Finance Minister hands over report on public debt to Cabinet

Oct 22, 2016 News

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Finance Minister, Winston Jordan, recently submitted to Cabinet, a comprehensive report on the nation’s

public debt. It was prepared by the Debt Management Division of the Ministry of Finance.
Yesterday, Minister of State, Joseph Harmon, during a post Cabinet press briefing, said that the report was in keeping with the Ministry’s responsibility for managing the public debt. He said that Cabinet, in accepting the report, commended the Finance Minister for making it available.
Harmon said that Cabinet agreed that even though the report was not a requirement, it was in keeping with international best practices concerning public debt management as articulated by the World Bank.
He said that it was also agreed that the report would be laid in the National Assembly for debate.
The Cabinet Secretary said, “It was felt that the report itself promotes transparency in debt management and good governance in the country.”
The report states that Guyana’s external debt as at December 31, 2015 is $236B while domestic debt stands at $81.7B.
According to Finance Minister, Winston Jordan, the robust and judicious management of the country’s public expenditure, financial resources and fiscal framework has been given a deserved and prominent place in the APNU+AFC Government’s strategic agenda for the development of Guyana.
Jordan also spoke about the importance of a debt management office in Guyana. He said, “Debt management offices in developing countries play the critical role of ensuring that our governments can raise the funds we need to invest in sustainable growth and development, at the lowest possible cost within an acceptable amount of risk.”

He said that such an office must guide borrowing to reduce a country’s vulnerability to domestic and external shocks.
The Finance Minister said that the case of Guyana illustrates the importance of a good debt management office, by showing how a burdensome debt can be a drag on the economic growth of a country for years, and how development can blossom under a sustainable debt strategy and good economic management.
Jordan said that after being declared ineligible to draw on the resources of the International Monetary Fund (IMF) and World Bank, in 1982 and 1983 respectively, Guyana embarked on a bold and innovative recovery programme.
He said that this involved the implementation of tough economic reform measures, negotiating substantial debt forgiveness and restructuring with external creditors.
He said that after repeated rounds of debt cancellation and rescheduling, the external debt returned to sustainable levels in the early 2000s.
The Finance Minister said that Guyana is now faced with the challenge of maintaining debt sustainability in a volatile and uncertain global economy.
He said, “Our Debt Sustainability Analyses indicate that Guyana remains vulnerable to external shocks. Commodity price fluctuations have added to the volatility of our export earnings and tax revenues, as well as the financial performance of state-owned agricultural enterprises.”
The Finance Minister added, “Borrowing has also become more uncertain. Guyana recently graduated to Lower Middle Income status, and concessional lending has become scarcer.”
To access affordable financing, Jordan said that Guyana has sought out alternative funding sources, especially from its South-South partners such as EXIM Bank of China, EXIM Bank of India, the Mexican Agency for International Cooperation and Development, and the Islamic Development Bank.
“At the same time, we sought to maintain close ties with the multilateral agencies (World Bank, IDB and CDB) and our more traditional western bilateral donors,” expressed Jordan.
The Finance Minister said that because of these developments, Guyana’s debt portfolio and the risks associated with it are becoming more complex. He said that it is increasingly important for Guyana to have sufficient capacity to develop and implement a sophisticated, comprehensive debt strategy.
Speaking to the legal framework for debt management in Guyana, Jordan said that this comes from a patchwork of legislation, much of it outdated, including the External Loans Act (last updated in 1991), the Guarantee of Loans Act (1974), the General Loans Act (last updated in 1984), the Financial Administration and Audit Act (1963), and the Fiscal Management and Accountability Act (2003).
Ideally, the Finance Minister said that a debt management legal framework should address authority to borrow, borrowing limits, guarantees, and on-lending arrangements, and establish institutional structures for debt management.
He said that current laws place some limits on Government borrowing, and assign general debt management responsibilities to different agencies. However, especially with regard to institutional roles and procedures, the Finance Minister said that the laws do not provide a clear legal framework for Guyana’s increasingly modern and complex debt management.
Jordan said, “The broad mandates in the current legislation omit specific parameters for contracting, guaranteeing and servicing external and domestic debt. For example, there are no guidelines regarding the issuance and management of guarantees.”
He continued, “The existing legal structure also fails to clearly delineate roles, responsibilities and protocols among the agencies that share debt management functions.”
The economist added, “More importantly, there is no requirement to develop and implement a comprehensive debt management strategy consistent with a clearly articulated view by the government of the portfolio costs and risks it is willing to bear. In addition, there is no requirement under the law to report on debt management performance and whether it has achieved its stated debt management objectives.”
The Finance Minister noted that attempts to address these gaps have begun. He said that a single Public Debt and Aid Management Act and Regulations, drafted since 2006, is under active consideration.
Once enacted, Jordan said that this legislation would combine the current, disparate laws into a single public debt management framework.
He said that borrowing limits would be specified for total public debt (external and domestic).
Jordan said that the legislation would also establish rules for on-lending arrangements.
By assigning responsibility for roles, defining debt management objectives, and establishing audit procedures, the legislation would improve the accountability and transparency of Guyana’s debt management, expressed the Finance Minister.

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