SECTION 2: Economic Performance, Poverty and Deprivation

 Introduction

As indicated earlier in measuring the uses of wealth, the HDI combines three sets of indicators: the standard of living, longevity and knowledge. In this Section we begin with the first of these. We offer a short discussion and analysis of the course and pattern of economic performance in Guyana over the past two and a half decades and also indicate the state of poverty and deprivation in the country. We conclude by raising some policy implications of this analysis and discussion.

i) Economic Performance

GDP and Development

While monetary measures of wealth and income do not satisfactorily portray economic progress and human development, the evidence world wide indicates that performance of these measures, i.e., economic growth along with the distribution of production, consumption and investment, affect - to varying degrees among countries and at different times - the level and incidence of poverty. The evidence also shows that the performance and distribution of the main components of GDP depend on a mix of external factors, (such as trade opportunities, the terms of trade, foreign capital inflows, and international interest rates) and domestic factors (such as government policies, the business outlook and confidence of domestic producers and consumers, and the efficiency of local commodity, credit, financial, and factor markets). In this sub-section we observe the main characteristics of the performances of these factors in Guyana.

Growth and Decline to the Early 1990s

In Guyana the decade 1980-1990 was a period of long-run negative (immiserizing) growth. During the decade total and per capita real GDP declined at an average annual rate of 3.5 and 3.9 percent respectively. By 1990 per capita GNP and GDP were only US$214 and US$395 respectively. In the preceding decade (1970-1980) per capita growth rates were modest (0.2 per cent).

The negative growth rates of the decade 1980-1990 were accompanied by a number of phenomena which indicate that the economic decline was dramatic and widespread.

While the data on poverty and deprivation are presented in the next subsection, in this Section we observe the behaviour of other economic indicators, some of which are discussed more fully later in the text. These data indicate the following:

First, a "wastage" of productive factors. This is revealed by:

• migration rates in excess of the rate of natural increase of the population (Section 1.ii).
• the deterioration of physical infrastructure, including both the basic utilities (water, electricity, telecommunication) as well as other areas such as roads, bridges, wharves, and sea defences (Section 1.ii).
• the collapse of the basic social services, particularly health, education, housing and social welfare (Sections 3 and 4).
• the withdrawal of coastal lands from agriculture brought on by the deterioration of drainage and irrigation systems, access roads, storing and drying facilities.
• the obsolescence of machinery, plant and equipment in both the private and public sectors of the economy, brought on by acute foreign exchange shortages.

Second, the secular decline in GDP was compounded with the emergence of severe macro-economic disequilibria. Thus by 1990:

 the underground or parallel economy which thrived on the shortages of goods and services, as well as severe restrictions on private markets, was estimated at about 90 percent of the official economy.

• the exchange rate was clearly overvalued, for while the official exchange rate at the end of 1990 was G$39.50 to US$1, by February 1991 it had reached a rate of $101.75 to US$1, when the street rate and the official rate were "unified" by the Authorities.
• inflation was high, reaching an annual rate of 65 percent in 1990. (This was below that of 1989, 90 percent).
• the overall deficit in the non-financial public sector was 59 percent of the GDP. The share of domestic borrowing in financing this was 17 percent.
• public sector employment fell from nearly 100,000 persons in 1980 to 65,000 by 1990.
• using a base index of 100 in 1987, wages in the Grade 16 category of the Public Service fell by 60 percent, to 39, by 1990. For the Grade I category the decline was over 40 percent, to 58, in the same period.
• the minimum wage in 1990, valued at just over US$1.00 per day, was about one-third of the value in 1980 ($2.89).
• the money supply (M₁) GDP ratio in 1990 stood at 28 percent.
• the external debt had by then reached US$1.9 billion, or about five times the value of GDP in 1990.
• all the above took place in a year when real GDP had also fallen by 3.5 percent.

Third, the sectoral performances of the economy over this period reinforce the significance of this overall picture.

