Guyana’s ability to repay loans dependent on oil revenues – Opposition

Aug 07, 2023 News

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Kaieteur News – As the Government of Guyana (GoG) continues to contract more loans to fund its ambitious development agenda, the political Opposition believes the nation may be slipping into a debt trap that could see the country failing to meet its loan obligations should oil prices collapse.

Vice President Bharrat Jagdeo during his Thursday press briefing assured that the country is not reliant on the earnings from the petroleum sector to service its loan repayments, however some stakeholders, like the Opposition believe otherwise.

Economic Advisor to the Leader of the Opposition, Elson Low in an invited comment told Kaieteur News that the administration only this past week increased the country’s debt ceiling, paving the way for more loans to be contracted.

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.

Low believes the increase of the debt ceiling was only possible as a result of the growth of the oil sector.  In fact, he reminded that the Senior Minister in the Office of the President with Responsibility for Finance, Dr. Ashni Singh earlier this year told the International Energy Conference hosted at the Guyana Marriott that with the tripling of Guyana’s economy, the country is now in a better position to take more loans.

Low said, “This implies that the reason we are able to take on more debt is because of the oil sector. As a result, our ability to repay these debts is dependent on the oil sector.”

The Economist is of the view that prudent management of Guyana’s debt and sovereign wealth fund will ensure that there are sufficient reserves to service its debt as it continues to take on more. According to him, “What we need to avoid is using all the funds in the NRF (Natural Resources Fund) and relying totally on annual revenues to pay the debt because if there is down turn then we would find it difficult to service the debt.”

Low has a degree in Economics and Political Science from Amherst College, USA and previously worked at Goldman Sachs and Co. He also has a certificate in anti-money laundering and anti-corruption from the International Law Institute and was an investigator and policy researcher at the State Assets Recovery Agency (SARA).

Debt to GDP

President Irfaan Ali is on record boasting that Guyana has the lowest debt to Gross Domestic Product (GDP) ratio in the Caribbean. He highlighted that the combined debt to GDP ratio is 24.6 percent, down from 39.6 percent.

The Opposition argues that this formula is a smokescreen and does not depict the gravity of the administration’s borrowing trend.

Low reasoned that since Guyana’s GDP has significantly increased, the ratio reflects a reduced debt. This however does not mean that the country’s total stock of debt has declined; contrarily, Guyana’s public debt increased by 16 percent at the end of 2022, climbing to just over US$3.6 billion.

The Opposition Economist explained, “Because the country has grown so quickly, the debt to GDP number has fallen sharply so even if you take on a huge amount of debt you would still have a low debt to GDP ratio. This is misleading however because we must bear in mind that a growth in Guyana’s GDP is not the same as growth in government revenue. We are still in the stage of paying back the cost of investments associated with the oil sector, so revenue growth will be limited.” As such, he stressed, “Looking merely at the numbers in terms of GDP and debt is not the most appropriate way to look at it because the actual revenue that you are getting is actually different than your GDP.”

Of specific concern to the Opposition is Guyana’s ability to repay the loans being racked by the administration. The Economist noted that servicing the debt can be financed through the revenue garnered from the petroleum sector; however, any collapse in oil prices can potentially be disastrous for the country.

Low explained, “When it comes to oil economies, we have to be cautious in the way we approach debt because we are subject to extreme price volatility. You will recall that during the COVID-19 Pandemic oil prices were briefly negative and on the flip side last year we saw them reach over US$140 per barrel; so that means that we have to accumulate debt always keeping at the back of our minds that we have to have reserves available in case there is something that happens.”

The Opposition urged that the government should not position the country where it is dependent on oil revenues which can be highly volatile.

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.

This figure is likely to increase this year as the country’s total debt has already increased by 2.3 percent or US$84.5 million in the first quarter of the year alone. The BoG reported that this sum would take the nation’s total debt stock to US$3.7B from the end of December 2022 position.

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• Debt, dependent, oil, revenue, service

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