Introduction
Having reviewed the end-year outcome report on the economy produced by the Ministry of Finance, total public debt stood at US$1.7 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.
Discussion and analysis
Projected oil revenues for 2020 (pre-COVID-19) were 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 are now recovering, and stand at around US$40. Assuming that the oil price remains at this level and do not decline significantly, oil revenues for 2020 could reach just over US$170 million, of which US$95 million has already been collected and is locked away in the Federal Reserve Bank in New York.
It is noteworthy to highlight the current level of debt servicing, which, according to 2019 figures, amounted to almost the full sum of projected oil revenues (US$316.5 million, or 28% of Government revenue). This, therefore, can be interpreted to mean that oil revenues — and especially now, when projected revenues are 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 to 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 is that 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 current size of the balance, which is close to $100 billion. That is: it would certainly crowd out the private sector from accessing financing from the local banking sector, because it would mop 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.
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-to-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 would probably be 35% of Government revenue, and over 20% of exports.
These, in turn, would induce constraints for the Central Government’s fiscal ability; that is, there would be financing constraints to spending on public goods and services such as health care, security, roads, and physical infrastructure.
Conclusion
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 five years of oil revenues, provided that all other things are equal. In simple terms, the projected oil revenues over the next five years may well suffice only to repay public debt, thereby leaving little or nothing to invest in the economy in meaningful projects that would enable job creation and a better life for the ordinary working-class people.
The new Government, when it assumes office, would therefore have to operate and deliver within very tight financial constraints, even with the anticipated oil resources.