By the mid-1970s the government had nationalised all the major production, distribution and financial sectors of the economy; owning and/or controlling at its peak 80 percent of the official GDP. By 1990, however, the three major production sectors, sugar, rice, and bauxite, along with electricity generation had suffered dramatic declines.

The sectoral value added data in Table 2.1 show how these weak performances were translated into GDP behaviour.

Table 2.1: Sectoral Performance 

Source: IADB, 1996 and Government Statistics.

Stabilisation, Adjustment and Economic Revival

It is unlikely that we will ever be able to sort out cause and effect in the poor economic performance we have noted. Some attribute this to the lethal combination of external shocks, economic mismanagement, low capital inflows and investments. Others attribute it to an over- ambitious strategy of state-ownership and state-led economic development. Some others have blamed the pre-occupation of all groups at the time with battles over democratization and governance, which resulted in economic and commercial considerations being placed on the back-burner of national priorities.

What the data undeniably reveal though, are that all these phenomena are closely associated. They occurred simultaneously. The result was that the difficulties affecting production, politics, governance, culture and the social situation were fused in such a manner that SHD was unrealisable.

The solutions arrived at to resolve this crisis have been basically two-fold: a Government-IMF/World Bank group sponsored Economic Recovery Programme which came on stream in 1991; and the holding of internationally monitored free and fair elections in 1992.

Since 1991 the growth of GDP and the performance of the major macroeconomic indicators have shown a dramatic turnaround:

• The average annual growth of GDP since 1991 has exceeded 7 percent (Table 2.2).
• The major production sectors: sugar, rice, bauxite and gold, have, on balance, shown a marked revival (Table 2.3). This is confirmed in the high value-added by sectors for the period 1990-1996 shown in Table 2.1.
• Inflation rates have dramatically fallen, reaching single digit levels since 1993 (Table 2.4).
• The exchange rate has stabilized, albeit at the low level of G$140 to US$1 by 1996 (Table 2.4).
• The external debt has recently benefited from a "Naples terms" write off (June 1996), so that the debt at the end of 1996 was approximately US$1.5 billion, down from its peak of US$2.1 billion.
• Money supply growth has been significantly reduced (Table 2.5).
• The public sector achieved a current surplus of 4 percent of GDP and an overall deficit of -8 percent of GDP by 1995 (Table 2.6).
• Gross international reserves reached US$270 million by the end of 1995, while net international reserves at the Bank of Guyana at the end of 1996 was US$154 million, up from US$15 million in 1992.

Table 2.2: Economic Growth (GDP Factor Cost)

Source: Bank Of Guyana 1995, Ministry of Finance, National Budget & Estimates 1997

Table 2.3: Production Indicators 

Source: Government of Guyana Statistics, several years.

Table 2.4: Prices

Source: Ministry of Finance, National Budget and Estimates 1997 and Bank of Guyana Bulletin, several years.

Table 2.5: Monetary Behaviour 

Source: Bank of Guyana Bulletin, several years, and the Ministry of Finance National Budget and Estimates, 1997.

Table 2.6: Government Accounts 

Source: IADB 1996 and Ministry of Finance, Estimates 1997

Four observations are important when considering these figures:

First, while by 1990 some form of stabilisation/adjustment programme had become long overdue, this did not, and indeed could not, of itself, dictate the particular form which this should take.

Second, adjustment followed the standard sequence. It began with economic stabilisation and moved on to concerns about social adjustment only after the stabilisation packages had exacerbated the social circumstances of wide sections of the population. It was therefore a reactive and not a proactive response to remedying the social situation.

Third, because of the period of immiserizing growth which preceded it, GDP had reached a low base, thereby making moderate absolute increases in GDP manifest themselves as large percentage changes. Thus for example sugar production nearly doubled between 1990 and 1995; but output in the latter year was only 3 percent above the average for the years 1985/86.

