Budget Speech Unveils Government Program For 2006

UNCLAS GEORGETOWN 000090

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: PGOV ECON EAID GY
SUBJECT: Budget Speech Unveils Government Program For 2006

Ref. 05 GEORGETOWN 1273


1. SUMMARY: The Minister of Finance presented Guyana's 2006
budget, which includes ambitious projections for economic
growth, increased public spending, tax reform, and resource
extraction. Despite the President's pledges not to use the
budget for political ends, the election year budget
diminishes any expectations about improving fiscal solvency
in 2006. END SUMMARY.


2. Finance Minister Saisnarine Kowlessar unveiled Guyana's
2006 budget in a speech before Parliament on January 23.
Total spending will amount to GD102.9 billion (USD511.9
million),an increase of 19.1% over the 2005 budget and an
estimated 11.5% above 2005 actual spending. The budget calls
for current expenditures to increase 4.7% to GD59.3 billion
(USD295 million). Much of the increase will go toward
raising old age pensions and social assistance by 75% from
GD2000 to GD3500 monthly. On the capital side, expenditures
are expected to increase 20% to GD42 billion (USD209
million). This includes continuation of the Chinese-financed
Skeldon sugar plant modernization and GD4.5 billion for road
construction.


3. As for financing, the budget anticipates revenues of
GD58.5 billion (USD291 million),an increase of 4.4%. Grant
financing is expected to increase by 33 percent to GD17.7
billion (USD88 million) of which GD1.7 billion would be due
to the World Bank and IMF-sponsored Multilateral Debt Relief
Initiative (MDRI). The remainder will be deficit financing
amounting to GD25.1 billion (USD125 million),or 14.7
percent of GDP, an increase from GD23.4 billion (DUS116
million, or 14.2 percent of GDP, in 2005. This deficit will
be largely financed through net external borrowing of GD22.4
billion (DUS111 million). Kowlessar also pledged to continue
lobbying for the extension of the MDRI to include
cancellation of debts owed to the Inter-American Development
Bank.


4. In terms of growth projections, the budget assumes a real
GDP growth rate of 4.2% in 2006, a figure roughly in line
with the IMF's projection for the year. This growth would
follow a contraction in 2005, estimated by ECLAC to be 5.4%,
due to epic flooding in January 2005. Among the industries
expected to see substantial growth are sugar at 28%, rice at
4.5%, and bauxite at 77.6%. Gold mining is expected to fall
by 40% due to the closure of the Omai Gold Mine last fall.
The projected rice production figure of 290,000 tons comes
despite recent estimates by the Guyana Rice Development
Board (GRDB) that as much as 10% of the country's rice-
producing acreage was affected by recent flooding. The GRDB
has estimated that the floods have consumed rice with an
estimated USD4 million export value.


5. Opposition members of Parliament guffawed when Kowlessar
pledged no new taxes in the 2006 budget. The budget calls
for reforming the income tax in two ways. First, the
threshold for income tax payment will rise from
GD240,000/year to GD300,000/year. In addition, the budget
would eliminate the current two-tiered tax rates of 20% on
the first GD110,000 of income and 33 1/3% on any amount in
excess with a single tax rate of 33 1/3%. In effect, this is
a personal income tax cut. The Finance Minister also
announced that the 16% Value Added Tax will be delayed until
January of 2007.


6. On the subject of law enforcement, Kowlessar added
himself to the list of GoG officials who have refered to
discussions with the Embassy on establishing a DEA presence
in Guyana. He also said the GOG is on track to table
revised anti-money laundering legislation this year. He also
proposed the establishment of a Deportee Monitoring Unit to
enable the GoG to "counter the negative impact of the
growing number of deportees within our midst" and a
USD1million anti-crime effort to include community policing.


7. COMMENT: Despite insistence that it is not "an elections
season" budget and President Jagdeo's past pledges not to
let electoral politics affect public finance (reftel),the
ruling PPP has touted the 2006 budget as having "something
for everyone". In the process, this year's budget appears to
have dashed any hope for a trend toward fiscal solvency and
significant increases in revenue collection. Initial
opposition has centered on the elimination of the 20% tax
bracket in favor of the uniform 33.5% as well as the
apparent failure to present a long-term proposal to repair
the country's ailing drainage and irrigation system. Post
will monitor and report as the budget debate commences. END
COMMENT.

BULLEN