In reference to Mr. Ramesh Gampat’s missive in the November 8th, 2024 edition of the Stabroek News, with the caption “I read Bhagwandin’s letter a few times and am not sure what he is saying”, any economist of supposedly his “stature”, ifhe is worth hissalt, he ought to be able to test the veracity of the GDP growth rate to substantiate his notion that the real GDP growth rate obtained for the first half of 2024, is unrealistic. He can do so by utilizing the extrapolation technique―that is to say, utilizing the known variables to solve the unknown variables.
Instead, he chose to launch a despicable attempt at character assassination, sarcastically of this author, failing to realize that whenever I address him, I do so respectfully.I usually deal with the technical nature of the issues, and when I make certain assertions, I am doing so while being mindful that I am addressing one of Guyana’s finest economistswho is twice my age. Yet, he seems to be rapidly losing his once metaphorically youthful intellectual dynamism marked by his exceptional expertise demonstrated in his work of two-three decades ago,evidenced by the diminished quality of academic postulations that he exhumes. Hence, I forgive him for his usual pettiness and his consistent exhibition of academic indolence when addressing this author.
At minimum, I expect economists and financial analysts alike to roll their sleeves up and conduct the technical analysis thoroughly on whatever issues they are pronouncing on, rather than the usual quarter-baked (not even half-baked), surface level, generically oriented types of so-called analysis, that typically inform their positions on certain matters. This is the genre of academic indolence, which amounts to academic mischief that I am referring to.
Mr. Gampatis guilty of this form of academic lassitude whenever he writes in the newspaper although he knows better.
Further, he consistently attacks the credibility of the Bank of Guyana (BoG) and the Guyana Bureau of Statistics (BoS), two national institutions in Guyana that are endowed with some of our best, well trained and most hard-workingeconomists, analysts and statisticians. His constant attacks on these two institutions are always misplaced and uninformed. For example, he asserted that the BoG and the BoS do not have any econometrics model to forecast the GDP, which is quite presumptuous of him to say. The BoG perhaps does not, but the BoS certainly does, how else would it be able to measure and forecast GDP growth? The BoG, on the other hand, has econometrics models for the financial sector stability assessments and different levels of stress tests for the financial sector.
Your readers would recall that Mr. Gampat took issue with the real GDP growth rate of 49.7% and the non-oil real GDP growth rate of 12.6% obtained in the firsthalf-year periodfor the fiscal year 2024. He then stated that the comparator period is unknown, that it is not stated in the BoG half-year report for 2024, thus he is left to assume that the comparator period is the full year’s GDP growth for 2023. In a previous response by this author, it was pointed out that his assumption in this regard is wrong. Even if it is not stated clearly, it is understood that half-year’s growth is always measured in comparison to the corresponding half-year period for the previous year, not the full year. This is a very basic rule in the conduct of any type of comparative analysis; onedoesn’t have to be an economist to know this. He also sought to substantiate his claim by saying that the GDP table for the half-year period was not included in the report.
This author had highlighted in a previous response that while the GDP table for the half-year period was not included, the production indicators for the half-year period and the previous half-year period were reported in the appendix of the report. I never said that the production indicators are the GDP values, when mention was made of the production indicators.I am, in fact, mindful of who I am addressing, therefore, he ought to know, as an economist what was implied to him. Thus,since he is pretending that he knows not about what was implied to him, let me take this opportunity to expresslydemonstrate.
While the production indicators are not the same as the GDP value, the production indicators are nonetheless part of the GDP computation. As mentioned earlier, an economist who is worth his salt can take the production indicators, as well as other known variables to test the veracity of the growth in real GDP, vis-à-vis, extrapolation.
The GDP equation is G + C + I +NE, where G = government spending, C = consumption expenditure, I = Investment, and NE = net exports. There are three methods of measuring GDP, namely, the expenditure approach, the income approach and the production approach. Each method would derive different results because their sources of data are different. In Guyana, we use the production method mainly because
we are able to better capture all sources of production data in the economy as opposed to the income and expenditure methods.
In order to independently test the veracity of the real GDP growth obtained for the period January-June 2024 (2024 HY) in comparison to the corresponding period of January-June 2023 (2023 HY), let’s start by ascertaining the known and unknownfactors to do so.
