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Govt. betting on oil to take U.S. billions in loans for 2024 budget
Kaieteur News – Guyana is playing a dangerous game of taking on loans, with Guyana’s oil sector effectively being used as collateral. While not technically using oil as collateral for loans, Vice President Dr. Bharrat Jagdeo continues to argue that Guyana’s future oil revenues will be enough to service Guyana’s debt. He also argues that Guyana has one of the best debt records in the world, through indicators like its debt to gross domestic product (GDP) ratio.
The oil sector contributes significantly to Guyana’s gross domestic product. In 2023, Guyana’s GDP stood at approximately US$16.53B with the crude oil exports contributing an impressive US$11.63B. This clearly demonstrates that oil exports account for approximately 70% of Guyana’s GDP. Guyana is therefore placing a lot of stock in one resource.
If Guyana did not have oil, the debt-to-GDP ratio would tell a whole other story. Despite an increase in borrowing, Jagdeo argues that the nation’s economic fundamentals remain strong, and that Guyana will make billions more annually from oil in coming years.
According to Finance Ministry projections, oil will earn Guyana US$2.4B in 2024, nearly US$2.5B in 2025, US$2.9B in 2026, and US$3.2B in 2027.
“Right now, our revenue in 2025 is forecast to be about US$2.6B, which is more than the entire external debt,” Jagdeo stated last Thursday.
The recent reading of the budget has shed light on the extent of the debt Guyana has taken on and plans to take on. According to Senior Minister in the Office of the President with Responsibility for Finance, Dr. Ashni Singh, at the end of 2023, Guyana’s total Public and Publicly Guaranteed (PPG) debt stood at US$4.5B, marking a 23.4 percent increase from the end of 2022. This increase is attributed to new external and domestic borrowing. Furthermore, the country’s external debt amounted to US$1.78B at the end of 2023, up by 13 percent from the end of 2022.
While the government boasts of a low debt-to-GDP ratio and prudent debt management, concerns arise regarding the sustainability and risks associated with such heavy dependence on one sector. This situation is reminiscent of the concept of the “pre-source curse,” which refers to the challenges that can arise when a country overly relies on a single resource for its economic growth and debt servicing. The reliance on oil as the primary driver of economic growth and fiscal stability requires careful management to avoid the pitfalls of the resource curse.
The “resource curse” or “paradox of plenty” is a well-documented phenomenon where countries with abundant natural resources, like oil, fail to achieve sustainable economic growth due to over-reliance on these resources. This can lead to economic volatility, corruption, and neglect of other sectors of the economy. In Guyana’s case, the heavy reliance on oil revenues for both current income and as a basis for future economic projections introduces risks associated with fluctuations in global oil prices, changes in demand, or geopolitical events affecting the oil market (of which, there are many.)
This strategy also assumes a continued and increased rate of oil production and stable or favorable oil prices, in line with the government’s guidance that Exxon should produce as quickly as possible. However, there are potential shifts in the global energy landscape, such as the increasing adoption of renewable energy sources and international policies aimed at reducing carbon emissions, which could affect the longevity of the oil sector.
Guyana plans to very soon take on the largest loan in its history, some US$660M from the United States EXIM Bank to support the Gas-to-Energy project.
Guyana’s neighbour, Suriname, caught in economic turmoil, has used its coming oil boom as collateral to restructure debt. However, unlike Guyana, the only project so far expected to be developed for Suriname has not even been renewed or approved yet. This means Suriname may very well be pressured to approve an oil project, in spite of regulatory hiccups linked to the equitability of the project and its impact on the environment.
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