues are projected to increase from G$33.998Bn to G$38.010Bn in 1998 with both the Inland Revenue Department (IRD) and Customs and Excise projecting increases of 13% in 1998. Total interest is projected to decrease by approximately 7.1% from G$10.343Bn in 1997 to G$9.606Bn in 1998 or approximately 25.3% of current revenue compared with 30.4% in 1997. Current expenditure is projected to increase by 9.6% from G$18.709Bn to G$20.496Bn in 1998. Interest represents 31.9% of total current expenditure whilst employment cost represents 32.4% and other charges account for 35.7% of the total current expenditure. Budgeted current balance of G$7.908Bn (1997 - G$4.946Bn) represents 20.8% of current revenue in 1998 compared with 14.5% in 1997. Capital revenue is projected at G$2.249Bn (1997 - G$1.995Bn) and capital expenditure at G$14.845Bn (1997 - G$16.631) . Debt repayment is G$3.372Bn (1997 - G$6.261Bn) leaving an overall deficit of G$8.060Bn compared with G$15.951Bn in 1997. It is projected that this will be financed from external sources of G$14.710Bn whilst local sources will reduce by G$6.650Bn. The capital expenditure budget for 1998 represents a 10.7% decrease over 1997. This decrease follows fair increases in 1996 and 1997. Current revenues of G$33.998Bn in 1997 were 11.2% below budget with the Customs and Inland Revenue Department accounting for 86.9% of all collections. Revenue collection from Customs and Inland Revenue Departments were below budget by $1.786Bn and $2.608Bn respectively. Other current revenues of $4.458Bn were slightly higher than targeted in 1997. Non-interest current expenditure of $18.709Bn was about $503M below that projected at the beginning of the year. Employment costs were below the programmed amount by $214M while other charges of $9.777Bn were also within limits. Interest payments amounting to $10.343Bn exceeded budget by 8.4%. Overall, the current balance of the Central Government was below budget by 48% . The incompleteness of the privatisation of some public companies resulted in a shortfall in capital revenue of $1.031Bn. The $16.631Bn expended in 1997 on the capital programme was 0.5% more than budget. Comment In the light of the shortfall in budgeted current revenue in 1997 by 11.15% and a deteriorating situation in the first quarter 1998 the revenue projections appear extremely optimistic. The projected 12.7% increase in capital revenue also assumes that the privatisation programme will not be significantly affected by the current political instability. The total increase in non-interest expenditure by 9.6% could also come under pressure if: the unfavourable movement in the exchange rate is not reversed giving rise to higher than budgeted inflation; and the wage settlement for public sector workers is outside of the budgeted block amount. FINANCIAL OPERATION OF CENTRAL GOVERNMENT (ACCOUNTING CLASSIFICATION) G$ Million ITEM ...................BUDGET ..................REVISED .................BUDGET ..................ACTUAL .................ACTUAL ..................................1998 ..........................1997 ..........................1997 ...........................1996 ..........................1995 1.0 CURRENT REVENUES .........38,010.0......................33,997.5 ....................38,265.3 .....................35,117.3......................29,496.1 1.1 Inland Revenue...............16,260.3.... .................14,391.2.....................17,000.0 .....................14,937.4.....................12,464.6 1.2 Customs & Excise...............17,121.4 ......................15,148.0....................16,934.5.......................15,485.8....................13,307.3 1.3 Sugar Levy......2,000.0 ........................2,000.........................1,900.0.........................1,700.0......................1,900.0 1.4 Other................2,628.3...... ..................2,458.3......................2,430.8..........................2,994.1.....................1,824.2 2.0 CURRENT EXPENDITURES.20,495.9 ....................18,708.6....................19,211.7.........................15,300.8...................15,141.7 2.1 Employment Costs.......................9,754.5 ......................8,931.0......................9,145.2...........................6,763.6.....................5,740.5 2.2 Other Charges................10,741.4 ......................9,777.6....................10,066.5...........................8,537.2.....................9,401.2 3.0 INTEREST EXPENDITURE.....9,606.0....................10,342.7.......................9,544.5..........................8,642.9.....................8,633.4 3.1 Domestic.......... 3,211.1......................3,966.0......................3,813.9..........................5,143.4.....................5,367.6 3.2 External (Cash)......................6,394.9......................6,376.7......................5,730.6..........................3,499.5.....................3,265.4 4.0 CURRENT BALANCE..............7,908.1......................4,946.2.......................9,509.1......................11,173.6.......................5,721.4 5.0 CAPITAL REVENUE 1/...........2,248.9.......................1,994.8......................3,025.7...........................457.5.......................1,326.9 6.0 CAPITAL EXPENDITURE....14,845.1.....................16,630.8....................16,543.7......................15,705.5.....................11,539.5 7.0 DEBT REPAYMENT........3,371.7........................6,261.3......................4,554.5........................5,779.0.......................4,723.5 7.1 Domestic (Net).........................