First, we know what are the production indicators (BoG appendix, tables 10.3 (a) – 10.3 (d)) for the productive sectors in the economy. These include: the agriculture, fishing and forestry; mining and quarrying; andmanufacturing subsectors, and the electricity supply and water supply sectors. Second, we have the GDP at current basic prices (nominal GDP) for the year 2023 (BoG HY 2024 Report, table 10.1). Third, we have the Ministry of Finance (MoF) Mid-Year Report (2024) wherein, appendix A1 and A2 reported on the mid-year real sectorial GDP growth rates and the mid-year real sector share of GDP, respectively. The tables therein covered the following period:HY 2021, HY 2022, HY 2023, HY 2024 and the revised sectorial forecast for the full fiscal year, 2024.
In the 2023 GDP table at current basic prices, the GDP values for the some of the subsectors are reported in a disaggregated format, albeit not for all the subsectors that comprise “other manufacturing” for instance. Nevertheless, we can use the 2023 current basic prices and apply it to the 2024 and 2023 production indicators to derive the nominal GDP value for these sectors. After finding the nominal GDP value, we can then calculate the real GDP value by using the 2023 GDP deflator, which is the ratio of Nominal GDP (2023) / Real GDP (2023), or Nominal GDP/Real GDP X 100.
Bear in mind that each year, the GDP deflator, which is relative to a base year (2012), and the GDP at current prices―may have slight variations for the different years. However, for the purpose of this exercise, it is safe to use the 2023 deflator, because the objective of this exercise is to merely test the validity of GDP growth rates for the 2024 HY. As such, the result would not be exactly the same because we do not have all the components for the GDP as well.Notwithstanding, the result should be as close as possible to the actual growth rates reported, which would mean that the real GDP and non-oil GDP growth rates for the 2024 HYwould have been proven to be authentic. On the contrary, if in this exercise the result derived herein is found to be way-off from the actual reported growth rates of 49.7% real overall GDP and 12.6% real non-oil GDP for the 2024 HY, then we can argue that those growth rates are invalid or fictitious. Now, let’s continue to find the answer.
The production indicators for which the disaggregated current prices (2023) are available account for about 80.3% of overall GDP (2024 HY) and 74.3% of overall GDP (2023 HY). The GDP deflator (2023) is a ratio of 0.89,which was applied to find the real GDP value for 2023 HY, and a deflator of 0.90 was applied to find the real GDP value
for the 2024 HY. In so doing, the real GDP growth rate for the 2024 HY works out to 54.2% (4.5 percentage points above the actual reported growth rate), and the non-oil GDP growth rate worked out to 9.1% (3.5 percentage points above the actual growth rate reported for the period).
Remember, the nominal value of GDP was calculated with the production indicators that accounted for 80.3% (2024 HY) of GDP at current prices (2023), then it was deflated to find the value of real GDP for the 2024 HY.
Another method of extrapolation was applied, which gave a slightly different result. In this respect, if we have the real GDP value accounting for 80.3% of GDPfor the 2024 HY and 74.3% for the 2023 HY, then we can solve the value of the total (100%) real GDP for both HY periods (2023&2024). The formula to find this value is the: real GDP value/ the respective percentage (80.3% and 74.3% converted into a decimal number (0.803 & 0.743 respectively). Resultantly, the real GDP for the 2023 HY was $1.649 trillion, which rose to $2.352 trillion for 2024 HY period, reflecting a real GDP growth of 42.7% (7 percentage points below the actual reported rate) and non-oil GDP growth of 10.7% (1.9 percentage point below the actual reported rate) for the 2024 HY in comparison to the corresponding HY 2023 period.
In the final analysis, this demonstration corroborates the viewpoint that if an independent analyst or economistwishes to test the veracity of the real GDP growth rates obtained in the first half of the fiscal year, 2024,in the absence of the GDP table for the half year period, then they should possess the technical competence and capability to apply this technique to so do. As shown in the findings using two different methods of testing, the results were very close to the actual reported growth rates, validatingthe 49.7% overall growth rate and the 12.6% non-oil growth rate (HY 2024) to be authentic results.