What the World Bank report did say about what Guyana can do to avoid to avoid the middle-income trap

Dear Editor,

Please permit me to comment on the headline: Guyana has avoided the ‘middle-income trap’ – World Bank report, SN, October 19, 2024.

The headline is both accurate and inaccurate. 1. The accurate part is just definitional as the World Bank defines a high-income country as one that has a gross national income per capita of US$14,005 or more in 2023. Antigua and Barbuda, Guyana, Barbados, Bahamas, St Kitts and Nevis, and Trinidad and Tobago meet the definition. 2. The inaccuracy is equating a definition — which to emphasise is arbitrary as to the income thresholds, intended more for administrative purposes (such as which countries qualify for aid or loans on concessional terms) — with a hypothesis called “middle-income trap” that describes a stage in development (emphasis on “stage”). 

The conventional wisdom of the “trap” is that when countries reach some intermediate income threshold, growth becomes much more difficult.  There are reasons for this that, but another story. None of the CARICOM countries noted above is even close to becoming high-income country in this developmental sense. But it would be more accurate to say they are in the intermediate stage of development, albeit at different levels, e.g. St Kitts compared with Barbados; Guyana compared with Trinidad.

Guyana, starting from a low GDP base and with a small population, became high-income “overnight”, entirely to the growth surge from oil exports. It’s like Nauru ($22,000 per capita, population 12,000) that became high-income from exporting phosphates (which, by the way, has been depleted and the country now risks going back to low income — a “rags to riches to rags” story unfolding and a lesson for Guyana. 

Note that rapid growth has shown to be a good predictor of future growth slowdowns, and even absolute decline. Guyana’s policymakers should be aware of the statistical reality of reversion to the mean, but worse GDP growth can turn negative for socio-economic reasons. As Ricardo Hausmann said, “the path from 8 percent growth to 4 percent growth often goes through negative 2 percent.”

A final comment: The World Bank did not say that Guyana has avoided the middle-income trap, but rather the report was what Guyana (and other countries) can do to avoid it.  So, to end on a positive note, Guyana has just started out on a long and arduous journey towards economic diversification and industrialisation.

Sincerely,

Terence M. Yhip

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