Finally, the unification of the official and unofficial exchange rates and the accompanying policies of market liberalization, undermined much, if by no means all of the rationale for the widespread existence of parallel/underground markets. Some of the growth after 1991 therefore, captured in the official statistics, may simply have reflected the merging of official and unofficial markets, and not expansions in real output. A good example of this is gold production. This is measured on the basis of official declarations of gold to the Gold Board. This is the only agency legally empowered to purchase gold. Prior to the unification of the exchange rate, the bulk of the gold sales by local producers took place in the underground economy, outside the purview of the Gold Board.

ii) Poverty and Deprivation

Approaches to Poverty

Several different meanings and approaches to the measurement of poverty exist. Some of these are based on subjective perceptions of the phenomena. Others are objective, using some objective variable like income, consumption or basic needs. Some also define poverty in absolute terms, such as the ability to obtain sufficient food and non-food items for survival. Others define it in terms of the relation between sub-groups of a country's population in terms of income, consumption or basic needs when these are used as indicators of welfare. There are also those who stress the duration of poverty, i.e., whether the poverty is chronic (long term) or short-term.

In most of the literature a distinction is made between those who are critically poor (usually those who are unable to obtain the food necessary for survival) and the absolute poor, (namely, those who are unable to obtain the food and non-food requirements for survival). However, whatever meaning is attached to this multi-faceted phenomenon, it is universally accepted that where poverty is widespread, sustainable human development is not occurring.

In this sub-section we provide a portrait of poverty in Guyana, based on the most recent data available. As we shall see, this presents a deeply disturbing picture of poverty at the time when the most comprehensive survey (1992-1993) in the country's history was undertaken.

Survey Based Poverty Measures

Five years after Independence, in 1971, PAHO/WHO conducted a national food and nutrition survey in Guyana. This also provided data on income, expenditure and poverty. It was not until 1976 however, that the results of this survey were published (PAHO/WHO, The National Food and Nutrition Survey in Guyana, Washington, D.C., 1976).

More than two decades after this event, in 1993, a joint IICA/IFAD survey of four rural areas was conducted. The objective was to obtain data on land tenure and land use, farm production and technology, rural credit and extension systems, and socio-economic conditions in the area. The latter was designed in the survey in a manner so as to measure the degree to which the basic needs of farmers in the surveyed areas were fulfilled and the extent of poverty. The results of this survey were published in 1994 (IICA, IFAD and the IDS, Rural Socio-Economic Survey, Guyana, 1994).

At about the same time a Living Standards Measurement Survey (LSMS) was being undertaken by the Bureau of Statistics under the direction of the World Bank. This was a part of the third of four sub-rounds of data collection for a National Household Income and Expenditure Survey (HIES), being undertaken by the Bureau of Statistics during 1992/1993. The LSMS study was based on the usual World Bank format for these studies. It represents the only systematic attempt to gather data on poverty and deprivation at the national level. Statistical tables were generated from this survey and presented in two important studies: the University of Guyana Consultancy Organisation's Preliminary Report on Living Conditions in Guyana, (Guyana, 1994) and the World Bank's Guyana, Strategies for Reducing Poverty, (Washington, 1994).

The Poverty Line

The poverty line in Guyana was derived on the basis of the average price of a minimum low-cost food basket which yielded a diet of 2400 calories, plus an allowance for non-food goods. The household survey data suggested this latter amount to be 35 percent of total consumption. These calculations yielded a poverty line of US$380 per person at the time of the Survey. Those who could not afford this bundle of food and non-food goods were characterized as the absolute poor. Those who could not afford the food portion alone of the bundle were characterised as the critically poor.

While arriving at the cost of the bundle of goods to represent the poverty line is fairly straightforward, however, two different variables can be used in determining who falls above or below this line. One is based on the income of the individual or household, which is used to measure whether the bundle of food and non-food items could be afforded. The other is based on consumption. In this case the effort is to determine the level of actual consumption for households and/or individuals and to see if this warranted placing them above or below the poverty line (See Box 2.1).

The survey data show that 78 percent of the population had incomes below the absolute poverty line and 35 percent below the critical poverty line.

