Guyana owes China alone US$220M – BoG

Sep 04, 2022 News

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…over US$900M in bilateral debt

By Davina Bagot

Kaieteur News – The Governor of the Bank of Guyana (BoG), Dr. Gobind Ganga has released Guyana’s total stock of debt owed to its Chinese ally, the China Exim Bank. The figure, according to him, is US$220 million with the Cheddi Jagan International Airport (CJIA) expansion alone accounting for a whopping US$138M.

In an exclusive interview with this newspaper on Saturday, the Chief of the country’s Central Bank shared the missing figures that were not included in an article that was published in this newspaper. In that story, it was reported based on the BoG’s first quarter report of 2022, that the country’s external debt is overtaken by money it borrowed from China.

In that document, it was noted the China Exim Bank accounts for 39.5 percent of the country’s total external debt. Additionally, debt repayment to the China Exim Bank accounted for 82 percent of debt repayments to bilateral creditors. In the first three months of the year, US$10.6 million alone was paid to the Chinese lending institution, up by 1.4 percent. The increase, according to the Central Bank, was as a result of higher principal repayments during the review period.

Presently, Guyana’s total stock of public debt, which comprises both external and domestic debt stands at US$3.248 billion. During the interview, Dr. Ganga provided a breakdown of this figure. He said that US$1.371 billion was for external debt while the remaining US$1.877 billion was Guyana’s domestic debt.

The Governor explained, “Domestic debt would be treasury bills- most of it was to finance Government. If you can recall there was an overdraft. Total domestic and public debt was at US$3.248B in March and the external debt at the end of 2021 was US$1.371 billion. Now if you take out from this here US$1.4B almost then it would be like US$1.8B would be the domestic debt.”

He went on to explain out of the total external debt US$910 million was multi-lateral debt. This means debt owed to lending institutions such as the International Monetary Fund (IMF), World Bank, Inter-American Development Bank (IDB) and the Caribbean Development Bank (CDB). At the time, he was unable to share the specific amount that Guyana owes to each of those financial agencies. Nonetheless, he said that the multi-lateral debt accounts for almost 67 percent of the external debt.

“You will find that the Chinese debt is about US$220 million to the Exim Bank. So our external debt is largely multilateral debt, while the bilateral debt is just over US$400 million which is like one third. We also have a high debt with India and China so about half of our bilateral debt is owed to China,” Dr. Ganga noted.

The Governor explained that the terms are very concessional in that Guyana does not borrow above two or three percent interest rates. “Like when we borrow from the multilateral it’s like one percent or less,” he added.

Marginal debt

Amid lessons learnt from other countries where China moved to take over various infrastructure for failure to repay same, the BoG Governor is certain that this will not be Guyana’s fate.

In listing specific reasons, he assured, “No man that won’t happen in Guyana because our debt is very marginal and you also know our flows of foreign exchange that we have which is very high. We don’t have a balance of payment problem like elsewhere like for example in Sri Lanka or in the African countries and so we have a situation where our debt will always be paid because it’s at a sustainable level.”

In addition, Dr. Ganga said Guyana pays back on the principal (amount borrowed) and interest at the same time.

Chinese-funded projects in Guyana

China Exim Bank was a major contributor to a loan Guyana had taken to modernise the Skeldon Sugar Factory. This plant was to boost the sugar production figures of the industry; to essentially rescue the sugar sector from its ailing state. Instead, it turned out to be a contributing factor to the poor health of the industry.
In 2017, this newspaper reported that the Ministry of Finance contracted two loans for the Skeldon project. These were from the Export Import Bank of China, the repayment period for which ends in 2025 and the Caribbean Development Bank, the repayment period for which ends in 2033.
On the two loans, the total amount that the Government is paying (principal and interest) is US$3.8 million per year.

Another project that was completed and funded by loans from China is the Cheddi Jagan International Airport, Timehri.

The airport expansion contract was signed in 2011 under then President, Bharrat Jagdeo, and was passed through the truncated presidency of Donald Ramotar. However, when the David Granger administration took over in 2015, it said that the very defective plan needed adjustments and changes were made. The decade-old project was awarded to China Harbour Engineering Company (CHEC) for the sum of US$150 million: $138 million from the China Exim Bank and $12 million from the consolidated fund – taxpayers’ money.

Even though the modernisation project has been completed according to the subject Minister Juan Edghill said works will continue at the airport.

Guyana cautioned

With myriad multi-million dollar projects slated to shortly come on stream, a former diplomat, Professor Dr. Shamir Ally has warned that Guyana’s failure to pay back on loans borrowed to facilitate these projects can land the country in a severe debt crisis, similar to the prevailing situation in Sri Lanka.

In a letter to this publication, Prof. Ally, who formerly served as Guyana’s second Ambassador to Kuwait and Guyana’s First Alternate Governor at the Islamic Development Bank, pointed out that while infrastructure development is key to a country’s progress, it is equally important for the country to manage its debts.
More importantly, he pointed to the importance of feasibility studies being conducted to ensure the viability of huge planned projects.
“Infrastructures are excellent, but too heavy emphasis on infrastructures, with poor pay backs will result in a severe debt crisis. Thorough vetted feasibilities’ studies are needed for each project,” Dr. Ally wrote.
During an outreach to Region Six, back in April, the President, Dr. Irfaan Ali, and Vice President, Dr. Bharrat Jagdeo announced that a stadium and an airport will be built to serve as a “growth pole” for the Berbice area.
On the other hand, several other infrastructural projects are lined up that could cost billions, even though the returns remain questionable. For instance, the Government is forging ahead with its Gas-to-Energy project, pegged at over US$1.3 billion. Even though the project has been dubbed the largest ever attempted by Guyana, analysts continue to question the possible returns from the project, in the absence of a feasibility study.

Prof. Ally, in his letter to the editor, related that Sri Lanka is a perfect example of Government taking on too many costly infrastructures, such as its international airport built by China with a loan from the country to finance the project.
Another example, he said, is the Hambantota Port deal with China, as Sri Lanka was unable to repay and China received a controlling stake of the port, which is in a very strategic area, with the political and economic interests, competing for power, via location.
“Currently a political crisis is ongoing in Sri Lanka due to severe economic conditions for its citizens and their nation,” he related.
The island nation of Sri Lanka is in the midst of one of the worst economic crises it has ever seen. It has just defaulted on its foreign debts for the first time since its independence, and the country’s 22 million people are facing crippling 12-hour power cuts and an extreme scarcity of food, fuel and other essential items, such as medicines.
Even as the debt piles up, Sri Lanka is looking to the International Monetary Fund (IMF) for an immediate bail out.

 

 

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