Guyana paying back IDB alone US$18.3M on loans yearly

Jun 18, 2024 News

…interest rate moved from US$8M to US$15.2M in 3 years

Kaieteur News – Over the past 47 years, the Inter-American Development Bank (IDB) approved over US$2 billion in loans to support Guyana’s development.

Ilan Goldfajn, President of IDB

The IDB’s ‘Partnering for Resilience’ report, said that Guyana is experiencing a significant increase in its debt repayment and interest obligations. The figures highlight a substantial rise in both principal and interest payments over the past few years, reflecting the country’s evolving economic landscape and financial commitments.

The IDB report reveals that Guyana’s principal repayments have surged from an average of US$8.3 million per year between 2010 and 2020 to US$18.3 million annually over the period from 2021 to 2023. This increase underscores the growing financial demands on the nation’s budget as it manages its debt obligations.

Similarly, interest payments have seen a notable rise. From an average of US$8 million per year over the 2010–2020 decade, the figure has climbed to US$15.2 million per year on average during 2021–2023. This escalation in interest costs reflects both the increase in overall debt and potentially higher interest rates on new or refinanced debt.

Senior Minister with Responsibility for Finance, Dr. Ashni Singh is quoted in the report saying that throughout the years, the Bank has provided more than US$2.03 billion in sovereign loans. Of that sum, the minister stated that US$112 million in technical cooperations and US$145 million in investment grants to support development projects across Guyana. Also, IDB Invest has approved over US$168.3 million in loans to the private sector with an exponential increase expected in the coming years based on the development trajectory of the country.

Some of the key areas of interventions in recent years include support to energy, water and sanitation, infrastructure, housing, and the COVID-19 pandemic. Support in the energy sector contributed to the rehabilitation of the electricity distribution network across the country, reduction of electricity losses, and diversification of the energy matrix with renewable energy solutions.

In the area of water and sanitation, this support has improved efficiency, quality, and sustainability of potable water services and sanitation infrastructure. Infrastructure support included improving drainage and irrigation systems, agricultural implements for farmers, widening transport corridors, and building safe and climate-resilient roadways along critical corridors such as the Sheriff Street-Mandela roadway. In the housing sector, the Bank’s contribution supported infrastructure development of housing communities and making available affordable housing solutions to our population. In justice reform, this collaboration has enhanced and modernise the criminal justice system consistent with international best practices. Moreover, Ilan Goldfajn, President of the IDB said that Guyana’s prospects are gaining international attention as the country continues to see record growth, with its Gross Domestic Product (GDP) nearly quadrupling since 2019. He said, “At the Inter-American Development Bank Group (IDB Group), we are looking forward to continuing to partner with Guyana to help seize this excellent momentum towards future sustainable and equitable growth.”

Excessive borrowing

Back in 2023 the IDB in a report had cautioned Latin America and Caribbean (LAC) countries against ‘excessive’ borrowing and urged governments to bring their debts down to more prudent levels. In the report titled, ‘Dealing with Debt – Less Risk for More Growth in the Latin America and the Caribbean’ the IDB disclosed that debt has risen and stands at some US$5.8T which is 117 percent of the Gross Domestic Product (GDP) in the region. “Given the dangers of excessive debt, the current situation in Latin America and the Caribbean is worrisome,” the IDB report had said. The IDB said public debt serves a critical role for countries to pursue public investment projects, implement countercyclical policies, and provide support to economies in the face of negative shocks. However, the IDB warned that if public debt becomes too large or is not managed with sufficient caution, interest costs may balloon, growth prospects may suffer, and in the limit, a costly debt crisis may be provoked.

It was stated that public debt had risen before the pandemic, with sudden debt spikes accounting for much of the increase. According to the IDB, “that spikes occurred largely during times of stress, fueled by a combination of low growth, high fiscal deficits, ballooning interest payments, currency depreciations, and significant off-budget and unfunded liabilities. This pattern of debt increases in the region points to the need for stronger fiscal institutions to establish credible and sustainable medium-term objectives to limit debt spikes, and where they are necessary, to promote periods of debt reduction…” the IDB said. According to the report, governments can bring down their debt levels by improving spending efficiency, expanding the tax base, and seeking wider reforms to enhance fiscal balances and boost growth. The IDB said that there are many reasons why public debt levels should be lower than they currently are, highlighting that there are several ways to reduce that debt.