Forward to the past

Feb 10, 2025 Features / Columnists, Peeping Tom

---

Peeping Tom…

Kaieteur News-Guyana’s debt profile, both foreign and domestic, has become a focal point of economic debate in recent times. On one hand, the government maintains that the country’s debt is sustainable, pointing to favorable debt-to-GDP ratios and manageable debt servicing obligations. On the other hand, critics argue that Guyana’s rising debt levels, particularly in the context of its burgeoning oil wealth, are unnecessary and potentially risky.

The Guyanese government has consistently defended its borrowing strategy, emphasizing that the country’s debt levels are sustainable and necessary for financing development.  But the numbers are worrying for a country which has been bragging that it is the fastest growing economy in the world. External debt, which stood at US$1.3 billion in 2020, has risen to US$2.2 billion in 2023—a level comparable to 1992, when Guyana was classified as a heavily indebted poor country (HIPC).

However, the government contends that the context has changed significantly. Guyana’s economy has grown substantially, particularly with the advent of oil production, which has transformed its economic prospects. The debt-to-GDP ratio, a key indicator of debt sustainability, remains below 25%, well within the threshold considered prudent by international standards.

The government also highlights that debt servicing remains manageable. With oil revenues expected to increase significantly in the coming years, Guyana’s capacity to service its debt is likely to improve further. The administration views borrowing as a necessary tool to finance infrastructure projects, social programs, and other developmental initiatives that will lay the foundation for long-term growth. From this perspective, it says that debt is not a burden but an investment in the country’s future.

Critics, however, caution against complacency. While they acknowledge that borrowing can be a legitimate tool for development, they argue that Guyana’s current debt trajectory is concerning, particularly given the country’s newfound oil wealth.

Glenn Lall, a prominent voice in this camp, offers a nuanced critique. He does not oppose borrowing in principle but questions why Guyana needs to finance close to 40% of its budget through debt when it is already foregoing significant revenues in the oil sector due to low royalties and the absence of ring-fencing provisions.

Lall makes an important point: Guyana’s natural resource wealth should reduce its reliance on debt. The fact that the country continues to borrow heavily despite its oil revenues suggests a failed economic model. Other critics also warn that high debt levels could undermine Guyana’s long-term economic stability, particularly if oil prices fluctuate or if the global economic environment becomes less favorable.

One of the key risks associated with Guyana’s debt strategy is its reliance on external borrowing. While external debt can provide much-needed capital for development, it also exposes the country to exchange rate risks and external shocks. For instance, a depreciation of the Guyanese dollar could significantly increase the cost of servicing foreign-denominated debt. The Guyana dollar has not appreciated despite it being an oil-producing nation.

Another concern is the potential for debt dependency. History has shown that countries that rely heavily on external borrowing often find themselves trapped in a cycle of debt, where new loans are taken out to service existing ones. This can lead to a loss of economic sovereignty, as creditors impose conditions that prioritize debt repayment over domestic development priorities. This was Guyana’s experience from 1988 onwards.

The World Bank and the IMF have traditionally played a central role in assessing debt sustainability in developing countries. However, their track record is mixed. While these institutions provide valuable technical expertise and financial support, they have also been criticized for promoting policies that prioritize debt repayment over social and economic development. Structural adjustment programs, for example, have often required countries to implement austerity measures, privatize state assets, and liberalize their economies, with mixed results.

In Guyana’s case, relying solely on the World Bank and the IMF for debt assessments could be risky. These institutions have a vested interest in maintaining the global debt system. As such, their assessments may not fully account for Guyana’s unique circumstances. Instead of outsourcing debt assessments to these institutions, Guyana should develop its own capacity to evaluate debt sustainability, taking into account both quantitative metrics and qualitative factors.

Guyana’s debt debate reflects the broader tension between the need for development financing and the risks associated with excessive borrowing. While the government’s optimism about debt sustainability is not unfounded, critics rightly caution against complacency. Given the country’s significant oil wealth, it is important that Guyana adopts a prudent approach to debt management, one that maximizes domestic revenue, invests in productive sectors, and minimizes reliance on external borrowing.

But to do so would reignite a related debate: to what extent is the country obtaining its just dues when it comes to our oil wealth. And if we were getting what we deserve, would we have a need to borrow. And that is the debate which Glenn Lall has been prompting but which the government is fearful of pursuing.

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

(Forward to the past)

---

• changed significantly, debt servicing obligations, economic debate, Guyana’s economy, Peeping Tom

---