A contextual financial analysis of the gas-to-shore project (Part 6)

– Guyana’s total public debt in the context of its future development trajectory
and the potential impact on public debt

With respect to Guyana’s public debt, from examining the data below and looking at the trend over a ten-year period, Guyana has managed to maintain a debt-to-GDP ratio of less than 70% from 2013 onwards. With regard to the total-public-debt-to-total-Government-revenue ratio, this was at a high of 297% in 2009, but was reduced to less than 250% in 2014, and reached a low of 165% by the end of 2018.The average ratio for the period is 240%, which is well below the international threshold of 250%, according to the International Monetary Fund (IMF). By international standard as well, debt-to-GDP ratio of 60 – 70% is considered to be relatively sustainable. Further, a perusal of the 2020 third quarter Bank of Guyana Report shows that the total public debt service ratio relative to Government revenue is just about 30%, and this level has been maintained, evidently, over the last ten years or so.
Additionally, one would observe that, from looking at the growth rate of public debt over the last ten years, the average annual growth rate of public debt is about 2.7%, or less than 3%. The reason for this is simple. Government revenue is currently over $200 billion, which means that 30% of this amount, which is about $60 billion, goes towards public debt service annually. Taking this into perspective together with the budget deficit from the data in the table above, one would observe that the average budget deficit is less than $30 billion, which is typically financed by borrowing.
Now, what this means is that if the average annual debt service is $60 billion and the budget deficit is $30 billion, then the Government is simply borrowing back just half the sum of the funds repaid in debt service annually, which explains why the average annual growth rate in public debt is less than 3%. This is practically no different from how an individual credit card works.
To be continued…

About the Author: JC. Bhagwandin is the Chief Financial Advisor/Analyst of JB Consultancy & Associates, and lecturer at Texila American University. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to [email protected].