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Debt service
(Kaieteur News) – A short time ago, the question from the media was how well Guyana would do in servicing its US multibillion dollar in a falling oil price environment. In 2022, Guyana’s debt service bill was US$150.2M, which then increased to US$177.3M in 2023, and last stood at US$220M for 2024. In two short years, Guyana’s debt service charge went up by 46 percent, a not-so-modest increase.
Vice President Jagdeo, Guyana’s chief oil and gas policymaker had his answer ready and waiting. “So if we say 37 percent of the budget comes from oil money so clearly it means that the rest have to come from somewhere else, so we pointed out that about another 30 something percent comes from revenue that is non-oil revenue right, so the rest comes from loans every year to fund the projects”.
What Jagdeo was saying was that the contributions of the non-oil sector to the national economy would be enough for Guyana manage its debt service obligations. Something is missing here, because he said that he “did get the point” of the question. From his answer, it is obvious that he got lost as he tried to wiggle out of the implications of the question, trapped himself.
We believe that the nation’s leading oil spokesman was up to his regular routine. He knew the weakness of his answer, but since he had nothing else to offer, presented it and hoped for the best. When oil prices are lower and for an extended period, it is not only the oil sector that feels the pain. The nonoil sector in Guyana would also share some of that same pain. The nonoil sector and oil sector are not mutually exclusive.
In other words, Guyana’s nonoil sector is not housed in a silo and operating in its own private world, untouched and unfazed by falling oil prices. Developments that have negative impacts on oil itself transfer some of those impacts to nonoil businesses.
When oil prices are riding high, the nonoil sector is carried along on that wave. When oil prices start a long slide (not a passing blip), the nonoil sector starts its own slide, since they are so interlinked, which Jagdeo knows very well. Less business done by the nonoil sector usually means less tax collections from the businesses making up that sector.
When we factor in Jagdeo’s “30 something percent comes from revenue that is non-oil revenue” this adds up to something significant relative to taxes paid. Guyana’s top oilman knows all this, but persists with the fantasy that non-oil sector contributions to the economy would help this country to weather any debt servicing challenges.
Moreover, as he himself noted, the PPPC Government’s revenue model is based on oil prices remaining at current levels. In Jagdeo’s own words, “Our future revenue, if we forecast based on oil production even for the approved projects and Whiptail which will be approved, if we only factor in production at those levels, at say current oil prices at the volume that we expect to produce from those projects, the revenue for the state in the outer years, that is maybe by 2028- 2030 we could be (receiving) US$5.7 to 6B.”
Absorbing what Jagdeo said, we have this to say: annual debt servicing is no longer the walk in the park, when oil prices fall, and stay down. Guyana could anticipate increased daily production volumes, but when oil falls, so are other countries who have the spare capacity.
Most, if not all, of the oil producing countries are then in a dog-eat-dog fight to maintain their revenue levels from oil, through wider and wider opening of their oil spigots. With so much more oil supplied to the market, the economist in Jagdeo knows what that could mean for even lower oil prices.
The reality is when things are bright and beautiful in the world of oil, good things happen for oil producing countries, and those leaders are so happy as to throw caution to the winds. Recklessly taking on more debt is a usual practice. Problems manifest themselves when oil prices go the other way. The assumptions and models start to crack at the seams. Rosy debt servicing predictions fall apart.
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