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Finance Minister warns mounting interest rates will be a severe challenge on Guyana to service debts
…but govt increasing debt ceiling to borrow more
Kaieteur News – Senior Minister with responsibility for Finance, Dr. Ashni Singh during his budget speech last Monday warned that increasing interest rates will “continue to have severe implications for countries like Guyana” but still announced that his government wants to further increase the debt ceiling to borrow more in 2024.
Senior Minister within the Office of the President with Responsibility for Finance, Dr. Ashni Singh
Singh during his speech noted global commodity is likely to remain volatile in 2024 (likely to change suddenly and unexpectedly) and because this loan pricings are going up. “Mr. Speaker on the subject of commodity and other prices, it is apposite to note that the monetary policy response to global inflationary pressures has seen a significant increase in the pricing of credit, interest rates…” Singh told the National Assembly.
He added that interest rates have risen substantially since early 2022 as governments and central banks attempt to combat stubbornly high levels inflation in many places. Singh continued: “In particular the US Effective Federal Funds Rate stood at 5.3 percent at the end of last year.” According to Singh that is way above the 1.7 percent average rate in 2022.
The finance minister further explained: “similarly, the benchmark secured overnight financing rate averaged five percent in 2023”, a significant increase from 1.6 percent in 2022. “This has had, and will continue to have, very severe implications for country’s like Guyana who raise external financing that is priced on the basis of these benchmarks”, Singh said.
Meanwhile, eben though the government has acknowledged that the mounting interest rates will be a challenge on Guyana to service its debts, the government is still seeking to raise the debt ceiling yet again for a third consecutive year. This year’s Budget is $1.146 trillion (US$5.4B) – some 46.6% greater than last year’s fiscal plan- and 40% of it is to be financed by loans. To meet this astronomical spending plan, Minister Singh revealed that government will be approaching the National Assembly for an increase in the domestic and external debt ceilings. He said this will provide the flexibility needed to optimise on the financing mix while at the same time safeguarding debt sustainability. In January 2021, the People’s Progressive Party/Civic Government had tabled two Orders at the National Assembly to raise the country’s debt ceiling. The orders proposed that the domestic debt ceiling be increased to $500 billion from $150 billion and a new external borrowing ceiling of $650 billion from $400 billion. Both of these increases reflect a 233.3% and 65% increase, respectively. Both orders were passed, following debates by the government and the opposition.
As a result Guyana’s debt increased significantly in recent years. At the end of 2022 the country’s debt stood at US$3.6 billion and by the end of 2023 it increased to US$4.5 billion plunging Guyana some 23 percent deeper in debts.
Vice President, Bharrat Jagdeo at a news conference last Thursday sought to justify his government’s position to borrow more despite the risks, especially mounting interest rates. The Vice President said Guyana is not worsening its global debt profile. Jagdeo said he has repeatedly explained that the country’s debt to Gross Domestic Product (GDP) ratio is among the lowest in the Region. Moreover, he pointed out that only US$1.8B of the US$4.5B is external debt.
In defense of his government’s excessive borrowing, he explained, “In 1990, our gross domestic product was approximately US$300M and we owed US$2.1B external debt at that time…we have a US$22B economy today and our debt is US$1.8B. It’s lower, external debt is lower than the debt in the 90s when our economy was 60 odd times smaller…”
Consequently, the VP said, “In spite of our borrowing over this period, our stock of debt to the external world is less than in 1990 when APNU was in office.”Jagdeo also argued that Guyana’s future oil revenues will be enough to service Guyana’s debt.
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