Loans from China, UK rack up Guyana’s external debt – BoG report

Sep 27, 2023 News

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Kaieteur News – Guyana has witnessed a significant surge in its external debt levels in recent years.

Last month, it was reported that Guyana’s total public and publicly guaranteed (PPG) debt reached a substantial US$3.9 billion, marking a substantial 7.2% increase compared to the end of 2022.

The recently unveiled report from the Bank of Guyana (BoG) Half-Year Report, reveals that the outstanding PPG external debt escalated by 3.8%, reaching US$1,631 million from the December 2022 figures.

At the end of June 2023, multilateral creditors held 67.8% of the external public guaranteed debt portfolio which increased slightly by to US$1,106.5 million, while bilateral creditors held 30.3%, primarily due to higher disbursements from the China EXIM Bank and United Kingdom Export Finance (UKEF) and higher multilateral debt to the International Development Association (IDA), in the first half of 2023.

Meanwhile, the finance ministry attributes this increase to positive net flows (disbursements minus principal repayments) from bilateral creditors such as Eximbank of China, China CAMC Engineering Co., Ltd., and UKEF.

On the contrary, obligations to the Inter-American Development Bank (IADB) and Caribbean Development Bank (CDB) decreased slightly due to debt service payments.

In the first half of the year, total external disbursements amounted to US$99.9 million, representing a substantial increase compared to the first half of 2022. The finance ministry in their report stated, “This year-on-year expansion reflects higher disbursements from bilateral and multilateral creditors, which also totaled US$99.9 million in the first half of 2023, up from US$25.6 million in the first half of 2022.”

Notably, projects such as the East Coast Demerara Road Project Phase 2, Guyana Pediatric and Maternal Hospital, and the Regional Hospitals Project received external disbursements in the first half of this year.

In the private creditor category, total obligations decreased by 1.3%, mainly reflecting a reduction in liabilities to Republic Bank (T&T).

Notably, external PPG debt is projected to increase by 31.6 percent from its mid-2023 position to US$2,146.0 million at the end of 2023, mainly due to expected positive net flows from both multilateral and bilateral creditors.

Additionally, on December 30, 2022, the Government of Guyana entered into a new contract with the China Export Import (EXIM) Bank for a US$172 million loan to facilitate the construction of the new Demerara River crossing. The Ministry of Finance announced the completion of the electronic signing of the €160.8 million loan.

Guyana has primarily sourced the majority of its bilateral loans from the People’s Republic of China, with reports indicating that the bulk of the country’s loans were owed to the China EXIM Bank in 2021.

The China EXIM Bank played a significant role in financing the modernization of the Skeldon Sugar Factory, intended to boost sugar production, but unfortunately, it contributed to the industry’s decline. In 2017, the Ministry of Finance contracted two loans for the Skeldon project, one from the Export Import Bank of China (repayment ending in 2025) and the other from the Caribbean Development Bank (repayment ending in 2033). The government pays a total of US$3.8 million per year (principal and interest) for these loans.

Another project, funded by loans from China, is the expansion of the Cheddi Jagan International Airport, Timehri. The airport expansion contract, originally signed in 2011, underwent adjustments during the David Granger administration. It was ultimately awarded to China Harbour Engineering Company (CHEC) for US$150 million, with a significant portion funded by the China EXIM Bank and taxpayers’ money.

Kaieteur News has reported that the rise in Guyana’s 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 Irfaan 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.

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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• billion, levels, marking, public and publicly guaranteed (PPG), years

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