Using consumption data, the survey data alternatively show that 43 percent of the population fell below the absolute poverty line and 29 percent fell within the critical poverty group.

The difference between the two is largely explained by the role of such items as remittances from family and friends overseas (See Box 2.2). The LSMS indicates that about 35 percent of house-hold consumption in Guyana was financed by overseas remittances.

Basic Needs

Another indicator of poverty which the data permit us to use is the extent to which a household's basic needs are being met or not. These basic needs are defined to include: housing; water-supply; sanitation and waste disposal; access to electricity; and access to educational and health services. The data show that about two-thirds of all households surveyed were unable to have one or more basic needs fulfilled.

Table 2.7. below summarizes the situation.

Table 2.7: Households by Basic Needs and Poverty Lines

Source: University of Guyana Consultancy Organisation, 1994

The Poverty Gap and Poverty Severity Measures

Two other poverty measures, which are widely used have been derived from the LSMS. One is the poverty gap, which represents the amount of income required to take all the poor households up to the poverty line, expressed as a percentage of the poverty line. In Guyana this was 16.2.

The other is a little more difficult to describe in words, as it is based on an abstract mathematical relation. It seeks to measure the severity of poverty by attributing more weight to those who are among the very poorest as compared to those who are poor, but are not necessarily among the very poorest. In other words it tries to take into account the distribution of poverty among the poor. It is called the FGT₂ measure of the severity of poverty. This is calculated as the aggregate of the square of each house-hold's poverty gap, expressed as a portion of the entire population size. The FGT₂ index in Guyana is 8.2.

Income Distribution

Poverty is linked to the distribution of income: the greater the degree of inequality, the greater the likelihood of poverty. The LSMS shows that based on reported income the poorest 40 percent of households received 16 percent of total income and the highest 40 percent received as much as 65 percent.

The consumption based estimates show that the poorest 40 per-cent accounted for 12 percent of total consumption, while the top 40 percent accounted for 74 percent of total consumption.

The Gini Coefficient, which is universally used as a standard measure of the degree of inequality in the distribution of income is 0.423 in Guyana, on a scale of 0-1. This is considered to be a serious degree of inequality.

The income and consumption distribution data are shown in Table 2.8 below.

Table 2.8: The Distribution of Consumption and Income: Guyana (1993) 

Source: 1993 LSMS Survey Results (UGCO's and World Bank, 1994)

Non-Survey Poverty Indicators

IFAD in its study: The State of World Rural Poverty - A Profile of Latin America and the Caribbean, 1993, developed a composite basic needs index (BNI) which combines indicators of education and health. Like the HDI, the education index combines a number of variables such as adult literacy rates and primary school enrolment, while the health index takes into account variables like infant mortality rates, access to health services, sanitation, safe water and doctor-population ratios. The index has values from one to zero, with a value closer to one indicating a higher basic needs fulfillment for the population than a value closer to zero. Countries are ranked as:

• BNI < 0.5 - Very Needy

• 0.75 > BNI > 0.50 - Moderately Needy

• BNI > 0.75 - Relatively Less Needy

Guyana is given a BNI index of 0.771 and therefore falls in the relatively less needy category.

There is also the Integrated Poverty Index (IPI) produced by IFAD which integrates the absolute poverty measures with a measure of the national income-gap ratio. This index also takes on values from one to zero with poverty being more severe, the closer the value is to one. The following categories are then derived:

• IPI > 0.4 - Severe Poverty

• 0.40 > IPI > 0.20 - Moderate Poverty

• IPI < 0.20 - Relatively Little Poverty

Guyana obtains an index of 0.951 and falls into the severe poverty category.

Other Poverty Line/Income Indicators

The minimum food basket, as collected by national agencies, is based on a 2400 calories standard diet per person per day. This is an average, and actual requirements range from 3000 for young male adults to 1360 for children 1-3 years old. The daily cost of this diet based on a minimum low cost mix of goods at December 1995 was G$153 or US$1.08 in the Georgetown area. In other areas the cost varied e.g., Rosignol was as much as 25 percent higher and Linden, as much as 40 percent, higher. Corriverton was lower.

