VP Jagdeo explains why using oil money to hike salaries immediately is a bad idea

In all his time as President, His Excellency, Dr. Mohamed Irfaan Ali has maintained that Guyana must not be allowed to make the mistakes other oil producing nations did when they saw a windfall in oil revenues. When it comes to public servants’ salaries, the government’s policy in this regard stands firm.

US$607 million is sitting in the Natural Resource Fund, and while public servants would have wanted and were deserving of salary increases higher than 7 per cent, using Guyana’s oil revenues to steeply hike salaries at this time may be unsustainable.

Vice President Dr. Bharrat Jagdeo, during a press conference at the Arthur Chung Conference Centre on Thursday, told reporters that the government has seen other countries make this mistake all too often.

“When they had oil money or they got the windfall, what they got immediately, they started paying themselves higher salaries, they started pushing up the current budget of the country, and when the oil money goes, you’re stuck with those expenditures.”

Vice President, Dr. Bharrat Jagdeo

Dr. Jagdeo named Trinidad and Tobago, as one nation which made this mistake.

The Inter-American Development Bank (IDB) examined the case of Trinidad and Tobago in its 2018 report, The Dutch Disease Phenomenon and Lessons for Guyana: Trinidad and Tobago’s Experience.

Authors of the report stated that after winning a close 2001 elections, the Government of Trinidad and Tobago seemed to throw caution to the wind, increasing transfers and subsidies fivefold between 2000 and 2010, then doubling their 2010 values by 2015. The country’s current spending was so “hand-to-mouth”, as the bank described, that out of TT$284.1 billion in fiscal revenues collected between 1999 and 2015, the government spent TT$283.9 billion on transfers and subsidies alone.

“This component of government expenditure is not necessarily productivity enhancing, especially if the subsidies are not well targeted or effective in either diversifying the economic base or improving human capital,” the report’s authors wrote.

Building on the experience of Trinidad and Tobago, the IDB cautioned Guyana not to use up the state’s energy sector fiscal revenues to increase transfers and subsidies at the expense of capital investment.

The report stated, “The Guyanese government must plan to avoid making such an error. In parallel, it will have to put measures in place to build up its capacity to manage public sector investments.”

This sort of top-heavy current spending that the IDB cautioned against was actually practiced not too long ago in Guyana’s history – during APNU+AFC’s 2015-2020 term.

Dr. Jagdeo said that in 2014, the last PPP/C government, the Budget was $220 billion. The current budget, he said, was $138 billion while the capital budget was $81 billion.

APNU+AFC took over in 2015, presenting budgets up to the 2019 fiscal year.

“Often, when we accuse the PNC/AFC/APNU/AFC of being a consumption-based party, a party that does not prepare for the future, a party that taxes and spends, and spends in a particular manner, people often judge us harshly, they say it’s just a labour, and so you do have to really examine the numbers to see if this characterisation is an accurate one,” the Vice President said.

The APNU+AFC grew the country’s current budget from $138 billion in 2014 to $231 billion in 2019, an increase of 67 per cent. The Vice President said the budget was for rentals, vehicles, goods and services, among other things.

A lot of this was financed through the administration’s imposition of 200 new taxes and fees across sectors, amounting to about $40 billion more being taken out of taxpayers’ pockets. This move was reversed by President Ali promptly, upon the PPP/C’s assumption to office.

On the other hand, the APNU+AFC government spent less on infrastructure for the future. Dr. Jagdeo said a country cannot have long-term economic growth, if it does not develop its infrastructure.

“Expenditure over a five-year period declined on capital spending, which is used to build infrastructure such as schools, hospitals, buildings, roads and sea defences.”

Listing the development of the capital budget over the years, the Vice President explained that it dropped by $42 billion, from $81 billion in 2014, to $39 billion in 2015, $52 billion in 2016, $56 billion in 2017, $59 billion in 2018, and $69 billion in 2019.

This APNU+AFC legacy, Dr. Jagdeo explained, demonstrates its philosophy of consumption-based governance.

The PPP/C Government intends to use its oil revenues to build infrastructure that facilitates Guyana’s economic transformation in the years to come. This is why the government’s 2022 agenda, to be partly financed by oil revenues, has given public works an $88 billion capital budget, the largest of any ministry.