Fitch’s downgrade, PPP debt ceiling, and other depth charges

Aug 05, 2023 News, The GHK Lall Column

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Hard Truths by GHK Lall…

Kaieteur News – Standard and Poor’s Deven Sharma should have been so lucky.  In 2011, when he had the audacity to downgrade the US’ credit rating from the prized and envied AAA to AA+, he lost his head within a matter of months.  How dare he!  Down he went, and done he was as President of S&P.  A few days ago, when Fitch did the exact same thing, there is hardly a whimper, mostly a yawn or two.  The US doesn’t like it, so there is lumping the rating decision; at least, the Treasury’s top cat, Janet Yellen, did so in no uncertain terms.

The problem is the American debt load, and it is an alarming one, with hard doubts in some circles of how sustainable it is, and that ever-watched ability to repay.  But here is the first truth: nobody is going anywhere.  Nobody is jumping the American ship, and heading to the loving currency embrace of the Euro.  With all the emphasis and expectations of an exhilarating China, I don’t foresee any dumping US holdings, including its dollar, and heading towards Beijing, or Riyadh, or Rio de Janeiro.  At the end of the day, the US dollar is still the world’s safest harbor; with no viable competition in sight (as yet). So the impact on the dollar is minimal, at best.

A second tough truth is that neither unhealthy nor harebrained thought that the US downgrade will have a positive impact on the Guyanese dollar is a tad on the overreaction side.  My interpretation is that expectations are a shade too high.  The US dollar has barely shrugged in reaction to the downgrade by Fitch.  Also, that economic mainstay of demand and supply seems to have an erratic and mystical life on the currency streets of Guyana.  In other words, sometimes the demand and supply relationship works in keeping with the textbooks; other times, it works with its own unwritten local book of tricks.  Moreover, the US dollar supply of commercial banks differs, and their rates have no relation to the street.  As said, the currency streets of Guyana operate by their own smoke signals, and combinations of rumours, relationships, and the occasional roguery.  With all these foreign companies here, the US: GYD link has gyrated to its own music, and it is not ‘Rucatux’.

Now here are two other rough truths that may rub with the smoothness of sandpaper.  The World Bank recently smiled on Guyana and blessed it with the categorization of a ‘high-income’ country per capita rating.  For sure, the numbers are there, and not to be disputed.  That is, unless food and bill payments are out of reach.  I point to the mass of poor Guyanese people who experience nothing that resembles what it means to live in a high-income-country.  The downside of the high-income classification is that borrowing costs become a bit less cheap, for interest rates are now higher.  After all, the country is a high-income one, so it can pull its weight and afford to pay more, given what was done to the nation’s debt ceiling.

In terms of debt bill, that has just been juiced to soar into the stratosphere, with the debt ceiling increased yet again, and by some staggering percentages for both foreign and domestic debt.  I am trying to figure out what kind of juice was imbibed by the PPP Government to increase the ceiling for foreign debt by $250 billion, or 38%, and the domestic debt ceiling by another $250 billion, or 50%, all in one shot.  A half trillion increase in the debt ceiling is enough to send me to get my own juice.  Only fermented and distilled grapes suit the occasion.  This is a debt ceiling on steroids, on that climbs on the back of its predecessors in bulkier numbers in the small span of 30 months.

I understand and accept some debt and the corresponding ceiling increases.  But so much so quickly is a little too rich for the constitution.  To make matters worse, let’s face this unsparing reality: all these debt ceiling increases are based on the price of oil hovering around US$75-80; any number better than that is gravy, i.e., more juice for more ceiling expansions and expansive borrowing.  The second part of that reality is that Guyana is largely a one commodity economy.  We have heard about gold, and know about sugar.  Both are on the sluggish side, with one closer to death. All the while, oil prices are volatile, and Dr. Singh knows that very well.  I hear the money man about favorable debt to GDP ratio, but he is familiar with how that could dissipate should oil prices go south.

There was another maestro, who was thought of like Guyana’s own inestimable Dr. Singh.  I reconnect the irrepressible Dr. Ashni Singh to the immortal Dr. Alan Greenspan. The man from Columbia and NYU was first thought of as a wizard, only to be dismissed later as a man barely deserving of a smidgen of regard. In sum, Fitch’s downgrade shouldn’t ruffle any Guyana dollar waters here, not with interest rate-currency relationship, which is another can of duck soup by itself.

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• and combinations of rumours, relationships, Standard and Poor’s Deven Sharma, their own smoke signals

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