The wide safety net from the federal government has not only kept Guam from falling into recession but also brought an unprecedented windfall to the island during the pandemic-triggered economic fallout, according to a local economist.
Dr. Claret Ruane estimated that a total of $4.5 billion— consisting of $1.9 billion in rescue and stimulus grants under two sets of coronavirus relief programs combined with a barrage of federal spending not related to the pandemic —streamed into the Guam economy in 2021.
“This, by itself, would have turned the Guam economy around, leading to our forecast of a +26.7 percent growth 2021,” Ruane wrote in a report released today in her capacity as a private citizen.
“Of course, our forecast is yet to be confirmed once the official estimate of Guam’s 2021 real GDP is released by the (Bureau of Economic Analysis) in late 2022,” the economist added.
The massive cash flow is almost equivalent to Guam’s $5.1 billion pre-pandemic annual GDP.
“In the absence of the $1.9 billion U.S. federal government pandemic assistance to Guam in 2021, our economy would have declined by 9.4 percent in 2021 compared to 2020 instead of the +27.2 percent growth,” Ruane said.
“The worst-case scenario would be if all of the $4.5 billion U.S. federal government spending on Guam were to be eliminated, which would have shrunk our economy in 2021 by 59.2 percent compared to its size in 2020,” she added.
The Covid-19 relief assistance came from two programs: the Coronavirus Response and Relief Supplemental Appropriations Act signed on Dec. 27, 2020, which was supplemented by the American Rescue Plan Act (ARPA) signed on March 11, 2021.
“That combines to an estimated $1.9 billion federal funds to Guam, inclusive of the $570 million ARPA funds to be allocated by the Office of the Governor, as well as military spending (including the $587 million approved under the NDAA FY2021) and other federal government spending for non-pandemic or pre-pandemic purposes.
The military, a major driver of Guam’s economy along with tourism, continued to net revenue throughout the pandemic. Despite the lockdown last year, defense construction was not interrupted. A number of military training exercises and port visits by U.S. and foreign carriers this year brought businesses to Guam hotels and restaurants.
Based on the October 2021 tourism report, 19,424 military personnel visited Guam, accounting for 32 percent of the 60,323 visitor arrivals. “Our estimate shows that this market contributed $26 million to Guam’s economy in 2021,” Ruane said.
While the military partially filled the gap in tourism, it did not make up for the loss of the main source markets.
The resurgence of a Covid-19 infection wave in August curbed the initial recovery that followed the launch of the Guam Visitors Bureau’s “vaccination ‘n vacation” initiative in July.
“Our tourism industry lost another $182 million of what it could have contributed to the Guam economy. This is in addition to the even larger loss (estimated at $1.38 billion) it suffered in 2020,” Ruane said.
When Gov. Lou Leon Guerrero first declared Guam under a state of public health emergency in March 2020, businesses were shut down, ripping a hole in the island’s economy.
“The impact of the Covid-19 pandemic would have been so much more crippling to the Guam economy and our residents in 2020 if not for the massive assistance from the U.S. federal government,” Ruane said.
“Official estimates from the U.S. Department of Commerce-Bureau of Economic Analysis reported an 11.9 percent decline in the Guam economy in 2020. Without federal assistance in 2020, the Guam economy would have declined by between -42.5 percent and -49.3 percent,” she added.
While Guam is currently awash in cash and seeing signs of economic recovery, Ruane reminded the government of Guam that the federal Covid-19 relief assistance is temporary.
“On the one hand, one will very well be correct to declare success over the goal of maximizing federal funds for Guam as, indeed, this has become evident,” she said.
“On the other hand, one will also be correct to be cautious about the eventual phasing out of federal government funds aimed at mitigating the effects of the pandemic as well as effectuating an economic recovery,” she added,
Ruane said the phaseout period has been extended through the passage of the $1.2 trillion infrastructure spending law on Nov. 15, with Guam’s share estimated at $193 million.
Other highlights of the report:
· The official unemployment rate for Guam was 11.4% in June 2021, down from its peak figure of 19.4% in December 2020. With the growth forecast for 2021, unemployment rate estimates for the rest of 2021 (September and December) would decrease further.
· Official inflation estimates for the first 3 quarters in 2021 had been increasing, reaching 6% for the third quarter (July-September) in 2021 compared to the third quarter of 2020. Based on these official estimates, the annual inflation rate for 2021 is forecast to be around 4.5%.
· The Guam economy in 2010 measured at $5.151B compared to $4.984B in 2020 (measured as Real GDP in 2012 prices), which translates to a decline in Real GDP of 3.24% between 2010 and 2020 (U.S. Department of Commerce-Bureau of Economic Analysis, Dec. 1, 2021)
Read more in the January 2021 print edition of the Pacific Island Times.