Govt. has shifted Guyana to an ill-advised import-based economy

May 11, 2014 News

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– Current Debt-to-GDP ratio very unhealthy- Economist

By Kiana Wilburg

The country’s debt and its ability to repay what it owes is everyone’s problem.
In a published commentary, “Smoke and mirrors: A closer look at Guyana’s looming debt crisis” published on April 14, by Avinash Pulchan, the economist makes some startling revelations. He explains why every citizen should take the country’s debt status seriously.
Pulchan holds a Masters in Financial Mathematics, Fundamentals in Quantitative Finance and Bachelor of Science in Economics from the University of Minnesota. He is now preparing to pursue a PhD in Economics.

After extensive research, the economist asserts that Guyana’s current Debt to GDP ratio is at a very unhealthy state.
GDP refers to the monetary value of all goods and services produced in a country within a specific time.
Pulchan said that according to World Bank data, Guyana’s external debt (monies owed to creditors outside of the country) has raised over 117%, US$850M in 2008 to US$1.8B in 2012.
Personal remittances have increased by a whopping 34% from US$278M to US$373M during the last four years.
The economist said that a common problem that lesser developed countries (LDCs) face, and Guyana is one of them, is that of too much reliance on foreign nations and entities. Guyana’s debt to GDP ratio increased from 44% to 64.7%.
A country’s debt-to-GDP ratio compares what a country owes to what it produces and is an indicator of the country’s ability to pay back its debt. The Guyanese economist said that currently Guyana’s debt-to-GDP ratio of 64.7% is very unhealthy and that its external debt leaves it at the mercy of its debtors.
As such the government has shifted Guyana to an ill-advised import-based economy.
He said, “Guyanese need to realize that the country’s debt is their debt. They need to ask the government how they plan on repaying the debt; what percent of GDP will be used towards debt repayment? What are the interest rates on loans? Are these rates fixed, variable, capped? Are the loans hedged to the US dollar or Guyanese dollar? How will the government combat inflation in face of a growing external debt?”
Pulchan said that the opposition should also critically analyze the balance of payments account for Guyana and see why there is a budget deficit.
This, he said, would lead to better allocations of funds over the long term and curtailment of inefficient macroeconomic policies.
The economist highlighted too that Guyanese should keep in mind that Guyana’s debt has increased by117% over the last four years. He said that citizens should now ask the government what this increase has translated to for the development of Guyana.
He said, “If the national debt ceiling is increased to allow the Amaila Hydro Power development initiative, how long will it take for the benefits to reach all Guyanese people?
Has an independent-neutral party done a cost-benefit analysis on the feasibility of this undertaking? If differences arise from various feasibility studies of this project can they be reconciled? What are the terms of the financing of such a project? What are the positive/negative externalities of the Amaila Project? Will it create jobs for Guyanese? What are the environmental impacts?”
The economist said that much has been carped on about the economic progress Guyana has made in recent years.
Pulchan asserts that GDP growth rate is not a true reflection of the economic health of a nation. He pointed that that is why the United Nations Development Programme (UNDP) developed the Human Development Index (HDI), which is used as a holistic measure of living levels.
Pulchan added that Personal remittances increased from US$278.4M to US$373.1M a 34% increase.
“Now an observer will say those numbers are great, but if he/she delves deeper, the numbers tell a sad tale. Personal remittances as a percentage of GDP were 13.09% in 2012. What happens to personal remittances?”
“These remittances are pumped into in economy via consumption and investment and these artificially inflate GDP growth rate. Thus the government of Guyana should not take too much credit for the GDP growth rate since some of it is due to remittances… Guyana’s 4.8% GDP growth rate is misleading and it hides the social and macroeconomic problems plaguing the country”
“The government in Guyana needs to stop copying what it sees happening in industrialized nations because Guyana is still a developing economy that has different initial conditions of modern economic growth than those experienced by already developed nations.”
“The Guyanese people need to know that they will have to shoulder the burgeoning debt of Guyana and should always examine and scrutinize any government projects that require more national debt because a continuous budget deficit, trade deficit, barely existent local economy, an unskilled labour force, high unemployment rate resulting in social ills, etc. are all ingredients of a concoction that will result in a vicious, self-perpetuating cycle of “growth without development” in Guyana.

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