Relentless borrowing

Mar 21, 2024 Editorial

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Kaieteur News – On Wednesday, we republished an article from The Telegraph in which Agustin Carstens, who leads the Bank for International Settlements, a global club of central bank bosses warned governments to stop their “relentless” borrowing or risk plunging the world into a debt crisis.

Although Mr. Carstens’ warning was for the global community- somehow it felt as if he was speaking directly to Guyana and its leaders. Carstens warned global leaders that interest rates would not return to their recent lows soon and as a result, continued heavy borrowing risks plunging economies into crisis unless battered public finances are urgently improved. Mr. Carstens said: “Fiscal authorities have a narrow window in which to get their house in order before the public’s trust in their commitments starts to fray. “Financial markets can remain calm in the face of large imbalances until suddenly, one day, they no longer are,” he added, without specifying which countries may be at risk. “That is why fiscal consolidation in many economies needs to start now. Muddling through is not enough. In many countries, current policies imply steadily rising public debt in the coming decade.”

As we reported, Carstens’ warning also comes amid growing concerns in Guyana regarding the country’s mounting debt. 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. This year, the Government of Guyana (GoG) has set aside $44 billion in the budget to service its ballooning debt. Vice President and former Finance Minister, Bharrat Jagdeo during a news conference in January announced that $44B or approximate US$220M of the country’s $1.46 trillion budget will go towards serving debts. In 2023, some US$177.3 million in revenue went towards debt service, up from US$150.2 million in 2022. The growing payments to service the country’s debt stems from a conscious decision of policy makers that believe Guyana’s forecast of revenue from the oil and gas sector justifies its borrowing agenda. And whenever the topic comes up, Jagdeo is the first to say that Guyana’s debt-to GDP ratio is manageable and we do not to fear the heavy borrowing.

Under the PPP/C Government, Guyana has become among the best customers of banks across the world. When the word loan comes up, Guyana’s name is frequently written all over it. The PPP/C Government is on a borrowing binge, and very proud of it. Bankers, who must be recognized for their utility, are also nothing if not successful pawnbrokers. They can always be approached for a loan, once the collateral presented possesses rich appeal for the recovery of monies lent, should there be a problem with honouring repayment obligations in the future.

Guyana has the best collateral for all the debts that it has been incurring recently, its rich natural resources and their seeming abundance. Gold and bauxite have been around for a long time, and now there is the godfather of opulent natural resources, billions of barrels of oil. Countries that have high quality oil and in plentiful quantities are preferred customers of bankers, whose motto to the oil-producing nations is the equivalent of ‘come and get it, there is money waiting for the taking.’  This is what the discovery of oil did for poor countries before, and what it is doing to Guyana today.

Oil is the game changer, which is why every bank under the sky lines up to lend this country money. The underlying projects and programmes, as officially stated, that necessitate the splurge of borrowings have their merits, and of that, there must be recognition.  But there is something else also that must be acknowledged, and it is about borrowing too much too quickly and too recklessly.  Many experts, who have seen the accelerated levels of borrowings in short spans of time by other poor countries that came into overnight natural resource riches, have sounded repeated warnings about overdoing things, and unthinkingly so. Because there is the calibre of leadership that is present in the current PPP/C Government, all such cautions to slowdown and carefully prioritise and pick projects have fallen on deaf ears.  Thus, the approach for more and more loans continues unchecked.

The more loans sought, the more national development and progress occurs, and this has been the selling point most favoured by Government leaders as the justification for the continual streams of borrowings. More loans taken mean more US millions for infrastructural projects that are needed all over this country. But there is a steep downside to the flush of cash that makes its way from foreign banks to Guyana to finance such projects. It is what feeds the corruption beast that has chewed and crippled this country’s governance for decades. Massive corruption is facilitated by, has a near perfect cover under, infrastructural projects, as has been lived with by Guyanese taxpayers from one national government to another.

Another downside not talked about to any meaningful degree in this country, now driven to mass ecstasy by ongoing oil discoveries, is the history of this precious, much in demand commodity called oil. Its price on the world markets can be up and down, and lead to both hair-raising and heartbreaking experiences. Countries that depend on its revenues at certain projected levels suddenly find themselves reaching for aspirin because of shortfalls in oil profits and receipts.  The banks still have to be paid, and they are not good at accepting excuses and sad stories; they have their own considerations and obligations, so they are unmoving. This has been the reality of places like Nigeria and Ghana, and Guyana was once in that state decades before oil took its pride of place here.  History has this callous habit of repeating itself, and we either learn from the lessons of history, or become the newest victims of it sooner than later.  Go slow with the loans, pick and select, and be a better country for it.

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• Agustin Carstens, Editorial, governments, Guyana, Telegraph

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