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Guyana’s debt level will rise this year and the next – IMF projects

Sep 15, 2018 News

The International Monetary Fund (IMF) is projecting Guyana’s debt levels to rise in 2018-19 due to the expansionary fiscal policy.
The IMF stated this in its most recent staff report.
The Fund said that Guyana’s fiscal deficit is projected at around 4.7 percent of GDP, on average, over the medium term, driven largely by capital spending on Infrastructural projects.
IMF noted that government’s oil revenue averages 5.5 percent of GDP in 2020-22 and 21 percent of GDP in the long run, underpinning the initial reduction in the overall deficit as oil production starts, and subsequent fiscal surpluses which will be accumulated in a sovereign wealth fund.
The Fund said that under these assumptions, while total public and publicly-guaranteed debt increases to 61 percent of GDP by end-2018, it will stabilize at 56.3 percent of GDP at the start of oil production in 2020. “The debt ratio gradually tapers to 21.9 percent of GDP by 2038, based on increasing oil revenue and an assumption that outstanding domestic government debt securities will be maintained at 20 percent of GDP for the sake of developing and maintaining a liquid domestic bond market.”
Further, the IMF stated that the analysis of Guyana’s debt sustainability takes into consideration a publicly guaranteed debt to finance the restructuring of the state-owned sugar enterprise.
The Fund acknowledged that following continued losses in the state-owned Guyana Sugar Corporation (GuySuCo) which resulted in heavy subsidies amounting to 1-2 percent of GDP per year over the last three years, the government had undertaken a restructuring which includes a reduction in its workforce and the establishment of a Special Purposes Unit, at the National Industrial and Commercial Investments Limited (NICIL), to divest its assets.
IMF noted that NICIL is raising G$30 billion (3.7 percent of GDP) through a five-year syndicated external bond, secured by its assets and guaranteed by the government. That bond carries an interest rate of 4.75 percent, making Guyana one of the lowest credit risks in the Caribbean. IMF said that the borrowing will cover part of the workers’ severance payments and the revitalization of three out of six of GuySuCo’s sugar estates prior to their privatization.
IMF further noted, “NICIL was incorporated as a Private Limited Company under the Companies Act of 1991 and is 100 percent owned by the Government of Guyana. Revenue from GuySuCo and associated businesses, and proceeds from the privatization of GuySuCo’s estates will be used to repay this bond. The principal repayment is spread evenly over five years. To be conservative and to ensure that the public guarantee is fully reflected in the debt statistics, this analysis takes into account the G$30 billion borrowing by NICIL, although it is secured by the company’s assets.”

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