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The fact about Guyana’s debt position

Jul 26, 2013 Letters

 

Dear Editor,
Mr. Moses Nagamootoo in a letter dated (SN 24/07/2013) with a credible justification attempted to discredit the arguments presented by the government on the motion to amend the Guarantee of Loans (Public Corporations and Companies) Act.
The gravity of the inaccuracies contained necessitates a response for the benefit of the public. In this regard, kindly permit me to offer some insights to the motion as well as the government’s contribution in the ongoing national discourse on the motion.
Apart from addressing the flawed arguments contained in Mr. Nagamootoo’s missive, it is important to highlight the economic soundness of the project as well the benefits and outcomes to be accrued; benefits which will diversify the country’s economic base, create additional wealth, improve competitiveness, and strengthen our macro-economic fundamentals.
First and foremost, it is important to establish and emphasize that the proposed amendment to the Guarantee of Loans and Public Corporation and Companies Act will not add to the stock of national debt.
Mr Nagamootoo sought to make the point that the amendment will automatically increase the national debt. An argument so premised is void of logic and would only be made by someone engaging a topic beyond their technical competence; such is the comedy of the reasoning.
The government proposed amendment to the Guarantee of Loans and Public Corporation and Companies Act in part, is a contingency to cater to any operational shortfall of Guyana Power and Light (GPL) during the life of the AFH project. This point has been repeatedly made by members from the government side to prevent any misinterpretation of the objective of the proposed amendment
Soundness of the Project
Existing feasibility analyses conclude that the Amaila Falls Hydro Project (AFHP) is not only financially sound but more importantly it is economically feasible.
Mr. Nagamootoo should be aware of the important technical distinction between absolute and relative dimensions to such analysis. Any analysis of the performance of public debt has to take into account the other important dynamics within the economy – exchange rate movement and the growth in the economy over the years.
The $1 billion guarantee set in 1980 was approximately 73.2 percent of GDP at factor cost in 1980. The amendment to the guarantee proposed approximates to 27 percent of projected GDP for 2013. Based on projected nominal GDP by the IMF ratio of public guaranteed debt to GDP it is likely to improve further to 20.8 percent [2015]; 14.4 percent [2020]; 9.9 percent [2025] and 7.1 percent [2030].
Prudent economic management and fiscal consolidation has resulted in marked improvement in our debt position over the past twenty years.
Guyana’s total public debt was approximately US$2.1 billion in 1992 when the PPPC assumed office. Ninety six cents of every dollar earned was used for debt service payment. As at 2012 debt stood at US$1.7 billion, a reduction of 22 percent when compared with the 1992 figure. Guyana is now using less than ten cents of every dollar as debt service payment. This was reversal occurred under the stewardship of the PPPC.
At the same time, our GDP has moved from US$371 million in 1992 to US$2.8 billion in 2012. Government’s revenue has risen from US$141 million in 1992 to US$637 million in 2012.
Debt sustainability analysis by the International Monetary Fund (IMF) for 2012 has confirmed that the debt sustainability of the country has improved significantly over the past 20 years and it is projected to be robust over the medium and long-term based on most standardized sensitivity analysis.
The national debt position will remain sustainable based on all the key debt indicators. This positive debt outlook is projected to obtain for at least the next 17 years, which is three years less than the estimated payback period for the AFHP.
Irfaan Ali MP

 

 

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