Oil and Gas must not drive Govt. borrowing spree

Jul 13, 2022 News

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– Economists warn of increasing debt

Kaieteur News – Local economist, Elson Lowe has warned that Guyana should not allow its debt to climb due to the projections of the oil and gas sector. According to Lowe, this type of borrowing is risky since it is based on projections from oil and gas prices which are subject to extreme volatility.

“At present, Guyana is borrowing based on its projected oil and gas revenues but the government must take into consideration that oil prices are subject to rapid rise and fall based on the situations of the global economy…This opens Guyana up to some real risks if it is left in a place where the country cannot service its debt,” Lowe said.

Lowe who is an Economic and Youth Policy Advisor at the Office of the Leader of the Opposition, was at the time responding to March 2022 report issued by the Bank of Guyana (BoG) which documented the country’s performance in the first three months of the year.

The report found that the State now owes an additional US$124.4 million in debt, bringing the total to US$3.248 billion. According to the economic advisor, the government must be wary about its quest to borrow huge sums of money since it may not be able to sustain in the long run.

Lowe noted that while Guyana has always been borrowing, new avenues have opened up for the country to take out more loans because of its projected [Gross Domestic Product] growth. He explained however that the GDP projections often paint a picture that is totally different from the reality of the country. Added to this, Lowe noted the Government has not made any provisions to repay its debt. “The NRF was supposed to have reserve saving in the event of an emergency but the government has made it a point to drain those funds, so we don’t really have a back up savings to help us offset the debts in any case. Therefore we run the risk of not being able to service the loans and drive up the interests on these loans if things turn for the worse on the world markets… Then Guyana can eventually find itself in a situation like Venezuela,” he stressed

Further, the economist said Guyana’s mounting debt has the potential to expose the country to a number of other risks. With the cost of living already slated to increase, he noted that the last thing citizens need is to be saddled with more debts.

He explained “The government keeps borrowing massive sums for infrastructure and other types of projects … but while infrastructure development is good, the government seems to have forgotten about its people…This is evident in fact that in this year’s budget, the government put aside a mere $5 billion for cost of living mitigation out of a budget $552 billion. Guyanese are already grappling heavy cost of living but as the debt rises, it is the taxpaying public that will ultimately carry the burden…”

“These risks have the potential of driving up the cost of living and increase inflation which means the price for goods and service can also go up by great amounts…” Lowe said.
Meanwhile Russian-trained economist and civil activist, Ramon Gaskin shared similar views on the country’s mounting debt. He noted the increased debt only speaks to the mismanagement of the funds by the Government.

“We have a government that has no proper plan in place to service the debt we already have, yet they keep borrowing and piling heaps of debts upon the heads of the Guyanese people. What I believe should have been done is the government should have taken some of the oil earning and put it to service the debt we already have instead of creating more debt for the people to pay,” Gaskin explained. He lamented that the Government’s spending is spiraling out of control and should be better managed.

“We are borrowing to buy things from flash drives to fix roads and a host of other matters that in my view makes absolutely no sense…If we continue to go down this road, the country could be faced with insurmountable challenges in years to come,” Gaskin added.

The Bank of Guyana (BoG) in its quarterly report noted “the total stock of public debt, which comprises both external and domestic debt, increased by 4.0 percent or US$124.4 million to US$3,248.6 million compared to the end-December 2021 position.”

It was explained that the domestic debt stock increased to G$389.469 billion or US$1.868 million during the review period, on account of increased issuance of treasury bills for Central Government’s budgetary financing. At the end of December 2021, the total domestic debt stood at G$361.513 million or US$1.734 million.

The Bank noted that domestic debt service payments decreased by 17.4 percent, as a result of lower principal repayments on treasury bills, particularly, the 182-day bill.

“Total domestic principal and interest payments were G$24,004 million and G$325.2 million, respectively. Domestic debt service payments accounted for 44.8 percent of government revenue.”
Notably, during the first three months of the year, the stock of external debt decreased to US$1,383 million on account of declines in both multilateral and bilateral debt stock during the review period. This was attributed to higher debt service payments to both categories of creditors, BoG said.

Meanwhile, external debt service payments, which accounted for some two percent of export earnings, increased by 3.3 percent, mainly due to increased principal payments to both multilateral and bilateral creditors, and higher interest payments to multilateral creditors.

“Reserve money fell by 3.7 percent while broad money grew by 1.3 percent during the first quarter of 2022. The former reflected a decline in net foreign assets of the Bank of Guyana while the latter was on account of expansions in net domestic credit and other items (net),” the report explains.

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