Before we examine in some amount of detail today’s theme on public debt management and the actual level of the country’s stock of public debt as at the end of the first half of the fiscal year 2017, it is worthwhile that we first have an understanding of what public debt management is, and why it is important.
Sovereign debt management can be defined as the process of establishing and executing a strategy for the management of the central Government’s debt, which is effectively the debt accorded to a country or nation, and of course it has to be borne by the people of that country. Governments incur debt in order to raise the required amount of funding, achieve their risk and cost objectives, and meet any other sovereign debt management goals they may have set out to achieve (IMF paper, 2001). In a broader macroeconomic context for public policy, Governments should seek to ensure that both the level and rate of growth in their public debt are fundamentally sustainable, and can be serviced under a wide range of circumstances, while meeting cost and risk objectives.
With that said, Guyana’s stock of public debt, which include both domestic and external debts, increased by 6.9 per cent and 5 per cent respectively when compared to the corresponding period ended June, 2016 level. Total stock of domestic debt stood at G.2 billion from June 2016 level, and stock of external debt stood at US.2 billion, thus bringing the total level of public debt to US.638 billion dollars, or close to G0 billion. At the same time, domestic debt service payments increased by 31.2 per cent or 7 million to G.123 billion due to higher principal and interest payments for debentures. This is, no doubt, an exorbitant increase of about 6 million, or 320.5 per cent. Also, external debt service payment increased to US million or by 8.2 per cent when compared to the corresponding period ended June, 2016 level (BOG, half year report 2017 & Mid-year report, 2017).
According to the Bank of Guyana’s half-year report, as at the end of June 2017, one of the causations of the increased debt service payments is attributed primarily to the commencement of principal and interest payments to Venezuela for oil imported under the former PetroCaribe Agreement, which ended in July, 2015. This revelation is a bit baffling to me, as it raises the question, ‘If this agreement ended in the fiscal year of 2015, why are there outstanding payments still? My understanding of how the PetroCaribe arrangement worked was that Guyana and Venezuela virtually had a bartering arrangement, wherein we would have accepted oil from Venezuela in exchange for rice. Secondly, within this arrangement, when the contract ended, all outstanding sums of money should have been settled through this same medium, which would be quite logical. But why did this not happen? In fact, what actually happened, (citing Kaieteur News’ article dated July 09, 2015) was that the Minister of Finance stated (therein) that “by the time the agreement ended in November, debt would decrease, but after November it would increase again, because we will continue to benefit from oil at concessionary prices but we won’t have rice to write it off, the debt like we used to”.
Now, this is clearly an example where we, as a country, and effectively the Government, handled this entire matter between Venezuela and Guyana in a very haphazard, poor and undiplomatic manner; as, if it were a case where indeed there were outstanding payments when the contract ended, it could safely be deduced that there may have been a breach of that contractual arrangement between the two countries; and hence shouldn’t we have undertaken a legal course of action to remedy that matter? Or at least handle it much more gently and at a higher level of diplomacy? Clearly Venezuela was upset with our response to the issue, which is why they refused to accept our rice, at minimum to bring the contract to a close.
These are practical questions that one may ask, or at least information the public should know. I am certainly baffled, as I cannot fathom how is it that we owe Venezuela, and resulting in the Government being placed with an added burden on the country’s debt servicing ability. And therefore this certainly warrants some amount of further investigation on my part, so that we can all have an understanding of what really happened with respect to this matter; as my main concern is: why only now are we seeking to settle payments in this regard, given that the contract ended more than two years ago?
Citing the BoG half-year report for the outlook of the country’s public debt management structure for the end of December 2017, it is expected that external debt service payments will increase to US million, or 19.6 per cent. Principal and interest payments are projected to increase by 14.9 per cent and 29.2 per cent to US million and US million respectively. Multilateral payments are projected to fall by 2.1 per cent to US million, while bilateral payments are expected to increase by 49.2 per cent to US million.
Altogether, Central Government’s debt servicing is likely to increase to US million from US million as at the end of December 2016.
Next week we shall dissect the information presented in today’s discussion a bit further so as to assess whether the level of country’s current public debt is deemed sustainable; and we will examine some of the International Monetary Fund (IMF) guidelines on public debt management together with a review of our own public debt management framework.
