Borrowing in an age of oil wealth

May 24, 2026 Features / Columnists, Peeping Tom

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(Kaieteur News) – Guyana today enjoys one of the most enviable fiscal positions in the developing world. Its debt-to-GDP ratio remains moderate, debt servicing costs are manageable, and rising oil revenues have dramatically strengthened the country’s balance sheet. Yet these comforting indicators should not obscure a deeper economic question: should an oil-rich nation continue borrowing heavily simply because it still can?

The conventional answer from international financial institutions and from the nation’s economic gurus is yes. Economists often argue that as long as debt remains sustainable, borrowing to finance infrastructure and development is perfectly rational. But sustainability is not the same thing as efficiency, and what may appear prudent on paper can become economically suboptimal in practice.

Guyana is no longer a cash-strapped low-income economy without access to domestic resources. It is now a rapidly expanding petroleum producer earning billions of United States dollars from offshore oil production. This changes the economic calculus fundamentally because the country now possesses a growing stream of sovereign revenues that can finance a significant portion of its development needs directly.

Borrowing made sense when Guyana lacked fiscal space. It makes far less sense when the country is accumulating substantial oil earnings while simultaneously increasing public debt obligations. Future generations are ones that will have to service these obligations.

A nation cannot logically celebrate oil wealth while behaving fiscally as though it remains resource-poor. This is the contradiction that seems to elude our economic gurus.

A central issue is the opportunity cost of borrowing. Every dollar borrowed today carries interest payments tomorrow, even if the interest rate is concessional. Those future payments reduce fiscal flexibility and divert revenues away from health care, education, climate adaptation and productive investment.

In an oil economy, excessive borrowing can also create a dangerous illusion of limitless fiscal capacity. Governments begin to assume that future oil revenues will always rise sufficiently to cover expanding debt commitments. History shows otherwise because commodity prices are volatile, oil reserves are finite, and global energy markets are undergoing structural transformation.

The examples are numerous and cautionary. Countries from Nigeria to Ecuador experienced periods of optimism fueled by commodity booms, only to confront debt pressures when prices weakened or production slowed. Oil wealth does not immunize a country against fiscal miscalculation. In some cases, it amplifies the risks by encouraging overconfidence.

Guyana’s circumstances are certainly more favorable than many historical examples. Production costs are relatively low, output is increasing rapidly, and global investors remain confident in the sector. But good economics requires planning for uncertainty rather than assuming perpetual prosperity.

There is also the issue of intergenerational equity. Oil is a depleting asset and revenues generated today represent the monetization of national wealth that belongs not only to present citizens but also to future generations. If current governments borrow aggressively despite possessing rising petroleum revenues, future Guyanese could inherit both depleted resources and lingering debt obligations.

A wiser approach would involve greater reliance on pay-as-you-go development financing. This means using a larger share of current oil revenues for infrastructure and national transformation rather than automatically resorting to loans. Such a strategy reduces interest costs, strengthens fiscal sovereignty and minimizes long-term vulnerabilities.

This does not imply that all borrowing is inherently bad. Strategic debt can still play a useful role, particularly for projects that generate high economic returns or transfer valuable technical expertise. Multilateral financing tied to energy transition projects, climate resilience or regional integration may remain economically justified.

However, the threshold for borrowing in an oil-rich economy should be significantly higher than in a resource-poor one. Governments should ask not merely whether debt is sustainable, but whether it is genuinely necessary. Too often, this distinction disappears in policy discussions dominated by conventional fiscal metrics.

Development is not simply about spending more money. It is about sequencing investment carefully to preserve economic balance and institutional capacity.

There is also a governance dimension that deserves attention. Easy access to borrowed funds can reduce discipline in project selection and procurement. Governments become less constrained in approving politically attractive projects whose economic returns may be questionable.

Oil revenues should encourage the opposite mentality. A resource-rich state should be especially careful in allocating capital because it has a rare opportunity to build national wealth without mortgaging the future. Fiscal prudence in an oil economy does not mean austerity. It means using sovereign resources intelligently before reaching reflexively for external financing.

Guyana has an extraordinary opportunity before it. Few countries in modern history have experienced such rapid revenue expansion combined with such a relatively small population. That opportunity should not be diluted by an excessive dependence on borrowing that may be financially sustainable yet economically inefficient.

The ultimate test of economic management is not whether a country can borrow. It is whether it can develop wisely enough that borrowing becomes the exception rather than the habit.

But don’t tell that to our economic gurus. They depend heavily for advice on the very institutions that have an interest in lending monies to Guyana. If only they could be more open to non-institutional advice, Guyana would have been in a better place today.

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

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• borrowing, GDP ratio, Oil revenues, oil wealth, Peeping Tom

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