The annual cost of this basket for Georgetown, at December 1995 was US$392. This would therefore, constitute the critical poverty line.

Adjusting for non-food items on the same basis as the LSMS survey this yields an absolute poverty line of about US$529 at the beginning of 1996.

These data can be compared with four other reference incomes:

First, per capita GDP and GNP, which in 1996 was US$766 and US$633 respectively.

Second, the national minimum wage, which stood at US$633 at the end of 1996.

Third, the income tax exemption threshold, i.e., the level of income below which no one is liable for income taxes. This was set by the Ministry of Finance at US$1270, for 1996, and increased by 20 percent to US$1524 in 1997.

Fourth, if we adjust per capita GDP and GNP estimates by one-third to account for remittances, as the LSMS survey indicates occurred in 1992, then per capita gross disposable incomes would be US$1019 and US$882 respectively.

These other reference incomes reveal a spread from US$633 (per capita GNP) to US$1524 (income tax threshold) highlighting the significant variation to be contended with in defining a benchmark poverty income, for policy purposes.

Disaggregated Survey Results

The survey results indicate striking regional, ethnic and educational differences among the poor. Generally these show the highest incidence of poverty in the rural and interior areas and among the Amerindian population. There is also a strong correlation between the level of education and poverty. The relation between unemployment and poverty is discussed in (Section 5).

By Region:

The data on poverty by geographic region reveal wide differences between urban areas and the rural interior. In two Regions, 8 and 9, poverty reaches 94 percent of the population. Even along the coastal areas levels of poverty were above the national average, at the time of the survey (Table 2.9).

Table 2.9: Poverty by Geographic Region

Source: World Bank, 1994

By Ethnicity:

The incidence of poverty across ethnic groups is shown in Table 2.10. Approximately 88 percent of the households headed by Amerindians live below the poverty line. The comparable ratios for Indo-Guyanese is 33.7 percent and Afro-Guyanese 43 percent. Where the head is mixed, the ratio is a little higher than the national average, at 44.7 percent.

As we have seen earlier (Section 1) Afro-Guyanese households are fairly evenly divided between urban (46 percent) and rural (56 percent) areas. However, 73 percent of Indo-Guyanese households live in rural areas and only 27 percent in urban areas.

Table 2.10: Poverty (Head Count) by Ethnic Group 

Note 1. Living in households headed by ethnic group.

Source: World Bank, 1994.

By Education:

Among poor households the level of education is lower than for the general population. About one-seventh of the poor households have completed a secondary or higher level of education. This relationship between poverty and levels of education is further revealed by the fact that in the rural coastal region less than 15 percent of household heads have achieved a secondary or higher level of education as compared to 50 percent in Georgetown. In the rural interior areas only 9 percent of the population has attained this level.

By Household:

In terms of household size and composition, poor households have an average of 5.6 persons, 2.6 of whom are children, compared to a national average of 4.4 and 1.8 respectively.

Rural Poverty

To complete this portrait some key results in the IFAD/IICA rural survey are presented below, for those data that are not covered directly in the national survey. These show:

• The breakdown of drainage and irrigation systems in the surveyed areas. Nearly 85 percent of the rural drainage system was either non-existent, not-working properly or not working at all. For the irrigation system the com-parable figure was 89 percent. When asked how they would respond to improved drainage and irrigation, 80 percent of those surveyed said they would expand their cultivated areas or harvest more crops per year.
• Low productivity was evident on most farms. This was revealed in low yields, poor planting material, bad post harvesting practices, the prevalence of pests and diseases and collapsed extension services.
• The distribution of land holdings showed significant inequality. About 15 percent of the farmers utilized almost 80 percent of the available farm land in the surveyed areas.
• The level of participation in social organizations is extremely low. On average just over one-third of the households belonged to religious associations. Less than 4 percent belonged to farmers associations, cooperative village associations, youth groups and so on. Approximately 8 percent had membership in sports clubs.

