On October 10, 2024, there was a special sitting of the National Assembly whereby the Head of State, His Excellency, Dr. Mohamed Irfaan Ali addressed the 86th sitting of the 12th Parliament, and the nation at large. In his address, the President outlined a menu of initiatives and policy measures aimed at targeting cost-of-living. These include: (i) a one-off cash transfer of $200k per household, (ii) a $10,000 tax-free allowance per child, (iii) free tertiary education at the University of Guyana from January 2025, and (iv) 50% reduction in electricity cost in 2025, among several others.
Following President Ali’s address, the main opposition parties, namely the APNU and the AFC, both demonstrated a“knee jerk reaction”, signaling discomfort and nervousness in their camps. The leader of the AFC, for instance, sought to remind the nation that the “cash transfer” to households was first articulated by Dr. Clive Thomas in 2018, and that the PPP/C Government has finally adopted his proposal ahead of the 2025 general and regional elections.
First and foremost, let’s set the record straight. The concept of “cash transfers” is not a new concept, neither was it developed by Dr. Thomas, rather it is a concept that has long been established in academic literature.
With that in mind, the fact is that the governing party has been the first to have introduced “direct cash transfer”,as an instrument to supplement households’ income, albeit these are mostly targeted transfers:
- In 2010, one of the first cash grants introduced was the business cash grant administered through the Small Business Bureau (SBB) of up to $500k.
- In 2010, the one-laptop-per family was introduced, which is a form of direct transfer.
- In 2013, another form of direct transfer to households was introduced, vis-à-vis, the Mortgage Interest Relief (MIR) programme.
- In 2014, the “Because We Care” cash grant for the school children was introduced, which was discontinued by the APNU+AFC Government during their tenure in 2015-2020 period.
Notably, the above targeted direct transfers were introduced in the pre-oil era; 4-8 years prior to the “Clive Thomas’s” proposal, whichhe made in the post-oil era, in 2018.
Impact on Inflation and Fiscal Sustainability
Concerns were also raised on whether the cash transfer would trigger “hyper-inflation”.The short answer is “no”. Hyper-inflation is high rates of inflation―high double and triple digits inflation. The one-off-cash transfer represents just about 1.3% of GDP, thus, will not trigger hyper-inflation.
However, the question is whether it will be inflationary, which is worth exploring. Let’s look at this from the “Clive Thomas” and the AFC/APNU proposed model versus the current model adopted by the Government. The “Clive Thomas/AFC /APNU” model proposesto grant an “unconditional” direct transfer per person annually as opposed to per household―thereby making it a recurrent expenditure.
The current model adopted by the Government is fundamentally different to the version proposed by Dr. Clive Thomas adopted by the APNU+AFC; such that, it is a one-off transfer in response to a specific need, which forms part ofa comprehensive set of fiscalmeasures to combat the high cost-of-living plaguing households.
Now, let’s explore the implications of both versions.
The population is now estimated to be in the region of 800k people. If we use the “Clive Thomas/APNU+AFC” version, it will cost US$800 million or GY$168 billion, representing 3.6% of GDP. In another variationproposed by the APNU’s is for it to be a monthly payment as opposed to annually (this is their most recent proposal at US$1,500 per person). In this case, it will cost US$14.4 billion annually, representing 65.5% of GDP and 5.3 times the projected oil revenue that the government will have earned for this fiscal year, 2024. Put simply, it would cost 5.3 times morethan what we are currently earning from the oil resources. As such, in the case of the “Clive Thomas and/or the APNU’s” proposal, both variations of theirs would have been fiscally unsustainable and unfeasible in relation to the actual earnings from the oil resources, as well as exacerbating inflationary pressures.
Conversely, in the case of the current version by the governing party, inter alia, a one-off transfer per householdequating to1.3% of GDP, it is unlikely to engender sustained inflationary pressures, and more importantly, it is well within a fiscally sustainable framework.