‘Higher interest rates will not hamper Govt. from taking more loans’

Aug 28, 2023 News

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…Jagdeo says will turn to bilateral partners for better terms

Kaieteur News – Guyana is now ranked a ‘high income’ country as a result of the resources being generated from the oil and gas sector. This new title also means that the country will no longer benefit from concessional loan agreements but will be required to pay interest rates reflective of its economic status.

Higher interest rates will however not prevent the Government of Guyana (GoG) from contracting loans to finance its infrastructure development programme, since the administration is already strapped with a plan to turn to its bilateral partners for financial assistance.

Bilateral debt refers to debt owed to a country, while multi-lateral debt refers to loans owed to lending institutions such as the International Monetary Fund (IMF), World Bank, Inter-American Development Bank (IDB) and the Caribbean Development Bank (CDB).

On Thursday, Vice President Bharrat Jagdeo during his press conference at Freedom House in Georgetown confirmed that Guyana will graduate from enjoying concessional resources. While responding to a question from this newspaper, the VP said, “we had very very concessional resources from most of the multilateral institutions but progressively that pool of concessional resources has been dwindling.”

As a result, he noted that Guyana will be forced to borrow from the ordinary capital resources rather than the special capital resources. For instance, he said Guyana no longer qualifies for loans from the International Development Association (IDA). This is a financial institution which offers concessional loans and grants to the world’s poorest developing countries. It is also a member of the World Bank Group. In this regard, the VP explained that Guyana will now have to borrow directly from the World Bank resources at higher interest rates.

Similarly, he pointed out that the Inter-American Development Bank (IDB) had funds for special operations and for ordinary capital. One, according to Jagdeo, is concessional, while the other features a market-based interest rate.

Jagdeo said that Guyana just received its last set of concessional loans from multilateral institutions. He was keen to point out that Guyana presently has only two variable interest rate loans on its debt portfolio which are owed to multilateral agencies.

He explained, “What we are finding now though is that the borrowing from the ordinary capital of these institutions, which we will have to do now, the interest rates sometimes, in most cases now if we talk about the current situation, will be higher than borrowing from a private commercial bank and from bilateral donors.”

The former Head of State pointed out that Guyana recently inked its first loan agreement with the Kingdom of Saudi Arabia through a bilateral agreement where it will be repaying at a lower interest rate compared to if it borrowed from the World Bank.

“So with Saudi Arabia we borrowed through a bilateral arrangement, our interest rate, borrowing through bilateral arrangements, are a fraction of what it would be if we had to borrow under the prevailing circumstances with a high income country from the World Bank…so that is something that we are looking at so now what we do we look at bilateral lines of credit, we look at the multilateral financial institutions, we look at private creditors and then if we want to, if we borrow, we then assess the conditions on each; the grace period, the maturity of the loans, the interest rates and then you make a decision on that basis,” Jagdeo noted.

He was keen to note that even though the country is considered a ‘high income’ nation, its bilateral partners continue to offer concessional loans. For instance, he pointed to the East Coast Demarara road project being financed by the Export Import (EXIM) Bank of China. Jagdeo said if Guyana had to borrow from a commercial bank in China such as the China Development Bank, it would be expected to pay higher interest rates there.

While the government continues to borrow against projected revenue from its oil and gas sector, Jagdeo assured that the debt being incurred is a mere fraction of the country’s ability to borrow. The VP previously indicated that while there are concerns about the government’s borrowing, the non-oil sector can efficiently service the country’s debts.

The Shadow Finance Minister, Juretha Fernandes however does not agree with this position. In fact, in a previous interview she told Kaieteur News that as the country relishes in the revenue stream from its blossoming oil and gas industry and enter into more loan agreements to finance projects to support the sector and develop the country, its people can be left to pay the price for an unsustainable debt policy. This can cost them their health and jeopardize their education. See more in the link:

https://kaieteurnewsonline.com/2023/08/13/guyana-can-be-forced-to-choose-between-welfare-of-citizens-or-repaying-debt/

 

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