Gov’t must explain China loan for new Demerara River Bridge - Patterson

Gov’t must explain China loan for new Demerara River Bridge – Patterson

Jan 03, 2023 News

…says interest-free money is available in NRF

Kaieteur News – The Government of Guyana has entered into a loan agreement with the Bank of China for the sum of US$172 million to construct the New Demerara River Bridge, even though more than US$1B has been deposited to the Natural Resource Fund (NRF) that can be used to construct the structure interest-free.

Member of Parliament, David Patterson

The rationale behind this decision according to former Minister of Public infrastructure, David Patterson must be explained by the administration. In a letter to the Editor, published in Sunday’s edition of the Kaieteur News, the former Minister reasoned, “The PPP administration has now taken another loan of US$172M from the China Exim Bank for this project, despite boasting that over US$1B will be deposited in the Natural Resource Fund for 2022, no explanation has been offered on the rationale of adding this loan to our National Debt, monies which will have to be repaid by future generations, when interest free funds are readily available.”

He explained that the government in May last year awarded a contract for US$260 million to a contractor without any comprehensive studies. This award, Patterson reminded, was mired in controversy after Vice President Bharrat Jagdeo told a Vice News reporter that the Cabinet’s top ranked contractor would not be doing the job, after being questioned in connection with alleged business ventures with Chinese businessman, Su.

The Opposition Member of Parliament added that while announcements are being made regarding financing of the project, the government is yet to tell the nation what the toll structure would be for the new bridge. “No information is available on the tolls that the end users will be forced to pay, especially when based on prior experience, tolls of the level of the Berbice Bridge (G$2,200 per car) are possible,” he said. As Guyana continues to ignore advice of financial institutions regarding “cheap loans” from Chinese lending institutions, the most recently released Quarterly Bank of Guyana Report has revealed that the country’s external debt is overtaken by money it borrowed from China.

In the BoG’s first quarter report of 2022, 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 last 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.

At the time, Guyana’s total stock of public debt, which comprises both external and domestic debt stood at US$3.248 billion. Trailing the China Exim Bank is the Inter-American Development Bank (IADB). According to Guyana’s 2022 first quarter report, loans to the IADB account for some 32.6 percent of the country’s total external debt service. The Bank of Guyana explained that, “Debt repayments to IADB, which accounts for 67.4 percent of debt repayments to multilateral creditors and 32.6 percent of total external debt service, increased by 7.3 percent to US$8.8 million as a result of higher principal repayments during the review period.”

Meanwhile, it was also noted that debt repayments to the Caribbean Development Bank (CDB) rose by 4.6 percent to US$3.0 million during the first quarter of 2022. Overall, Central Bank indicated that debt service payments increased by 3.3 percent to US$26.9 million primarily on account of principal repayments to both multilateral and bilateral creditors.

A lesson for Guyana

Kaieteur News had carried an article by China Macro Economy in which it was explained that new transparency demands from global financial institutions – aimed at preventing sovereign debt distress- are starting to have an impact on China-backed infrastructure projects under the Belt and Road Initiative. As global interest rates rise and concern about developing world debt risk swirls, “sustainability” and “transparency” have become buzzwords at organisations like the International Monetary Fund (IMF) and World Bank.

“China is the largest single creditor to developing nations after the World Bank, according to a March report by the Green Finance and Development Centre at Fudan University in Shanghai. Sixty-eight of the world’s poorest nations will pay US$52.8 billion this year to service debts and more than a quarter of that will go to China. Despite its outsize role in development finance, China has drawn criticism – especially from the United States – for not offering enough transparency around its loans, which has helped fuel accusations of “debt trap diplomacy,” said Otaviano Canuto, senior fellow at the Morocco-based Policy Centre for the New South.

Only in November 2021, it was reported that China ranks among the top three richest countries in the world, with available liquidity being doled out in the form of loans to the tune of trillions. The country has been on an aggressive campaign pursuing a global infrastructure agenda under the rubric of the Belt and Road Initiative. Lauded when first announced just over a decade ago, several countries that latched onto millions in loans for large-scale infrastructural projects, have since been finding themselves in a predicament where they would end up having to forfeit state assets and in some cases sovereign land.

This is as a result of the terms and conditions attached to these loans, including the exclusion of specific international arbitration bodies such as the Paris Club. The latest victim at the time, Uganda, was unable to pay its debt to China for a US$207M loan from the Chinese Exim Bank it contracted back in November 2015. The loan had a maturity period of 20 years including a seven-year grace period. According to International reports, the country was forced to sign an agreement to virtually surrender the new airport to the Chinese lenders.