Guyana is falling into the debt trap like Ghana and Nigeria – Volda Lawrence

Jan 29, 2023 News

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…says nation dangerously exposed to crisis

By Davina Bagot

Kaieteur News – As Guyana continues to earn more revenue from the production of its newfound oil wealth, the country has also scaled up its borrowing from multilateral and bilateral partners to fund various development projects and initiatives.

This stance however lands the nation in a dangerous trap, quite similar to the one that ensnared oil-producing states like Nigeria and Ghana.

Sounding this warning was Opposition Member of Parliament (MP) and former Minister of Public Health, Volda Lawrence. On Friday afternoon in the National Assembly, Lawrence took the stage offering an in-depth financial review of the 2023 Budget.

Of concern to the MP is the fact that Guyana’s public debt rose by 16.9% in 2022, reaching US$3,654.9 million. She told the House, “Sir, the government’s eschewing the use of the burgeoning natural resource funds, in preference to borrowing from any and all sources, on the assumption that oil prices will remain high, thus allowing easy repayment of loans taken today, is falling into the same trap as did Ghana and Nigeria, for example.”

Lawrence pointed out that external public has grown steadily since the People’s Progressive Party (PPP) took office in August 2020. The figure ballooned from US$1.321 billion in 2020 to a projected US$2.146 billion in 2023, or 62% she flagged.

The former Minister explained, “The country’s exposure has swung from borrowing from multilateral financial institutions – principally the Inter-American Development Bank- to bilateral countries.”

As such, she noted, “Any collapse in oil prices Mr. Speaker, will leave the country dangerously exposed to situations not unlike what happened to Sri Lanka and Uganda.”

Finance Minister, Dr. Ashni Singh during the presentation of Budget 2023 announced that the country’s total public debt stood at US$3,654.9M an increase by 16.9 percent from last year.

Almost all of its recently announced public infrastructural projects government has been borrowing to finance them despite earning over US$1B in the oil account for last year. Delivering his budget presentation, Dr. Singh sought to allay the fears of Guyanese by claiming that Government has “maintained its long-standing practice of prudent debt management.”

He argued that Guyana continues to enjoy strong debt sustainability fundamentals, “even as we expand investments in public infrastructure, social services and other initiatives geared at ensuring improved standards of living for all Guyanese. This delicate balancing act hinges on our time-honoured debt management strategy of contracting development financing and meeting debt service obligations at the lowest cost, within prudent risk parameters.”

Lessons from Ghana

Kaieteur News reported that oil-rich Ghana was dubbed fastest growing economy on earth in 2019, but now that African nation is drowning in debt.

The glory days of Ghana’s offshore oil operations can be traced back to December 2010. The West African nation began pumping oil from its first commercial discovery in its Jubilee Field. Those operations delivered US$1B in earnings annually to the State.

Nine years later (in 2019), Ghana was dubbed to have the fastest-growing economy. It was also praised for the steps it took to improve the regulation of the industry. In fact, Ghana was seen as a champion of growth for other nations within the continent and further afield to follow.

But in a matter of three years, this glimmering picture of marvelous economic management was unexpectedly obliterated. Ghana moved from riding a wave of meteoric growth to now wallowing in the abyss of indebtedness. From 2019 to 2022, the country that was once paired with Guyana as a model state on good governance is now a lesson on the perils of the oil curse.

International media reports released in December 2022 said Ghana is in such a worrying state of debt distress, that it has been forced to suspend payments on most of its external debt. In fact, its Finance Ministry said it will not service selected external debts including its Eurobonds, commercial loans and most bilateral loans.

Ghana’s Ministry said, “Ghana is today faced with major economic and financial crisis and its attendant social challenges. In 2020 and 2021, the Covid-19 pandemic negatively impacted our fiscal and economic situation. Global risk aversion triggered large capital outflows, a loss of external market access and rising domestic borrowing costs.”

Nigeria drowning in debt

Similarly, after more than six decades producing oil, Nigeria, thanks to the decisions of its politicians, is drowning in US$108B of debt.

But in order to survive the dreaded COVID-19 pandemic, Africa’s biggest oil producer needs US$11B in fresh loans from financial institutions such as the International Monetary Fund and the World Bank to purchase basic medical and food supplies.

In 2021, this newspaper reported that some financial institutions are hesitant to provide the African nation of more than 200 million people with more loans due to rampant corruption by politicians.

Be that as it may, the Natural Resource Governance Institute (NRGI) which is closely following the crisis in Nigeria opined in one of its analytical pieces that oil-rich countries such as Nigeria have clearly found themselves stuck between the “rock” of economic ruin and the “hot place” of environmental catastrophe.

But NRGI, one of the world’s leading non-profit organisations in improving countries’ governance over their natural resources, firmly believes that all is not lost for Nigeria. It posits that the future of Nigeria lies in weaning itself off of fossil fuels and preparing its economy for the energy transition that is taking place the world over.

The Institute was keen to note that some countries which are rich in oil are already headed in the wrong direction. In this regard, it noted that politicians in some countries are intent on proving that their country can become a world-class profit-making machine, just as international oil companies did in the 20th century. It warned however, such lofty dreams come at a price.

NRGI said, “The difficulty of navigating transition is hardly exclusive to Nigeria… From Mexico to Mongolia, from Ghana to Guyana, governments must address the unknown future of energy markets. As the world recovers from the pandemic and continues to transition toward renewable energy, city skies may remain relatively clear. But how resource-producing countries manage the decline in fossil fuels is critical, especially after the shock of the economic and health crisis.”

GRIPPED BY CORRUPTION

While Nigeria may be the largest oil producer of oil in Africa, industry experts have said that the wanton misuse of its resources is responsible for where it is today. According to the World Bank’s statistics published in 2020, 80% of Nigeria’s energy revenues only benefit one percent of the population.

Corruption was cited as the main cause, with the net effect being widespread poverty.
Oxfam America, a confederation of 19 independent charitable organizations, has also been alarmed at the scale of corruption in this African nation. In a special study it did on Nigeria, it was found that the combined wealth of Nigeria’s five richest men amounts to US$29.9 billion—more than enough to end extreme poverty at a national level.

Further computations by Oxfam also showed that between 1960 and 2005, about US$20 trillion was stolen from the treasury by public office holders. This is larger than the GDP of the United States in 2012 (about US$18 trillion).

As a result of the mistakes made with the oil and gas resources, 57 million Nigerians lack safe water, over 130 million lack adequate sanitation, and the country has more than 10 million children out of school.

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• borrowing, Debt, Guyana, oil, trap

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