(422.0)........................1,902.9.........................549.8.......................1,536.2..........................400.2 7.2 External (Cash)......................3,793.7........................4,358.4......................4,004.7.......................4,242.8.......................4,323.3 8.0 OVERALL BALANCE............(8,059.8)....................(15,951.1)...................(8,563.4).....................(9,853.4)...................(9,214.7) 9.0 TOTAL FINANCING.........8,059.8.....................15,951.1......................8,563.4.......................9,853.4.......................9,214.7 9.1 Local.............(6,650.1)........................1,792.0.....................(7,689.9)......................(5,905.0))...................7,692.6 9.2 External1........4,709.9.......................14,696.8.....................16,253.3)......................15,442.4..................8,466.9 9.3 Other Financing................ 0.0...............................(537.7)...........................0.0............................ ...316.0...................((6,944.8) Total Domestic and External Debt Service as a % of Current Revenues ..............34.1% .......................48.8% ...........................36.8% .........................41.1% ....................45.3% Source: Ministry of Finance 1/ Excludes Project Grants, which are included in the External Financing item. 1998 POLICY ISSUES AND TARGETS ECONOMIC TARGETS The Minister of Finance indicated the Government's expectations of the economy to continue on its expansion path through the policies and programmes announced in the Budget. Whilst sugar and rice production are projected to decrease by 3% and 7% respectively primarily as a result of the El Nino weather pattern, forestry output is expected to increase a 5%. The mining sector is targeted to grow by 5.2% with gold production projected to increase by 1.4%. Bauxite production is set at 2.7M tonnes for the 1998. Inland Revenue and Customs and Excise Departments continue to be recognised as key revenue earners with IRD contribution $16.3Bn of total current revenue of $38Bn and the Customs Department $17.1Bn. The following economic targets have been earmarked for 1998: 1. A real GDP growth of 3.2% An inflation rate to 5.5% Money Supply to increase by 5% Balance of Payments Current Account Deficit of 13.6% of GDP WHO GETS WHAT IN 1998 Current Non-Interest Expenditure Central Government's current expenditure for the year is budgeted at G$20.496Bn which is 9.5% above revised 1997. The following table shows how the current expenditure has been shared among the major Ministries. For purposes of this calculation we have excluded public debt expenditure. The ministries/departments with the most significant budget allocations are: Ministries/Departments ............% of Total 1998 ..............% Inc/(Dec) 98/97 Ministry of Home Affairs ...................9.44 ..................................(5.4) Ministry of Health ..............................11.1 .................................35.5 Ministry of Education .........................10.3 ...............................31.37 Regions .............................................19.5 .................................21.5 Ministry of Finance ............................15.7 ...............................(34.8) Guyana Defence Force ........................6.7 ..................................3.2 The Ministry of Trade, Tourism and Industry has been allocated G$166.8M or 0.8% of Central Government current non-interest expenditure - which does not endow that Ministry with the resources to support meaningfully the private sector. Owing to the reconfiguration of several Ministries some of these figures are not entirely comparable. The budget for the Ministry of Health and Labor would have included only Health in 1997. Similarly, Culture, Youth and Sports have now been de-linked from the Ministry of Education. The new Ministry of Culture, Youth and Sports has been allocated $200.2M or 0.1% of total budgeted expenditure. The new Ministry of Housing and Water has been allocated $619.8M or 3% of budget. Significant changes from the previous year latest estimates occurred in the following Ministries / Departments: Ministries / Departments .............................................% Inc/(Dec) 98/97 Office of the Auditor General ................................................32.1 Public Utilities Commission ...................................................35.1 Ministry of Agriculture ..........................................................28.8 Ministry of Human Services & Social Security..................... (41.3) Ministry of Local Government ..............................................79.7 It is to be noted that Labour has now been merged with the Ministry of Health whereas it was grouped with human services and social security in 1997. Of the budgets for the regions significant increases have been projected for the following: Region ...............................................................% Inc. over 1997 Region5. ........................................................................ 45.5 Region 10 .......................................................................36.9 Capital Expenditure Central Government's estimates of capital expenditure for the year are budgeted at G$14.845Bn which is 10.7% below revised 1997 and 30.7% of total expenditure (1996 33.2%). The ministries/departments with the most significant capital expenditure allocations are: Ministries/Departments ..........................