iii) Policy Implications

Several policy implications for SHD flow from the previous presentation of baseline data and the analysis of concepts of human development and status in Guyana. These are highlighted below:

SHD Indicators for Guyana

We have already indicated that important new dimensions should be added to the concept of SHD in order to take into account the concrete realities and national priorities of Guyana. These include:

• ethnic and cultural group security for a plural society;
• territorial cohesion in the face of geographic segmentation;
• democratic deepening;
• habitat sustainability in the context of a growth trajectory dependent on intensive natural resource exploitation;
• stable population growth in the context of de-population, and the slow reaction times to changes in well-being and knowledge indicators.

The above constitutes the first policy implication.

Self-sustained Growth and Macroeconomic Balance

Secondly, for a small open economy like Guyana, the maintenance of self-sustained growth and macroeconomic balance is important to the outcome of SHD for Guyana. For much of the past two decades, the negative impact of features such as exchange rate instability, foreign exchange rationing, high domestic rates of inflation, shortages of basic commodities, and underground markets, has been an important cause of the absence of SHD in Guyana.

Equity in the Distribution of Income and Wealth

The turnaround in the economy since 1991 has led to rapid growth in GDP, with little attention being paid to the issue of income and wealth distribution in Guyana. The third policy conclusion therefore is that continued growth in GDP, let alone SHD, is not possible where significant inequalities prevail.

Human Resource Development

The large contraction of the public sector, along with jobless growth in the private sector, make the promotion of self employment an important policy instrument for SHD in Guyana. In this regard therefore, human resource development is clearly the fourth priority policy issue to be identified.

Public Spending and Social Income

Even though the role of the state in the economy is undergoing fundamental transformation, the provision of basic public goods is important for the well-being of the broad masses of Guyanese people. An improvement in public finances is therefore our fifth policy recommendation, as without this SHD will not take place. The two principal aspects of this policy are:

• Securing relief from external debt, the financing of which presently places an inordinate burden on domestic public revenues.
• As a corollary of the above, there is the need for an enlargement of public revenue through improved administration of the tax system and a widening of the tax base. The latter can take place through such means as public education, and the use of low to moderate tax rates as an incentive, in order to secure better compliance.

Export Competitiveness

Although Guyana has access to several preferential markets: the Association of Caribbean States (ACS); the Caribbean Common Market (CARICOM); the Lomé Convention with the European Union; the CBI and the USA; and the Canada - West Indies Agreement, we live in an age of decline for special protection and segmented trade arrangements based on non-reciprocity.

The process of globalisation and the emergence of continental wide preferential trading blocs, require an all round improvement in its export competitiveness, if Guyana is to successfully promote SHD. While this sixth policy recommendation is dependent on the outcomes of some of the others mentioned earlier, e.g., macro-economic stability and human resource development, it nevertheless requires a focus of its own.

Target Groups and the Alleviation of Poverty and Deprivation

In the pursuit of SHD, specific policies geared to alleviation as distinct from eradication and reduction, of poverty and deprivation constitute the final policy recommendation at this stage.

Experiences in Guyana in this regard as well as policy proposals, are presented in Section 7 below. What we shall confine ourselves to doing at this point is to identify the principal target groups. These are:

• Small farmers, with less than 15 acres of land, who cultivate rice and non-traditional crops such as ground provisions, and rear livestock (see Box 2.2).
• Single parent households, particularly those headed by women.
• The employed poor and pensioners whose situation has been exacerbated by public sector lay-offs, high inflation and declining real wages. The latter group make up 6 percent of the population.
• The unemployed.
• The indigent, i.e., those without homes, assets and regular access to food and clothing.
• The disabled, estimated at about 4 percent of the population.
• Youth, especially those who neither work nor study and are frequently concentrated in slum-neighbourhoods.
• The Indigenous Amerindian Peoples, who as we have seen, represent a special category of poor in Guyana.