Borrowing and servicing debt

Oct 01, 2024 Editorial

Kaieteur News – Last week, we reported on Guyana’s debt and the amount of money being spent in servicing it. It is an area of concern for most Guyanese, but one which our leaders have ignored.

According to the Bank of Guyana figures, this country’s debt service reached US$85.2M in the first six months of 2024, with a whopping US$34M alone paid in interest. Although the country’s total debt climbed from US$4.5B at the end of December 2023 to US$5B at the end of June 2024, the Bank of Guyana (BoG) in its 2024 Half Year Report revealed that Guyana’s total debt service, during the period under review, decreased by 7.7 percent to US$85.2 million.

Notably, Central Bank explained that domestic debt service payments decreased by G$2,925.8 million to G$5,872.7 million (US$29.4M), while the external debt service payments rose by 13.8 percent to US$57 million. This increase was “on account of higher interest payments to multilateral creditors,” the report states. The BoG explained that external debt payments accounted for 3.5% of Central Government’s current revenue and 0.8% of exports of goods and non-factor services. Principal and interest payments amounted to US$35 million and US$22 million, respectively. During the period, payments to multilateral creditors increased to US$36 million, which was 62.8% of total external debt service.

Meanwhile, payments to bilateral creditors increased by 11.6% to US$20 million, and accounted for 35.6% of total external debt service. The growth resulted from increased debt service payments to the Export Import (EXIM) Bank of China, according to the BoG. With regard to domestic debt service, the Bank’s Half Year Report indicates that payments decreased to G$5,873 million during the review period, due to the final debt service repayments on the Tranches 1 and 2 of the National Industrial and Commercial Investments Limited (NICIL) Bond.

It must be noted that a 2023 study by the Inter-American Development Bank titled “Dealing with Debt: Less Risk for More Growth in Latin America and the Caribbean,” the Bank states that countries in Latin America and the Caribbean should prioritise bringing down debt to prudent levels to boost economic growth, allow for productive investment and reduce the risk of a debt crisis. The study found that total debt in 2023 rose in Latin America and the Caribbean to some US$5.8 trillion or 117% of GDP, from under US$3 trillion in 2008. Public debt in the region grew from 58% in 2019 to 72% in 2020 due to COVID-related fiscal packages, lower revenues, and a recession, according to “Dealing with Debt: Less Risk for More Growth in Latin America and the Caribbean,” part of the IDB’s Development in the Americas series.

The Bank did warn that high debt levels can hinder development because it prompts investors to demand higher yields, crowding out private investments and forcing governments to divert scarce resources to pay interest instead of investing in infrastructure and public services. It said too that high debt levels also reduce a country’s ability to respond to future economic shocks to support families and firms and increases the risk of a crisis. The pandemic, the Russian invasion of Ukraine, high inflation, rising interest rates and low world growth, combined with high debt, increase the region’s vulnerability.

Let us assure the public of this fact: debt has its uses, and helps to make many things possible. But, as with most things, too much of it, can cause more than constipation, it can result in a hernia.  Too much debt taken too quickly can lead to choking, especially if the underlying revenues needed for debt service encounter trouble, and start to slowdown.  In Guyana’s case, a world of dependency is placed on oil prices staying at the level where it is currently, or above. There is optimism to the point of blind religious faith in the camp of the PPP/C Government that it is, and will be, a most helpful oil price horizon. Wiser political leaders and better run national governments have made the same mistake and paid bitter prices for long stretches of time.  It is more accurate to assert that the citizens who have to repay the suddenly overwhelming debt loads are the ones living with the bitterness.

Oil is a commodity that seesaws violently on world markets, and it does not take much to trigger it rising and falling wildly. Leading members of the PPP/C Government are fully aware of this, but some of them take comfort in the low debt to GDP ratio of this country, considering that same ratio of other countries in the region. GDP (Gross Domestic Product), or the total output of the economy, can turn on a dime and deliver into nosebleed territory, should geopolitical conditions change in some distant part of the world, or there is a steep drop in demand for the precious energy commodity.  All the rosy forecasts, and all the expressions of political confidence to service the national debt, then undergo a sharp reversal, with much tightening (stringencies) following, and being the only way to cope with new realities.  The people who felt pain during the time of plenty are now faced with newer, more unbearable pain.

For when the economic going was on the bright side, those same masses of citizens came in for the paltry here, and a pittance there, and not a penny more.  We at this paper have been against binge borrowing from the beginning.  Our position has been clear: borrow more slowly, and borrow less.  We do not have to be in this mad rush to initiate every public works project (infrastructure) that is found appealing, and run ahead with getting them done, regardless of how much they add to the overall debt overhang. Debt mania normally fuels squander-mania.  Meanwhile, we have too many hopeful citizens stuck at the bottom of Guyana’s economic ladder, who count themselves lucky if they get a taste of a few crumbs from their patrimony that is the delight of the world.  Their sorry lot just should not be, not in this country, of all places, and not at this time in our history.

Our accompanying position has been even clearer: get ExxonMobil to the table of renegotiation, and get into a battle royal there for more for Guyana.  More for Guyana means more for Guyanese.  More in the national treasury means that less has to be borrowed, or should be, given prudent management of our economy. This facilitates a better balance between borrowing and spending on projects, and responding to the plights of so many people hungry and needy in this country.  Tens of billions of Guyana dollars have to be set aside for debt service due to runaway borrowing, while dependent Guyanese are yoked to the repayment of loans taken in their name.  This debt picture is too skewed; it also reeks of much political underhandedness, incompetence and selfishness.

• Caribbean, Guyanese, lower revenues, packages, prioritise, The BoG