% of Total ........................% Inc./(Dec.) Ministry of Agriculture ................................6.62 ....................................4.9 Ministry of Public Works.......................... 37.04 ...................................(4.2) Ministry of Finance ......................................7.7 ..................................(66.5) Office of the President ..................................2.5 ..................................(23.7) Ministry of Labour, Human Services and Social Security ............7.04 .................................(13.5) Ministry of Local Government .......................2.3 .................................(33.2) There are reductions in most of the major ministries. As has been the case in the past, much attention and substantial resources are directed to the Ministry of Public Works which appears under-equipped to manage and/or oversee all the projects effectively. In absolute terms the Ministry of Public Works is budgeted to spend $5,498M or 37.04% of the Capital Budget although this reflects a 4.2% decrease over the previous year. Sea defences have been allocated $1,124M, including $575M for emergency works, miscellaneous roads $350M and reconditioning of ships and ferries $100M. Total expenditure on ships and ferries for 1996 and 1997 amounted to a fabulous $425M. The capital expenditure budgeted for the Education and Health Ministries are notably, not very significant. A significant increase in capital expenditure is projected for the Ministry of Trade, Tourism and Industry, from $13.4M in 1997 to $250M in 1998 of which $210M is earmarked for industrial development. Control of capital expenditure including the tendering and awarding of contracts is still not satisfactory. Annual promises to reform the process which lacks transparency are never effected. This area needs urgent attention to ensure that the quality of work received gives value for money. 1998 BUDGET Measures The Personal Deduction and Tax Rate The personal deduction remains at $18,000 per month. No changes have been made to the rates of taxes. Housing The Minister declared his Government's commitment to distributing 30,000 house lots in its second term and announced its intention to: pass a Mortgage Financing Act which will make provision for the incorporation of companies under similar terms and conditions as the New Building Society (NBS) amend the New Building Society Act to allow it to accept other forms of collateral Other Measures The Minister announced a number of other measures including: Increases in licence fees in respect of vehicles, other licences, pound fees and airport departure fees. Establishment of a regulatory framework for securities trading. Reform of the insurance industry and updating the anachronistic Insurance Act 1970. Enabling legislation for a private sector development bank. An unspecified block of funds budgeted for the disciplined services, teachers and pensioners In his 1997 Budget presentation, the Minister had announced unspecified tax concessions on loans up to $1.5M for the purpose of constructing new homes. This idea now seems to have been discarded. No mention was made of an Investment Code or Guide and the future of Go-Invest and the Guyana Export Promotion Council remains unresolved. The paucity of new measures is striking but reflects the difficulties of budgeting in the current uncertain political climate and other factors affecting the economy. Several of the announced measures are general, unspecified statements of intent. It has become a characteristic of the budgets presented by the Minister to announce planned measures, many of which are often not followed through to execution. Examples are the announcement of tax relief on housing loans, the publication of an Investment Code and Guide, the establishment of a Revenue Court and tax reform. In order to ensure early implementation, the Minister needs to create the execution capability within his Ministry. COMMENTARY AND ANALYSIS The presentation of the Estimates which are now in four volumes has improved considerably although we believe they could be enhanced by the use of graphs. They ought to be particularly useful to the user Ministries/Departments and contribute to better financial and resources management. The Minister and his team ought to be congratulated on this development. 1997 marked the end of the second three-year Enhanced Structural Adjustment Facility under the Economic Recovery Programme. Up to the end of 1996 the economy had performed excellently. Several difficulties affected the economy in 1997 including a slowing down of foreign private investment. The theme of the Budget 1997 Strengthening Partnerships for the Future÷ proved a mirage and the close of 1997 saw the country dangerously polarised. The Minister cannot be blamed for the melt-down in south East Asia, El Nino or the price shocks which affected our major export commodities but has to accept responsibility for not taking early steps to ameliorate their harsher consequences. Although there are no new direct taxes, and some potentially beneficial policy measures we believe that some critical issues escaped attention in the Budget. The Exchange Rate Since December 1995, the exchange rate of the Guyana Dollar relative to the US dollar has depreciated by 