Guyana is borrowing its way to prosperity

Jan 21, 2024 Features / Columnists, Peeping Tom

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Kaieteur News – It was just a short while ago that the media was being regaled with stories about the difficulties of having climate financing being channeled through multilateral agencies. One could have almost breathed a sigh of relief that the country is now so much more a fortune position now that it is flush with oil revenues.

But then came the wake-up call. The Vice President is reporting that 40% of the Budget will come from loans. For an oil-producing country, with a US trillion-dollar budget to announce that 40% of its planned expenditure this year will be backed by loans is cause for concern.

As if to confirm the increasing reliance on loans to finance government’s capital programme, the government is once again proposing to increase the country’s debt ceiling. This will allow it to borrow more, much of which will be backed by the country’s future projected oil revenues.

So why then, it needs to be asked, was it being suggested that we have to pump as much oil as we can and as fast as we can. If we are taking loans, including long term-loans, backed by our future oil revenues, should we be in a hurry to extract all the oil we have? What will happen when the oil is finished?

One of the things which Glenn Lall has been harping over repeatedly has been the absence of ring-fencing. He has been demanding that the government ring-fence its oil projects. His rationale is that this would allow us to earn billions of US dollars more and therefore not have to run cap in hand to beg international governments and banks for loans.

The government’s excuse has been that long-term benefits will accrue by not ring-fencing. In other words, immediate benefits are being forgone for long-term benefits. This column has pointed out where this excuse is in direct contradiction to pursuing a narrow window for the exploitation of oil. By the government’s logic, by the time those long-term benefits are available, renewable energy would have superseded fossil fuels and oil would be interred in the economic graveyard. But the government does not see the flaw in its logic

On the other hand, if we had ring-fenced the oil projects, there would have need for us to borrow loans of 40% of our Budget. But do not tell that to our financial gurus. They do not wish to be lectured to by anyone.

We are borrowing 40% of our Budget despite almost 25% of the Budget coming from withdrawals from the Natural Resource Fund (NRF). Withdrawals from the NRF constitute a staggering 77% of non-oil revenues. This is the extent to which Guyana’s budget is literally floating on oil and the extent to which it is imbalanced.

Withdrawals from the NRF may end up higher because no one should seriously consider the present Budget numbers as final given the fact that last year alone at least 3 supplementary spending bills were tabled in the National Assembly, making a mockery of budget planning.

In December 2024, the government passed a Supplementary Appropriation Act of almost G$26B; in August, it was US$61B; and in April, mere months after presenting the Budget, the government again was forced to appropriate G$31B.

This year, the government is also banking on carbon credit inflows of G$43B. The government may be in for a surprise because there is no indication as yet whether Chevron will honour the arrangement entered into by Hess. Recent reports also suggested that Chevron may be forced to cut back on staff as a result of certain problems.

Oil revenues should have allowed greater fiscal space for the government to reduce the burden of taxation on the population. Some 56% of the projected revenues will come from tax revenues despite the massive inflows of petrodollars. By now, we should have been able to reduce the VAT to 10%, especially considering the many exemptions and exceptions to paying VAT.

The Budget is too large. Guyana does not have the absorptive capacity for such a Budget. Our economy is already showing signs of overheating. Having such a massive Budget will lead to squander mania. Imagine, a few days ago, plans were announced to spend some G$800M to build a nursing school in the region, a region with less than 50,000 persons. We can hardly effectively man the existing hospitals in the country. Yet we are building 12 new hospitals across Guyana. No wonder the contracting class is smiling… all the way to the bank.

The government is building a hospitality training center in Region 6. This hospitality sector in Region 6 and its adjoining regions is weak. This year alone, half of a billion dollars will go into that institute. When that institute is finished, it will end up costing some G$2.6 B? But who will go all the way to Region 6 for training?

No wonder we are contracting more debt. This year, we are borrowing from India, China, Sweden, Saudi Arabia, IDB, IFAD, IDA, Islamic Development Bank and Canada. Beg, borrow and buy is the philosophy of the government and its trillion-dollar Budget 2024.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• climate, country, Guyana, Peeping Tom, revenues

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