Findings of IMF, CDB Reports…Guyana sees major reduction in debt-to-GDP ratio from 2006 to 2016

Jun 05, 2017 News

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By: Kiana Wilburg
Over the years, the poor performance of Guyanas traditional sectors such as sugar, rice, bauxite and forestry, have birthed concerns about the nations ability to repay its debt.
It appears however that the policy makers of the day are not doing such a bad job after all when it comes to managing the nations debt to GDP ratio.
While there remains room for improvement, Guyanas debt-to-GDP ratio which speaks to the comparison between what the country owes to what it produces, is at a creditable stage. This is reflected in the statistics provided in one of the latest reports by the Caribbean Development Bank (CDB).
According to the report, high and or rising levels of indebtedness remain a challenge for many Borrowing Member Countries (BMCs) with increasing debt servicing payments crowding out productive expenditure that is critically needed to stimulate growth.
In this regard, the report said that the Debt-to-GDP ratio fell in Guyana due to continued growth. In 2015, Guyanas debt to GDP ratio was at 48.6 percent. By the following year, this fell to 46.4 percent.
Speaking to this issue as well was the International Monetary Fund (IMF). In its 2016 review of Guyanas economy, the organization noted that total public sector debt has declined from 96 percent of GDP in 2006 to 48.6 percent in 2015.
The Staff Report for the 2016 Article IV ConsultationDebt Sustainability Analysis said that under the Multilateral Debt Relief Initiative (MDRI), the Fund, the World Bank, and the IDB provided debt relief amounting to US$611 million in 200607.
It said that the Paris Club bilateral creditors and some non-Paris Club creditors granted debt relief as part of the 2004 Paris Club agreement. The IMF said too that negotiations with other non-Paris Club creditors about debt relief are protracted with the debt in question amounting to around 15 percent of total debt or 7 percent of GDP.
The organization noted that in the meanwhile, part of the debt owed to Venezuela under the PetroCaribe agreement has been written off against Guyanas rice exports to that country. Furthermore, the non-financial public sector (NFPS) deficit declined from 8.6 percent of GDP in 2005 to 0.2 percent of GDP in 2015.

The IMF said, “Over the last six years, total gross public debt has declined by about 19 percent of GDP. The debt-to-GDP ratio declined from 67 percent in 2009 to 48.6 percent in 2015.”
It added, “Over the same period, external debt declined from 46 percent of GDP to 36 percent, and domestic debt declined from 21 percent of GDP to 12 percent. Multilateral institutionsparticularly the InterAmerican Development Bank, the Caribbean Development Bank and the International Development Associationare the main external creditors. Debt has a long maturity profile and low average interest rates.”
Guyanas debt profile was also spoken to by Finance Minister, Winston Jordan in his inaugural report on the public debt over the last five years. This report was present to the National Assembly last year.
Jordan said that the compilation of this inaugural Annual Report on the Public Debt for Guyana, clearly demonstrates the deserved and prominent place which debt-related issues have been given in the Governments strategic agenda for the development of Guyana.
The Finance Minister said that the report also represents an important step to ensuring institutional transparency and accountability.
In addition to this, he said that it demonstrates the administrations intention to lead through proactive action, so as to improve Guyanas performance in sovereign debt management and, by extension, the overall quality of governance.
With reference to the report, the Finance Minister had said that for the fiscal year 2014 to 2015, Guyanas total debt, as a percentage of Gross Domestic Product (GDP), saw a decline. Jordan said that it moved from 51.9 percent at the end of 2014 to 48.6 percent of GDP at the end of 2015.
With this reduction, the Finance Minister said that Guyanas debt profile continues to remain stable and sustainable over the medium-term.
The economist said that noteworthy is the fact that Guyana is now faced with the challenge of maintaining debt sustainability in a volatile and uncertain global economy.
The Finance Minister said that in 2015, Guyanas economy, perhaps for the first time in recent history, found itself in a precarious situation where most of the countrys key agricultural commodities, including sugar, rice, and forestry, faced headwinds.
He said that the slowdown in the global economy, combined with the loss of preferential markets, negatively affected demand for these produce.
Jordan said that even remittances, on which so many citizens depend, were a victim of the slowdown in the world economy. With this in mind, the Finance Minister had said it is obvious that the nations excessive reliance on these sources of foreign exchange will continue to expose the economy to volatile external developments, thereby making it more susceptible to external shocks.
The Finance Minister had said, “Our recent Debt Sustainability Analysis indicates that Guyana will remain vulnerable to external shocks. Commodity price fluctuations have added to the volatility of our export earnings and tax revenues, and have also affected the financial performance of state-owned agricultural enterprises.”
The economist said that borrowing has also become more uncertain, with the recent increases in Guyanas income. He said that this has far-reaching implications for the terms at which Guyana can access financing.
“As a result of our higher GDP, concessional lending will become scarcer. To access affordable financing, Guyana has sought alternative funding sources, especially from our 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,” the Finance Minister expressed.
At the same time, the Finance Minister said that the administration was able to maintain close ties with multilateral agencies, including the World Bank, Inter-American Development Bank (IDB), the Caribbean Development Bank (CDB), and also more traditional western bilateral donors.
Based on these developments, Jordan said that Guyanas debt portfolio and the risks associated with it are becoming more complicated.
He said, “It thus becomes a policy imperative for us to strengthen the institutional framework for public debt management, including establishing a sound and modernized legal framework for debt management and implementing a comprehensive medium-term debt strategy that is not only cost- but risk-focused.”

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