23% from US$1 = G$126 to US$1 = G$155. Since December 1997 the Guyana Dollar has depreciated by slightly over 8% causing considerable concern in the business community. The exchange rate of the Guyana Dollar affects the inflation rate and therefore the cost of living, the interest rate and therefore investment, and our capacity to import and therefore our standard of living. There is optimism in government circles that the depreciation in the exchange rate of the Guyana dollar is temporary and that it will be reversed in the second half of the year since the fundamentals of the economy are strong". There have indeed been a few occasions in the past three years when the exchange rate fluctuated both adversely and positively but these movements have not been significant. It is therefore not only optimistic but unprecedented as well to expect the exchange rate of the Guyana Dollar to return to the comparatively strong level of $143 that it was less than six months ago. The foreign exchange market is not free as evidenced by the queuing system which commercial banks establish to meet demand. Government s policy is still far from clear and the absence of timely information compounds the imperfections of the market. It is desirable that the Bank of Guyana play a greater transparent role in the area of foreign exchange management with clearly articulated policy guidelines. The Public Sector Pay Issue Unlike earlier years there was no pronouncement on public sector wage increases for 1998. The Minister claimed that this responds to concerns by the public workers unions for a return to free collective bargaining. He announced that a block figure for teachers, the disciplined forces and pensioners was provided but the amount was not specified. Budgeted employment cost is 9.2% above 1997 which did however include the one-off lump sum pay increase of $338M. The Guyana Public Service Union whose President also heads the Guyana Trades Union Congress is certain to resist any attempt by the Minister to have the negotiations centre around an allocation in a Budget in which the Unions had little or no opportunity to participate. It also appears extremely imprudent not to have attempted a settlement of the issue prior to the Budget thus gaining the support of a major stakeholder. Urban Rehabilitation The problems of poverty and depressed areas in the city have increased in recent years. Not surprisingly there has been a correlated increase in crime, drug abuse and other social ills. The continued festering of poverty in these areas also contribute to political instability. Whilst the Government has embarked on major road programmes in the city, the state of housing, sewerage, water and unemployment in the depressed sections of the city is of greater though perhaps intractable significance. There is urgent need for an Urban Rehabilitation Commission. Law and Order Recent events have exposed a very fragile system of law and order in the country. The situation is further compounded by the low level of remuneration and the lack of resources in the Police Force necessary to respond to the scale and nature of crime in the society. Despite recent efforts the judiciary has not been able to discharge its functions effectively and its inadequacies themselves lead to serious injustices. We believe a Presidential Commission to revamp the various services and to make recommendations on improving their effectiveness should be initiated as a priority. Education It is almost universally recognised that the key to solving most of the nation s problems lies in revamping the education system and restoring the quality of education to the level which obtained in the past. Our ability to achieve this task is linked to the quality of the teaching profession which will be mainly determined by the remuneration levels offered to teachers. There has been considerable progress in improving the physical infrastructure under programs such as the PEIP and the SSRP as well as increases in pay for teachers. However, unless the question of substantial remuneration is seriously addressed, a full restoration of educational standards will not be achieved. The 1998 budget projects significant increases in current expenditure for the education sector. Employment costs make up 38% of the total budget representing an increase of 32.8% over 1997. Subvention and training costs are budgeted at $500M. Another important challenge in the educational sector is the need for vocational skills which have largely been ignored in the past. Far too much emphasis has been placed on a few premier secondary schools while the large mass of primary and other secondary schools and technical institutes have been treated as institutions for third rate pupils. Special emphasis needs to be placed on the cultivation of skills relevant to the country s development such as in the areas of agricultural science, forestry and technology. The National Development Strategy (NDS) The NDS appears no closer to finalisation than in January 1997 when it was announced that the revision of the document is expected to be completed by June 1997÷. 