Budget 2004
Increased NIS contributions in cautious plan
By Gitanjali Singh Business Editor
Stabroek News
March 30, 2004
Minister of Finance Saisnarine Kowlessar (standing) as he presents the National Budget in Parliament yesterday. He is flanked by from left: Home Minister Ronald Gajraj, Housing Minister Shaik Baksh and Education Minister Henry Jeffrey (partly hidden). Als
With the economy shrinking by 0.6% in 2003, Finance Minister Saisnarine Kowlessar yesterday presented a $75.6B budget for 2004, which included no increase to the income tax threshold, nor any tangible measures to stimulate the economy and create much-needed jobs.
The closest announcement to a budget measure was an increase in the contribution rate for the National Insurance Scheme (NIS) from 12% to 13% from April 1, 2004. The employee's contribution will move from 4.8% to 5.2% while the employer's obligation will rise from 7.2% to 7.8%. The NIS ceiling up to which this compulsory contribution rate is applied is $88,397 per month. This means employees will have to pay up to $353.59 more each month, while employers will face an additional contribution up to $530.38 for each employee.
The minister, in his 54-page budget speech, was sparse in details to support many of the growth sources he spoke of and mentioned a total of 410 specific jobs to be created this year just after announcing the impending loss of 150 jobs at Aroaima by September.
There was no section, as has been customary, outlining budget measures but a large chunk of the budgeted sum will be spent on physical infrastructure, which the government hopes will boost investment and stimulate economic growth. But an aggregated sum for this was not announced. This expenditure will see the creation of short-term jobs across the country.
New growth areas
Kowlessar predicted growth of 2.5% for 2004 (2003 target: 1.2%), and said new growth areas would be fully exploited to realise their full potential to drive economic growth and make a bigger contribution to Gross Domestic Product (GDP). But the minister did not give the specifics of this exploitation in the areas of services, tourism, non-traditional agriculture and petroleum exploration he highlighted.
He said in recent years, the services sector output has been increasing steadily in part because of growth in information and communications, housing, garment manufacturing and distribution. But the minister did not say what would be done to encourage these sectors to realise their full potential.
Tourism
Tourism, he said, is slowly emerging as one of the new areas with the biggest potential to contribute to foreign exchange earnings, employment and growth. He said that the establishment of a fully functioning Guyana Tourism Authority and the attendance of several trade fairs and exhibitions have resulted in record arrivals in the last three months of 2003 and already large cruise ships are visiting Guyana.
Kowlessar said the government would support initiatives to intensify tourism product development. Training, he added, would be stepped up so as to equip workers with the necessary skills to meet the demands and expectations of tourists.
Agriculture
Another new growth area potential will be the encouragement and promotion of investment in agriculture; especially non-traditional products with export potential. "This area offers the best hope for creating niche products and satisfying nostalgic markets in the Caribbean, North America and other regions with a concentration of Guyanese and their descendants." It is not clear what form such encouragement will take. However, the National Dairy Development Programme (NDDP), National Agriculture Research Institute (NARI), and the New Guyana Marketing Corporation (NGMC) would be tasked with driving the marketing and export of commodities such as bora, boulanger, hot pepper, cucumber, spinach, papaya, pineapple and mango to North America, Brazil and the Caribbean.
These agencies would also be tasked with pushing the diversification of the agricultural sector, including greater downstream processing and the production of value added products, Kowlessar said. He noted the US$4M investment in Topco last year, which has benefited local farmers, and he said $240M has been invested in two other intermediate savannahs project geared to produce passion fruit, oranges, corn for animal feed, peppers, broccoli and cauliflower. These two investments created about 70 jobs and Kowlessar said another 50 new jobs would be created near Clonbrook and at Hope Estate as well as in the Pomeroon when a coco-peat project, comes on stream this year.
Aquaculture
However, in the case of fish exports, Kowlessar said the government's strategy for its sustainable management includes diversification into aqua culture and said the Food and Agriculture Organisation has agreed to finance a project to integrate aqua culture into small rice-based farming systems to diversify production for increased income and improved nutrition. Further details were not available.
Oil
The government, Kowlessar said, is targeting petroleum exploration as a new growth area with its success crucial because of rising fuel import bills amid high prices for oil. He noted that the government has moved to the UN to settle definitively the dispute with Suriname, which led to the curtailing of drilling activities offshore, and will support onshore exploration for oil.
The government's agenda
Kowlessar said that the rest of the government's five-year term will be spent reinforcing macroeconomic fundamentals; retooling the economy to enhance its competitiveness; venture into new growth activities; support private investment initiatives; improving the social and economic infrastructure; develop human resources to meet the demands of an expanding economy; creating jobs; improving the governance environment and fighting crime.
