Summary
The growth in the individual deposit portfolio and real estate loans in the commercial
banking sector are indicative of increased levels of disposable income, reflecting twice
the rate of growth recorded for the period 2020-2023 relative to the corresponding period
for 2016-2019. All in all, the resultant effect (indirect + direct impact) of all of the immediate cost
of living measures combined―for an average household with a low-income mortgage that would
be eligible for the MIR (a direct benefit), approximates to an annual average additional disposal
income of $1.4 million or $117k/monthly, albeit indirectly. In other words, in the absence of the
requisite Government interventions as outlined herein, designed to subside the rising cost of
living situation, the average household would have incurred an additional $1.4 million annually
or $117k/monthly to cover their household expenses. This would have been an unnecessary
burden on households, which would have effectively exacerbated the real impact of the cost-ofliving condition.
Background: Cost of Living (COL) Interventions. Combating rising cost of living, an
established global issue following the COVID-19 pandemic, which disrupted global supply
chains, and compounded by the Russia/Ukraine war; requires a two-fold approach. First, it
requires immediate relief measures to cushion the impact aimed at increasing disposable
income. Second, while in the case of Guyana rising cost of living is driven, in part, by the external
factors globally as previously mentioned, it is also attributed to strong demand for goods and
services given the increased level of production in the oil and gas sector, coupled with the
aggressive national development agenda vigorously pursued by the Government. As such, rising
costs, which is driven by buoyant aggregate demand in the economy, necessitates investments
and making incentives available to bolster the supply side (increased production) of goods and
services. This, in turn, would help to drive down prices to equilibrium levels in the medium to
long term.
The Global average inflation rate was 8.7% (2022), estimated to slow to 5.3% in 2023.
Guyana’s inflation rate remained in the low single digit range, which is projected to slow below
5% in 2023, thus remaining below the global average. In 2022, many other countries were still
experiencing double digit inflation. The World Economic Forum reported that inflation rates have
doubled in 35 of 44 advanced countries over the past two years.
Government of Guyana Immediate Relief Measures included the following: Through the
PPP/C 2020 budget, the immediate reversal of over 200 punitive taxes and fees (VAT included)
implemented by the APNU Government during their tenure in 2015-2019, which had increased
the tax burden on the population by over $60 billion in additional taxes annually. This was
equivalent to a tax-burden per household of an additional $300,000 annually, thereby eroding
the household disposal income. Consequently, the reversal of these tax measures immediately
restored $300,000 per household annually in disposable income.
Other measures include
- Reducing the excise tax on fuel from 50% to 0% ($20-40 billion annually in foregone
revenue), - Budgetary provision for COL intervention ($5 billion),
- Absorbed increased electricity generation cost by GPL (effectively subsidizing electricity
cost: $17-20 billion annually), - Absorbed increased cost by GWI (effectively subsidizing water: $2-4 billion annually),
- Part time job programme ($10 billion annually),
- Increase income tax threshold ($5-10 billion),
- Education subvention and grants: restoration of and increasing the cash grants for school
children ($15 billion annually), - Extending the freight charges adjustment to the pre-pandemic formula ($6-12 billion
annually in foregone revenue), - Public assistance ($1 billion annually),
- Increased old age pension ($365 million more annually),
- Increased public sector wages and salaries ($33 billion increase for the period 2020-
2023 or an average of $11 billion more annually), and Subsidy for first-time low-income homeowners, etc.
The sum total of immediate relief measures including foregone revenue to the treasury, amounts
to an estimated $189 billion annually, representing 19% of non-oil GDP (2022), 6.45% of overall
GDP (2022), 24% of the national budget (2023), and 63% of the Natural Resources Fund (NRF)
balance as at the end of 2022. Altogether, this translates to an additional $945,000 [indirectly] in
disposable income per household annually.
Affordable Housing for Low Income Families: The Low-Income Housing Programme. The
increase in the low-income mortgage ceiling is essentially to cater for low to moderate income
families. In so doing, low income families can now access up to $20 million at lower interest
rates. More importantly, the low-income housing programme by the Government is designed as
a major poverty reduction tool. As such, low-income families are able to own their own home at
a cost below the market price for financing, which in turn empowers those families, add to their
net worth and is a key pillar upon which they are lifted out of poverty. For example, they can then
leverage the value to raise capital to build micro enterprises and enhance their overall wellbeing
over time. If the Government did not make this arrangement with the banks for low-cost
financing, low-income families would not have been able to afford their own home if they were
subject to borrowing at market rates.
