Prepared for Kaieteur News Feature on the Economy Author: Joel Bhagwandin July 8, 2020

An outlook of Guyana’s total public debt for the fiscal year ended December 2019 relative to projected oil revenues: - will the people of Guyana really benefit from the projected oil revenues or will it go towards servicing debt?

Discussion and analysis
Having reviewed the end-year outcome report on the economy produced by the Ministry of Finance, total public debt stood at US$1.69 billion or 33 percent of GDP, while total debt service payments amounted to US$316.5 million or 28 percent of Government revenue, and represented 20% of total exports. Projected oil revenues for 2020 (pre-COVID-19) was approximately US$300 million at a production capacity of 100,000 barrels per day (bpd). However, with the global pandemic, oil prices tumbled to under US$20 per barrel, but is now recovering at around US$40. Assuming that the oil price remains at this level and do not decline significantly, oil revenues for the 2020 could reach just over US$170 million of which US$95 million has already been collected that is locked away in the Federal Reserve Bank in New York. More so, it is noteworthy to highlight the current level of debt servicing which is, according to 2019 figures, amounted to almost the full sum of projected oil revenues (US$316.5 million or 28% of government revenue). This can be interpreted, therefore, to mean that oil revenues and especially now where projected revenues is estimated to be much lower for 2020 from US$300 million previously, will be less than or equal to the total sum required for debt repayment. In other words, oil revenues will be just enough to repay the country’s national debt. In view of the above scenario, assuming that there is no debt forgiveness, oil revenues for the first three years will be equivalent the sum required to repay the national stock of debt which means there will be little or nothing remaining to go towards massive developmental projects that Guyana so badly needs in the area of infrastructure and social services. This is more so the case such that if one were to add the overdraft balance on the government deposit accounts at the central bank, which at the end of 2019 stood at G$71 billion or US$340 million – to the total stock of debt, this will give rise to the total stock of public debt of US$2.029 billion or 41% of nominal GDP. Further to note, the International Monetary Fund (IMF) in its Article IV report on Guyana flagged this overdraft balance and urged that the balance be cleared off, inter alia, converting same into monetary instruments which in turn would be sold in the local financial market but this was never done. This would have another implication given the size of the balance to date which is close to some $100 billion – that is, it certainly would crowd out the private sector (from accessing financing from the local banking sector) wherein it would map up a huge sum of the  excess liquidity in the banking system as it represents more than 60% of the liquidity in the banking system. In essence, given the level of public debt coupled with the overdraft balance on Government deposit accounts held at the Central Bank – which ought to be considered as well, proponents may argue that the debt-GDP ratio is still low compared to other Caribbean countries. The universal benchmark is about 50% debt to GDP ratio which is well below that, but, in the case of Guyana the debt-to-revenue ratio is almost 30% and if we are to add the overdraft at the central bank it will be probably 35% of government revenue and over 20% of exports. These, in turn, will induce constraints for the central government’s fiscal ability – that is, there will be financing constraints to spend on public goods and services such as health care, security, roads, and physical infrastructure.</br>

Simplified summary

Guyana’s high level of national debt together with other forms of debt financing through the central bank (which is not captured in the official reporting of the national debt stock) is just over US$ 2 billion or GY$417 billion. This sum is not only equivalent to 137 percent of the total national budget for 2019, but also equivalent to the first six years of oil revenues. In simple terms, the projected oil revenues over the next five years may well be suffice only to repay public debt, thereby, leaving little or nothing to invest in the economy in meaningful projects that will enable job creation and a better life for the ordinary working-class people. The new Government when it assumes office, therefore, will have to operate and deliver within very tight financial constraints even with the anticipated oil resources. </br>

About the Author

Mr. Joel Bhagwandin is a macro-finance & research analyst with over thirteen years’ professional experience in the banking and financial sector and the private sector combined. He served as financial analyst at the Bank of Guyana, in the Bank Supervision Department as well. He is an MBA and undergraduate lecturer of business economics and finance with various educational institutions in Guyana and has authored more than 200 articles on economic and finance issues, and policy analysis. He is the holder of a Master of Science Degree in Business Management with concentration in Global Finance, Financial Markets, Institutions and Banking from Edinburgh Napier University; an Executive Certificate in Macro-financial policy-making in Emerging Markets from Columbia University, School of International Public Affairs in New York, and several other Diploma Certificates in Business Communication, Marketing, Business organization and Environment from the University of Cambridge.

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