Crime
Two paragraphs of the budget were devoted to crime and security and the budget measure in this regard is the government's continued legislative, financial and technical support for the Guyana Police Force and other enforcement bodies to fight crime. Details were again sparse and an undisclosed amount of funds (in the speech) has been allocated to rehabilitate buildings, purchase equipment and vehicles, recruit additional policemen and to increase patrols in the worst affected areas. Kowlessar said the government has responded "positively and swiftly" with a number of measures to fight crime and these have been responsible for a moderation of violent crimes. He said the British government would provide training in firearms and crowd control and the government would work with its international partners to remove threats posed by the upsurge in terrorism, drugs and arms trafficking, money laundering, kidnapping and other serious crimes.
Job creation
Kowlessar said Go-Invest would continue to facilitate and encourage private investments to add value and create jobs. To this end, over $300M is to be invested in the wood sector for dressed lumber and prefabricated wooden homes for export which would see 60 jobs created in Linden.
And in preparation for the Cricket World Cup in 2007, two new hotels will be constructed this year in an $8 billion investment creating another 150 jobs. Another 150 jobs would be created in Linden with a call centre to be established in an $800M investment. Kowlessar said another $200M call centre investment is being negotiated.
Kowlessar said the retooling exercise for the sugar sector, the road projects, and the new hospital at New Amsterdam would all create jobs and provide vital income. Plans to revitalise bauxite would also create more jobs in Linden, he predicted. He said numerous training programmes to be mounted as a result of the Small Business Act would also boost self-employment.
Retooling and macroeconomic fundamentals
Kowlessar said the government would continue to pursue sound macroeconomic policies to allow for a low inflation rate, adequate savings, a healthy international reserve, a stable exchange rate and a prudent fiscal position. Efforts will also be taken to strengthen economic resilience to enable the economy to withstand shocks, to broaden the economic base and deepen the financial and capital market.
In the case of retooling, he spoke of the sugar industry modernisation project and announced that a Chinese consortium has offered a soft loan of US$24.2M for the co-generation facility for Guysuco.
In the rice sector, Kowlessar said the government would push for the early disbursement of 11.7 million euros to enhance the competitiveness of the sector. A project-monitoring unit has been set up and a national steering committee is to be appointed. These funds are to be used to rehabilitate the Dawa pump, replace sluices in Golden Fleece and Westbury on the Essequibo Coast, purchase drain-digging equipment, provide technical assistance to formulate a national rice strategy, provide expertise to analyse the financial and technological needs of millers, market research, and allow for sustainable water management.
Kowlessar said the industry would benefit from a 3.2 million-euro soft loan to procure machinery and equipment for drainage and irrigation and a further US$3.4M would be available under an Inter-American Development Bank(IDB)-funded project to support the sustainability of the D&I system through the formation of water users associations. Farmers, the minister said, would continue to benefit from education and training seminars while research and extension work would intensify for new high-yielding blast resistant rice varieties. The government, the minister, said, would "aggressively" pursue its proposal for either a regional safeguard mechanism against rice imports or an increase in the common external tariff. It will also seek new markets in Brazil, Venezuela, Colombia, Panama and Haiti.
Stimulating private sector investment
The government says it will continue to take initiatives to provide a more business-friendly environment and improve its investment ranking on the foreign direct investment performance index.
Kowlessar said the investment strategy is focused on attracting and supporting existing and potential local and overseas investors to invest in manufacturing which shrunk by two per cent last year and to create value added products and services for export. He said this strategy has four components, which include diversification, an equitable distribution of economic activities across the country, encouraging local and foreign investments and supporting micro, small, medium and large-scale enterprises.
The minister noted the recent passage of the investment law to support the private sector and said an investment promotion council would be established to review and amend changes to the priority areas for investment among other matters. He also cited the Small Business Act and said further reforms to the tax system would be made to ensure the system is more responsive to investment promotion.
During this year, a value-added tax (VAT) steering committee, to be headed by Kowlessar, will be established, legislation to have VAT replace consumption taxes by 2006 will be drafted and consultations with stakeholders will begin.
Further reforms will be made in the revenue agencies to reduce lead-time for the processing of documents and the taxpayer identification number will be implemented.
Under this category, Kowlessar announced that debtors of the pre-merged Guyana National Co-operative Bank (GNCB)/Guyana Agricultural and Industrial Development Bank whose bad debts had been transferred to the Guyana Co-operative Financial Services (GCFS) would be granted various forms of relief.
Those who owe under $1 million will receive a 100% write-off; those with loans between $1M and $5M will receive a 50% write-off and those above $5M will get a case-by-case review. The loans falling under these categories had not been performing and the government plans to restructure the GCFS to enable it to better collect the residual loan portfolio.
Meanwhile, Kowlessar announced that the government would start a process to lead to the enactment of deposit insurance by 2005 and would modify the Financial Institutions Act and its regulations as well as the Bank of Guyana Act to make them relevant with international best practices.
The minister announced the plans for the investment conference in the second half of this year, for which he said the international donor community's assistance would be sought.
The minister spent time outlining the government's efforts to increase the effectiveness and efficiency of the public sector and the need for strict fiscal discipline. He also dealt with the management of the public debt and announced that the management of the domestic debt would fall within the debt management unit. He also provided details of the public sector investment programme