Guyana needs to move to medium-term fiscal framework to avoid the debt trap

Nov 30, 2025 Letters

Dear Editor,

The government passed a budget in January 2025 when crude oil was trading around the $80/barrel mark. But starting in early May this year, prices started to drop into the $60s. Lower prices continue as the year draws to a close and some major Wall Street banks see prices sliding into the $50s. So, from May through to December 2025, Guyana was earning roughly $20/barrel less than it had anticipated or, presumably, budgeted. That’s no small variance for a petrostate that is “not awash in oil money” ― some perceptive person said that ― on 900,000 barrel/day, for, even with the munificent 2% royalty, the “loss” was $400,000/day, or $90,000,000 for the 8 months (May-Dec of 2025). Ballpark figures, but good enough for the purpose.

Oil prices are volatile. On any given trading day, prices can swing by as much as $30/barrel on average. Negative prices, albeit rare, cannot be ruled out. No one can predict oil prices, which can roar back to over $100/barrel. Place your bets.

But ask any farmer to choose between feast and famine, or income stability, and the overwhelming answer would be the latter. For a petrostate that is not awash in oil money, volatile oil prices mean volatile oil revenue, economic boom-and-bust cycles. Thankfully, one stabilising tool in a country’s fiscal arsenal is a medium-term fiscal framework based on a rule designed to discipline government spending. (I’ve outlined four types of fiscal rules, with case studies in my book, “From Rags to Riches: Is Guyana Ready for the Oil Bonanza”). A fiscal rule, sufficiently flexible, enables the government to smooth spending through income fluctuations. Further, fiscal discipline strengthens monetary policy, contributes to stable prices, stable (real) exchange rate, grows the Natural Resource Fund and, not least, averts rising government debt.

The IMF reports a Debt/GDP ratio of 24% in 2024, a deceptively low figure, but GDP doesn’t capture the debt burden because almost 2/3^rd of it is oil, of which Guyana retains only 2%, deposited in the Natural Resource Fund account at the Federal Reserve Bank of New York. Instead, a more revealing measure of the burden is the Debt/Non-oil GDP, which works out to 70%. By this additional measure, the true burden is about the same today as it was when Guyana got massive debt relief (reflected in 2007-2010 IMF data). Note also that the external Debt/Non-oil GDP ratio has been approaching the 30% level, inching back to the 40% plus level of the bad old days.

Given the dominance of oil, if Guyana hopes to avoid another debt trap, it must start developing a medium-term fiscal framework (if it hasn’t yet) and focus on increasing the relative size of the non-oil economy with tradables leading growth. Failing this, Guyana will not be the first oil producing country heavily in debt and struggling to grow. Back to the 1990s.

Sincerely,
Terence M. Yhip

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debt trap, fiscal framework, Letters, Terence M. Yhip

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