Dear Editor,
In the October newsletter of the University of Guyana’s GREEN Institute, Dr. Thomas Singh argues that Guyana’s rising cost of living and the shortage of US dollars at banks and cambios are caused by the government’s fiscal stance, meaning how much it spends, and not by what economists call monetary financing. Talk of monetisation, he says, “diverts attention” from the scale of government spending. With a colleague, we have published a detailed reply:https://guyanabusinessjournal.com/2026/11/on-guyanas-fiscal-stance/.
Here, we set out the essentials of our reply because of the educational value and public policy implications.
We are with Dr. Singh on certain issues, but they are issues that we and others have raised and discussed for a long time; there is nothing new in them. Government spending has grown too fast and the rules for withdrawals from the Natural Resource Fund (NRF) are too generous. The official consumer price index, which covers only Georgetown and uses spending patterns from 2005/06, does not reflect what families pay today. One of us made all three points in a 2024 book on Guyana’s foreign-exchange market.
Where Dr. Singh goes wrong is on a basic question: does it matter how the government pays for its spending? It does. This is a fundamental point of economics, not a technicality.
A government that spends more than it collects can cover the gap in only a few ways. It can raise taxes. It can borrow from households and firms, who then spend less themselves. It can borrow abroad. Each of these takes purchasing power from somewhere. Or the central bank can create new money and lend it to the government. That is monetary financing. It adds purchasing power without taking any away, and much of it ends up chasing US dollars, hence the local FX shortage.
Dr. Singh concedes the first part of this himself. He writes that “tax-financed spending is neutral overall”. Yet he also claims that government spending raises prices “however it is financed.” Both cannot be true. If the way spending is financed decides whether it adds to demand, then financing matters for prices. That is exactly our point.
How much monetary financing is there? Dr. Singh says the question cannot be settled without the central bank’s holdings of government paper. Those figures are published, in the Bank of Guyana’s own Statistical Bulletin. At the end of 2021 the central bank held less than 1 per cent of the government’s Treasury bills. By the end of 2025 it held more than half, about G$446 billion. Of the G$682 billion increase in Treasury bills over those four years, the central bank took up about 65 per cent. It is the central bank that now holds the largest share of Treasury bills outstanding.
Much of the fiscal deficit is reported as “domestic borrowing”. The label misleads. When commercial banks buy Treasury bills using reserves that the central bank itself created, no saver gives anything up. In economic terms this is not domestic borrowing. It is monetary financing by another route. Economists have a name for an arrangement in which the central bank serves the government’s budget: fiscal dominance.
Why should ordinary Guyanese care? Because the extra Guyana dollars financed by the central bank chase a limited supply of US dollars. That is why people queue at banks, and why cambio rates have moved well above the official rate (which also raises the question of how the official rate is measured). It is why the central bank’s reserves have begun to fall, from about US$1,356 million in December 2025 to about US$999 million in April 2026. And it is why rents, land and many services keep getting more costly even when official inflation looks low.
Nor will Dr. Singh’s remedy fix the problem. Paying the import content of public contracts in US dollars sounds sensible, but it leaves central-bank-financed spending in place, say on current expenditures, and that spending will keep producing FX shortages.
To be clear, none of this excuses the government’s spending. Monetary financing is one of the ways an expansionary fiscal stance is sustained.
What should be done? We propose four steps:
1. A clear limit on the non-oil fiscal deficit, so that spending grows no faster than the economy can absorb;
2. A tighter withdrawal rule for the NRF, with a legislated floor on what is saved;
3. An end to routine central-bank financing of the budget, and the sale of Treasury bills to households and firms, so that the public lends from genuine savings; and
4. A modern consumer price index with national coverage and current weights.
We end with a simple question. If we should worry about the inflationary effects of spending from the NRF, which is backed by US dollars, should we not worry at least as much about spending financed by the central bank, which has no US dollars behind it at all?
Guyanese deserve a public debate not only about how much their government spends, but about how that spending is paid for. That debate cannot go forward if the central bank’s role is dismissed as a distraction.
Sincerely,
Ramesh Gampat
Tarron Khemraj
Discussion