‘Hike in interest rates will cost countries like Guyana billions’ – Pres. Ali tells UN forum

Sep 22, 2023 News

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Kaieteur News – Growing debt levels in developing countries have become a pressing concern in recent years. These nations often resort to borrowing to finance infrastructure projects, stimulate economic growth, or manage budget deficits. However, the escalating debt burdens can have severe consequences.

On Wednesday in his address during a forum at the United Nations’ 78th session of the UN General Assembly in New York, President Irfaan Ali delivered a stark warning about the consequences of escalating debt levels for developing countries like Guyana. At the High-level Dialogue on Financing for Development, President Ali underscored the direct link between the lack of financial resources and the struggle to attain sustainable development goals in nations. He highlighted that the existing global financial framework is ill-equipped to tackle pressing challenges such as food insecurity, energy scarcity, and the profound impacts of climate change.

He said too that urgent reform of the financial architecture is essential to get back on track towards achieving development goals. President Ali highlighted alarming statistics, with 60% of least developed countries already in debt distress or at high risk, and their debt servicing swallowing up a significant portion of government revenue, especially in Sub-Saharan Africa.

Ali added that developing countries, on average, allocate 14% of their domestic revenue to interest repayments compared to just 3.5% in developed countries. “Interest rate hikes and soaring debt levels will cause developing countries billions of dollars in the coming years,” he further stated.

Furthermore, President Ali emphasized the staggering economic toll of climate change. Ali pointed out that international reserves took a hit in 2022, with 81 developing countries, excluding China, losing a collective $241 billion. President Ali referenced information by the International Energy Agency (IEA) which stated that to limit global temperature rise to less than two degrees Celsius, investments of around $1 trillion annually in the energy sector alone are required to transition from fossil fuels. He continued, “This is most sobering when you consider that close to 900 million people in developing countries has no access to electricity, commitments that have and are being made must be fulfilled.”

In light of these challenges, President Ali called for a comprehensive reform of the financial architecture, which should include the early adoption of a multi-dimensional vulnerability index, implementation of measures outlined in the Bridgeton initiative, and addressing liquidity support, private capital, development lending, and more inclusive governance of international finance institutions.

He then reaffirmed Guyana’s commitment to collaborating with the international community on tangible, measurable actions to address these pressing issues. Guyana has experienced a notable increase in its debt levels in recent years. This rise in debt can be attributed, in part, to significant borrowing to finance critical infrastructure projects, including in the oil and gas sector.

While the country’s newfound oil resources have offered opportunities for economic growth but have also raised concerns about the sustainability of its debt burden. Notably, President Ali’s administration recently raised the country’s debt ceiling by US$3 billion, allowing for more borrowing. This decision, taken in August, expanded the domestic public debt ceiling to $750 billion, and established a new external borrowing ceiling of $900 billion.

The country’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.

Notably, fuelled by a ramping up of oil production and the resurgence of the non-oil economy, the country registered real Gross Domestic Product (GDP) growth of 62.3 percent in 2022, making it the fastest-growing economy in the world. As such, it was noted that this appreciable growth performance and the country’s robust economic outlook underpin Guyana’s sustainable absorption of the new debt.

In sum, the Government said it is committed to harnessing Guyana’s debt-carrying capacity to accelerate its development agenda. This publication recently reported that within six months, the country’s debt has surged to US$3.9 billion, marking a 7.2% increase compared to the end of 2022.

The Ministry of Finance’s Mid-Year Report highlighted that, as of June 2023, Guyana’s total public and publicly guaranteed debt stood at US$3,916.9 million, with total public debt accounting for US$3,914.5 million, and total publicly guaranteed debt for the remaining US$2.4 million. Notably, when compared to the end of 2022, when debt stood at US$3,654.9 million, a 7.2% increase was recorded. To this end, Government said this was mainly attributed to a positive net flow from both the external and domestic debt portfolios. In the recently published report it was stated, “As a result of Government’s continued effort to ensure that financing needs are met at the lowest possible cost with a prudent degree of risk, Guyana’s public debt remains sustainable with a moderate risk of debt distress.”

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• become, framework, Guyana, New York, President Irfaan Ali

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