“We have to make some adjustments to budget spending but I am hoping it is just a timing issue and if the HIPC resources come in towards the end of the year, we can shift back spending towards the final quarter of the year,” President Bharrat Jagdeo told reporters yesterday at a press conference. “We would definitely get HIPC this year....we have had a good mission assessment and I think we would definitely get the relief this year,” he added.

The government has been cutting back on expenditure from various quarters, including the regions, after it could not access relief under the new initiative. Jagdeo said he was worried about leakage in the revenue stream to the treasury and was unhappy that the Customs Department had not been able to go after the fuel smugglers whom the officers know.

“I don’t think enough is being done by the Customs Department to arrest this issue. I think they know who some of these people are and it is time that they go after them aggressively. We have had discussion/intelligence on the issue sometime ago.” The government on Wednesday announced that a special task force was being established to fight fuel smuggling.

Stabroek News understands that the Customs Department has fallen short of its revenue target by around 10% or $2B and the delay in enhanced HIPC relief creates another $3 billion shortfall in revenues. The government this year announced a budget of $72B, $46B of which is to be met out of current revenue; grants were to provide $7.2B of which HIPC amounts for $4.1B; and external borrowing was to provide $11B, while divestment proceeds were to bring in $2B. The latter has been achieved with the sale of the Guyana National Co-operative Bank (GNCB), but Customs is short of its target by $2B and it is not clear whether the external financing arrangements are on track.

This means at mid-year, the government is operating with an estimated $5B shortfall in budget financing.

The government is to make legislative changes to allow it to go after professionals in implementing presumptive taxation and to start taxing the service sectors. A 10% tax on local telephone calls had been announced from April 1 and withholding taxes have also increased.

On the issue of enhanced HIPC relief, Jagdeo indicated that he was very optimistic about prospects for this year and that the ball was rolling to get measures in place.

He said he was ready to sign the procurement bill, a key prerequisite for the debt relief, once it was placed on his desk for signature. He said the investment law would be tabled in parliament on July 24 or before the end of the current session of parliament and would be sent to a committee for consideration. The Small Business Act would also accompany the investment bill.

As to the naming of the new commissioner-general for the Guyana Revenue Authority, Jagdeo said the evaluation team of the GRA board was preparing recommendations on the best person for the job. As soon as this was complete, Jagdeo said he would move ahead with it.

Guyana has been hoping for this debt relief since March 2002 but has been unable to secure it because some of the prior actions and conditions had not been met. The outstanding issues are to be cleared in the next two quarters to allow the government to secure the debt relief.

But while the debt relief is a crucial budgetary aid, because of the nature of the relief by the individual creditors, the benefit to Guyana has been dwindling in recent years.

Total original HIPC assistance and interim assistance under the enhanced initiative have been declining. In 2001, the total debt relief was $7.9B with $5.3B coming as original HIPC and $2.6B as interim assistance. In 2002, a total of $8.7B was granted of which $5.5B was original and $3.1B was interim. This year, the budget caters for $4.1B in total relief, $1.4B coming as original relief and $2.6B as interim assistance.

Guyana secured a US$256M debt write off in 1998 in net present value terms.

It expects US$329M in net present value terms this year under the enhanced initiative.

However, it has been pointed out that the debt relief would dwindle in terms of the amount of debt service relief provided to the national treasury. Hence the issue which Guyana really confronts is a fiscal problem in that its revenue base is not growing to allow its debt burden to become sustainable.

Sources doubt that Guyana’s debt burden would become sustainable even with the enhanced HIPC relief. They note that while the external debt is high, the domestic debt is also climbing.

This year alone the government had budgeted $3B to service this debt while $4B is budgeted to service external debt.

This is why, the sources note, the International Monetary Fund is putting so much emphasis on tax reform.

If Guyana cannot increase its revenue flow, its debt burden would remain a problem, sources contend.

Two days ago Presidential economic advisor, Coby Frimpong stated that the poverty reduction strategy paper targets were becoming increasingly elusive and the President yesterday confirmed this.

He said this was because the funding from the enhanced HIPC was not delivered, as Guyana had not reached its floating completion point.

However, sources noted that strides would need to be made in broadening the tax base to allow for an increase in revenue and fiscal sustainability.