Gov’t. has mortgaged the future generations with reckless borrowing – Shadow Finance Minister

Aug 06, 2023 News

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…says potential decline in oil price can plunge country into crisis

Kaieteur News – Shadow Finance Minister, Juretha Fernandes believes government has mortgaged the future of generations to come with its reckless game of borrowing.

The Opposition Member of Parliament (MP) highlighted her concerns over the excessive loans being contracted by the administration during Thursday’s Sitting of the National Assembly as the House considered increasing the debt ceiling to allow for higher loans to be taken.

Fernandes in a heated presentation said, “The administration has mortgaged the future of generations to come with the albatross of debt around the necks of even the unborn Guyanese boy or girl.”

She was keen to note that the move by government to increase the country’s borrowing limit based on the projected oil revenues could only be described as “reckless” given the risk factors associated with the petroleum market.

The Shadow Minister of Finance was keen to point out, “There are several risks associated with borrowing against projected oil revenues. Oil-dependent economies like Guyana, a nation that is now heavily reliant on oil exports as a primary source of revenue now faces unique challenges due to the volatile nature of oil prices, which can fluctuate unpredictably, based on global supply and demand dynamics.”

In summary, she warned that if oil prices plummet, as it has in the past, Guyana can suffer from a severe revenue shortfall. To this end, the Opposition MP noted that the country could be forced to turn to financial lending institutions for assistance to keep its economy afloat, thereby slipping into a dangerous cycle, well known as the debt trap. The reliance on borrowed funds to maintain economic stability in the country would lead to a precarious situation; ultimately sinking Guyana into a debt crisis should oil prices remain low, limiting the country’s capacity to service its loan obligations.

The MP explained that a failure on Guyana’s part to service its loan obligations can have other crippling effects on the country’s economy. For instance, this can affect investor confidence.

She said, “As oil-dependent Guyana borrows heavily, we face increased debt service obligations and if these obligations are not met, it can lead to a sovereign debt crisis, severely impacting investor confidence and overall economic stability.”

“To prevent this danger, oil-dependent Guyana must implement fiscal reforms that promote transparency, accountability, and responsible debt management,” Fernandes added while arguing that the administration has been trampling on those very tenets. The MP pointed out that the National Assembly seldom meets and when it does, the government’s side refuses to answer key questions to give account to the people of Guyana. This is also reflected in the respective Parliamentary Committees that meet only at the behest of the government side.

Debt Dilemma in 2023

As Guyana continues to experience double digits growth in Gross Domestic Product (GDP), due to its thriving oil sector, the government has been looking to fund an ambitious suite of development projects. To support its agenda, Fernandes noted that the leaders have embarked on an “excessive borrowing” campaign.

She recalled that in 2021, the debt ceiling was increased, coupled with climbing expenditure and revenue uncertainties from oil prices, yet the government returned to further increase its loan ceiling in 2023.

According to her, “This raises concerns about our country’s ability to manage its debt burden and avoid a potential debt trap, under the PPP administration. It is important that we balance growth and debt.”

Fernandes said the key challenge for Guyana lies in striking a delicate balance between pursuing economic growth and managing its debt effectively. “While infrastructure projects and social investments are crucial for the country’s development, a prudent approach to debt management is essential to ensure sustainability. The risk of over-borrowing and a potential debt crisis must be carefully navigated to prevent long-term damage to our country’s financial stability,” she explained.

To this end, the Shadow Finance Minister said a more prudent approach would be to have debt tied to the nation’s non-oil GDP as such risk mitigation approach would secure the country’s future against the debt crisis.

She concluded, “There is nothing prudent about the way the PPP is handling debt, their approach is reckless and should be condemned by all.”

Loan servicing

The Bank of Guyana in its 2022 Annual Report highlighted that the country paid a total of $31,444,000,000 – approximately US$150M to service its total stock of domestic and external debt, amounting to some $13,552,000,000 and $17,892,000,000, respectively. Notably, US$43.4 million of the US$150 million paid by Guyana went towards interest.

According to the 2022 report, “The total stock of government’s public and publicly guaranteed debt increased by 16.9 percent to US$3,655 million and represented 24.6 percent of GDP (Gross Domestic Product).

During the first quarter of this year, the country’s total public debt increased by 2.3 percent or US$84.5 million. The document noted that this sum would take the nation’s total debt stock to US$3.7B from the end of December 2022 position.

This means that the country’s annual loan payments will also increase significantly to reflect the climbing public debt.

Only on Thursday, the National Assembly cleared the path for government to contract higher loans. Guyana’s domestic public debt ceiling was increased to $750 billion, up from $500 billion, and a new external borrowing ceiling of $900 billion was set after its last increase to $650 billion. Guyana’s previous debt ceilings were last increased by the Government back in January 2021.

According to the Ministry of Finance, given Guyana’s economic outlook, these revisions to the external and domestic public debt ceilings are consistent with the country’s long-term debt sustainability. Dr. Singh argued that with Guyana’s economy rapidly growing, the country’s ability to borrow more loans increases.

 

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• borrowing, Fernandes, future, loans, mortgage, oil, reckless

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