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The non-oil economy would be severely stressed to service ballooning debt

Aug 10, 2023 Letters

Dear Editor,

A letter entitled ‘Notions that the level of borrowing is reckless are far-fetched penned by Mr. Bhagwandin was published earlier this week in Stabroek News (August 8, 2023). The backdrop to this letter is as follows. The National Assembly approved last week a new debt ceiling to facilitate greater borrowing. Guyana’s domestic public debt ceiling was increased from GYD 500 billion to 750 billion GYD and the external borrowing ceiling was raised from 650 billion GYD to 900 billion GYD. Guyana’s gross public debt ceiling is now at 1650 billion GYD (7.9 billion USD), up from 1150 billion GYD (5.5 billion USD) when it was last increased by the current administration in January 2021. This amounts to an increase of the gross debt ceiling by 143%. Mr. Bhagwandin’s letter was debunking concerns voiced by the Shadow Finance Minister, Ms. Juretha Fernandes, in the National Assembly. She was calling the government’s borrowing as reckless given that the major non-oil sectors of the Guyanese economy such as sugar, bauxite and gold are underperforming. Guyana’s ability to service the debt is becoming more and more dependent on the performance of a single sector of the economy, specifically the oil and gas industry. As a reminder, stagnation of the non-oil sectors of the economy; heavy reliance on a single resource, such as crude oil; and fiscal and budgetary mismanagement are all considered indicators of the ‘Dutch Disease’.

In his rebuttal letter, Mr. Bhagwandin once again showers the reader with a random collection of incomplete economic data for the years 2020 to 2023; including non-oil GDP, total non-oil revenue, and annual debt service, to make his points. Why doesn’t he provide a table with the complete data for the years 2020, 2022 and the projections for 2023? This table needs to include the following numbers (in USD) for the years indicated:

– GDP

– Non-oil GDP

– Gross Debt (domestic plus external debt)

– Annual Debt Service

– Total Revenue

– Total Non-oil Revenue

– Debt-to-GDP Ratio

– Debt-to-Nonoil GDP Ratio

– Debt Service-to-Revenue Ratio

– Debt Service-to-Nonoil Revenue Ratio

The author also fails to indicate the sources of the primary data he draws on. Is he referring to data from the Bank of Guyana? In the absence of the full set of economic data, the reader (as well as the author) could easily be misled.

Despite the fragmentary nature of the data provided in the letter, it’s evident that the debt-to-nonoil GDP ratio has increased from 38% in 2020 to 78% as projected for 2023, which brings the debt levels in the range of what we see in mature European economies, which are for the most non-oil producing economies. It is well established that countries with high debt to GDP ratio tend to undergo economic slowdowns. What is the ideal debt to GDP ratio for a country? Economists believe that ratios of 70-80% are the threshold points beyond which countries experience an exponential fall in economic growth. Hence, Guyana’s debt-to-nonoil GDP will soon reach that critical range. In addition, Guyana’s economy is far from being mature, competitive and diversified as those of many European countries. Since the PPP-led administration took power, three years ago, value-added taxes and customs duties were reduced or abolished for selected sectors of the economy and no measures were taken to compensate for the shortfall of government revenues. Importantly, the oil and gas sector, which contributes to 90% of Guyana’s exports, is exempt from any taxation. The Stabroek Block Production Sharing Agreement (PSA) grants tax exemptions to ExxonMobil, Hess and CNOOC for the entire duration of the contract. Therefore, the government’s ability to service the increased burden of debt relies almost exclusively on Guyana’s share of profit oil. If oil prices were to fall significantly, the Government would have to resort to increasing the taxes and duties levied on the non-oil sectors of the economy as well as on the common people. Hence, the ability of Guyana to repay its debt in absence of robust and growing oil revenues should be indeed of concern to the Guyanese taxpayer.

Sincerely,

Andre Brandli, PhD

On behalf of the Oil & Gas Governance Network (OGGN; www.oggn.org/about)

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