Key Facts about the Government’s Housing Programme
- The Low-Income Mortgage Program was introduced about sixteen (16) years ago under
former President Dr. Bharrat Jagdeo (Now Vice President), with a maximum ceiling of $8
million. - The average interest rate (below the average lending rate of about 10%-16%) is 5.25%.
This low interest rate which in turn enabled access to affordable financing for new lowincome families was made possible through an arrangement brokered between the
Government and the banks whereby the Government waived the taxes payable on the
interest earned on home loans. - The maximum repayment period is 30 years
- The equity homeowners / borrowers are required to inject is about 10%-20%.
Additionally, there is a Mortgage Interest Relief (MIR) program implemented by the PPP/C
Government whereby eligible applicants (first time homeowners and the principal amount
borrowed must not exceed $30 million), such persons shall be allowed a deduction of interest
paid on housing mortgage loans from their chargeable income. The average annual interest paid
on an $8 million loan would work out to about $262k and in the case of a $20 million loan would
work out to $655k. The total loans and advances to households including home improvement
loans, education, travel, personal and others at the household level, stood at $16 billion in 2007,
which increased to $40 billion or by $24 billion in 2023, representing an increase of 153% from
where it stood 16 years ago.
Real Estate Mortgage Loans increased from $56.6 billion in 2013 to $117 billion in 2023,
reflecting an increase of $61 billion or 110% for that period. This is indicative of steady growth
attributable to the fact that the low-income home ownership programme is most effective, such
that low-income families can afford to borrow and access loans to own their own homes at below
market rates.
The growth in the individual deposit portfolio and real estate loans in the commercial
banking sector are indicative of increased levels of disposable income, as shown in the
comparison between the period between 2016-2019 relative to 2020-2023. To this end, the
average year-over-year (YOY) growth in individual customer deposits for the period 2016-2019
was 6%, and real estate loans was 5%. In monetary value, the level of increase recorded was
$42 billion and $12 billion respectively for this period. Conversely, for the period 2020-2023
individual customer deposits reflected stronger growth at an average YOY rate of 10% and real
estate loans at an average YOY growth of 8%. In monetary terms, this increase was $98 billion
and $26 billion respectively, reflecting a growth rate that was more than two-times the growth
rate recorded for the corresponding period. This outturn is an indication of the impact, altogether,
of the economic policies and interventions administered by the Government, coupled with the
unprecedented vibrant growth in the overall economy.
Individual customer deposits in the commercial banking sector grew from a position of $197
billion in 2014 to reach $355 billion in 2023, reflecting a cumulative increase of $158 billion or
80%.
Long Term Investment in the Economy to Improve National Competitiveness. For the
period 2020-2023, the Government invested approximately $800 billion or an average of $267
billion annually aimed at increasing the national productive output and improving national
competitiveness in the economy.
The aforesaid are investments in transforming, for example, the energy landscape (the gas-toenergy project), developments in the infrastructure sector, the economic services sector, and
regional development.
Direct and Indirect Benefits Achievable through these investments include, for example,
Gas-to-Energy Project:
- Halving electricity cost, translating to increased disposable income, lower production cost
for the manufacturing sector, thereby transferring approximately $20 billion into
household savings annually, - Annual savings in foreign exchange of an estimated US$300 million,
- Enable structural transformation from a predominantly primary producing economy to
more of a tertiary producing economy by way of greater national competitiveness, - Overall, the estimated direct and indirect benefits of $200 billion annually.
Key Benefits: Investment in Road and Bridge Infrastructure
- Improved efficiency (efficient transportation and logistics, movement of goods and
people), - Reduction in transportation and logistics costs on all levels, household, commercial and
industrial - Improved connectivity and accessibility,
- Boost to local businesses
- Opening up of new opportunities, access to additional / new resources, such as land
- Real estate value appreciation
- Long term cost savings
Conclusion
The sum total of the immediate relief measures including foregone revenue to the treasury,
amounts to an estimated $189 billion annually, representing 6.45% of overall GDP (2022), 24%
of the national budget (2023), and 63% of the NRF Balance as at the end of 2022. Overall, the
resultant effect (indirect + direct impact) of all of the immediate cost of living measures combined
for an average household with a low-income mortgage that would be eligible for the MIR (a direct
benefit), approximates to an annual average additional disposal income of $1.4 million or
$117k/monthly, albeit indirectly.