The Mystery of Guyanas GDP growth rate

May 15, 2014 By TarronKhemraj

Recently several letter writers have questioned the veracity of Guyanas GDP statistics,
including the rate of growth of GDP. We have here a classic case of asymmetry of
information. The Bureau of Statistics knows more than the public about the sources of the
data, aggregating methods, and the sector weights chosen to calculate Guyanas GDP. As
public servants, the statisticians could do the nation a great service if they explain clearly how
they arrive at a particularly sensitive data point such as the inflation rate or GDP growth rate.
The Bureau has the inside information and therefore should not expect the burden of proof to
fall on the public. It is also important that political aspirants lift up the quality of public
discourse when questioning the data.
Responding to a letter co-authored by several writers, the Chief Statistician Mr Lennox
Benjamin argues that anyone challenging the GDP statistics has to take into consideration the
growth of individual sectors of the economy. He is right. However, there are still unanswered
questions regarding the growth of various sub-sectors and their relative weight in computing
the final growth rate. A few issues have to be cleared up if the present debate is to move from
heat to light. First, the Bureau of Statistics uses mainly the production method when
calculating GDP, which is structured according to the following core sectors: (i) agriculture,
fishing and forestry; (ii) mining and quarrying; (iii) manufacturing; and (iv) services. The
Bureau uses the expenditure method to calculate GDP in current prices (nominal GDP);
therefore we must be careful not to conflate the production method and the expenditure
method when discussing real GDP growth as the latter is not suitable for calculating growth.
Moreover, exports and imports are considered when the expenditure method is used.
I find it interesting that the services sector now accounts for 66% of GDP as at the budgeted
number of 2013 (see Table 2 from the Bureaus website). The government argues that the
rebasing of the weights to 2006 allows for this sector to account for a greater share of GDP. I
am not yet ready to argue with this result. Nevertheless, with services now accounting for
66% of GDP, it implies Guyana has a similar production structure like a developed economy.
The services sector on average accounts for 45% of GDP in developing economies. Some
doubts were raised about the residual or sub-group other services. Other services account
for 4.4% of GDP in 2013, thus at this stage they are unlikely to bias the growth rate upward
in a significant way. Perhaps tourism and hospitality, which does not have a category of its
own, is merged into other services. If this is the case, I think it should be taken out even
though it could be uncomfortable for the politician in charge of the said ministry. We can
expect tourism and ICT to drive services growth in the years to come with the other services
sectors reaching their natural upper barrier.
Second, in keeping with the production method, the Bureau uses surveys of the various
industries, businesses and government agencies. The Chief Statistician reminds us that the
Bureau does not determine what goes on in the various agencies which are being surveyed.
They report the data and the Bureau assembles the data into the level of GDP from which the
growth rate is determined. Therefore, we have to examine the motivations of the various
businesses and government agencies to fudge the data to make the government look good.
For starters, the private businesses will likely be motivated to underreport production as a
way of hiding potential income tax (and royalty) liabilities. The government agencies and
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industries could have the political incentive to fudge the production data on the up side. This
is not a far-fetched notion given that we are witnessing the movement back to pre-Hoyte
features of party paramountcy, this time combined with an ethnically derived elected
oligarchy. Permanent Secretaries are openly supportive of the PPP government, campaign for
the PPP at election time and even threaten Indigenous folks to get in line for government
hand-outs. So the question remains to what extent is the private sectors incentive to
underreport production overcompensated by the government agencies incentive to over
report?
Third, GDP is not a measurement of welfare. It cannot say anything about inequality, poverty
and other social ills. It is simply a measurement that helps us to track the macroeconomic
performance of the country. However, per capita GDP is strongly correlated with the
components of the Human Development Index (HDI). So, for example, average life
expectancy is higher in countries with higher per capita GDP and vice versa. Health and
education outcomes are better in economies with higher average income levels. This high
correlation, however, does not excuse the paucity of poverty rate and inequality data in
Guyana.
Fourth, several indirect indicators are often proposed to buttress political points when arguing
over a technical concept like the national accounts statistics. For example, remittances are
often grouped with GDP statistics. As I have written in these columns before, remittances are
not incomes, although they do support consumption of the products produced in a specific
year. Remittances also leak out from the system when they prop up consumption of imported
goods and capital outflows. The substantial decline in remittances in 2013 could affect future
production but not necessarily contemporaneous production. The decline in remittances itself
is a mystery that requires an entire essay to analyse. Often other indirect indicators like
growth of loans to the private sector and tax collection are used as a proxy for GDP growth.
Although the intuition appears correct, I am not aware of any serious econometric study that
connects these variables in a causal model in the Guyana context. This is the kind of
empirical work that the university and various government agencies should be doing so that
political aspirants and public servants can move from the cursory to empirical regularity.
Fifth, the lack of certain crucial data sets raise suspicions by the public. The Bureau and the
minister responsible for data publication must explain why the 2012 census has not yet been
published. Speculation is rife on the blogs that the government is hiding the data because the
East Indian population declined further. This column in the past has noted the lack of regular
labour market surveys. As a result, there are no data on unemployment, labour force
participation, labour productivity and others. We cannot measure income distribution and
inequality. Poverty statistics have not been updated in over ten years. There is no Flow of
Funds accounting. Politicians appear reluctant to make sure regular social and economic
statistics are available. Enlightened analyses are needed in Guyana now more than ever,
particularly given the divisions in the society. President Ramotar should order a complete
upgrading of the statistical agencies and their capacity to analyse data. After all numerous
high quality job openings will result from such an action.
Comments: tkhemraj@ncf.edu
(http://www.stabroeknews.com/2014/features/05/15/mystery-guyanas-gdp-growth-rate/)
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