1997 however saw some significant departures from some of the recommendations in the Draft such as those on Guysuco and the Health and Education sectors. Whilst a significant part of the Budget Speech dealt with the Administration s agenda for the second term the NDS was not mentioned even once. The Government must now decide whether it will pursue a formal NDS and if so professionalise the early completion of the document. In too many matters of national importance, policies are formulated on an ad hoc, incoherent basis. Review of the Taxation System In his 1997 Budget Presentation the Minister announced a review of the taxation system including the feasibility of introducing value-added tax. This has not yet begun but in his 1998 Presentation the Minister appears to have reversed this commitment announcing only the establishment of the Revenue Authority and a review of tax legislation to provide stiffer penalties for tax evasion. The Minister may be unaware that Guyana has some very draconian penalties some of which were increased by 1000% in 1992. The problem in dealing with tax evasion is the absence of the political will, the resources to pursue the evaders and a court system that views tax evasion as a crime against society. CONCLUSION The Budget was prepared and presented in the most difficult circumstances. The main political opposition, the People s National Congress is yet to signal how it proposes to resolve its differences with the Government. The uncertainty surrounding the political future of Guyana is a poor platform for economic planning. The Caricom brokered Accord will hopefully settle the issue of the elections. However, the unacceptability of winner take all politics demands that all stakeholders in the society join in an urgent review of the constitution. With heightened tension and suspicions the major political parties are unlikely to be able to convene the review. Civil society has a crucial role to play in facilitating the discussions which should begin now. The effects of El Nino, potential flooding from La Nina, continued depression of commodity prices and a drought of foreign investments are likely to further affect the economy in 1998. These are not issues which a divided country can confront. Some form of rapprochement or modus vivendi is vital for the country s survival. NEW LICENCE FEES FOR VEHICLES FOR 1998 (and a comparison with 1997) ................................................................................. 1988 .............................................1997 1 For each Motor Cycle:- (a) Having 2 wheels and not exceeding 200 pounds ....1,000 .............................................600 (b) Having 3 wheels ...................................................1,500 .............................................920 (c) Having 2 wheels and exceeding 200 pounds ..........2,000 ..........................................1,200 2 For each Motor Vehicle other than a Motor Cycle (a) Not exceeding 2240 pounds .................................2,000 ...........................................1,600 (b) Exceeding 2240 pounds and not exceeding 3,00 pounds ...............................................................2,500 ..........................................1,900 (c) Exceeding 3,000 pounds and not exceeding 4,000 pounds .............................................................4,000 ..........................................3,000 (d) Exceeding 4,000 pounds and not exceeding 5,000 pounds .............................................................6,000 ..........................................4,200 (e) Exceeding 5,000 pounds .....................................10,000 ..........................................7,200 3 Passenger Vehicle for Hire or Reward For each Hire Car (a) Not exceeding 2240 pounds ..................................4,000 ..........................................3,000 (b) Exceeding 2240 pounds and not exceeding 3,000 pounds .............................................4,500 ..........................................3,240 (c) Exceeding 3,000 pounds .......................................5,000 ..........................................3,600 6 For each Goods Vehicle:- (a) Not exceeding 1,120 pounds unladen weight .........2,500 ...........................................1,800 (b) Exceeding 1,120 pounds but not exceeding 2,240 pounds unladen weight ......................................4,500 ...........................................3,600 (c) Exceeding 2,240 pounds but not exceeding 4,480 pounds unladen weight ............................................................9,000........................................... 7,200 (d) Exceeding 4,480 pounds but not exceeding 8960 pounds unladen weight ..........................................................11,000........................................... 9,000 (e) Exceeding 8,960 pounds but not exceeding 13,400 pounds unladen weight ..................................25,000 .........................................18,000 (f) Exceeding 13,440 pounds unladen weight .............30,000 .........................................21,600 Provided that:- (i) For a motor Lorry exceeding four tons, but not exceeding six tons payload .........................................25,000 .........................................18,000 (ii) For a motor Lorry exceeding six tons payload .......30,000.......................................... 21,600 (iii) For an articulated vehicle the unladen weight of which exceeds 11,200 pounds ..................................35,000 ........................................24,000 22 For dealer's general licence ....................................100,000 ........................................50,000 For each dealer's general identification mark ..................10,000 ..........................................2,000 Learner Driving Fees