Govt to adjust debt ceilings to fix inherited liabilities, cater for future development
With the aim of regularising several issues unearthed after assuming office, as well as to facilitate new financing for its transformative development agenda, the PPP/C Government has moved to increase the ceilings for domestic and external debts.
Senior Minister in the Office of the President, with Responsibility for Finance, Dr Ashni Singh, on Thursday tabled two orders in the National Assembly, proposing to raise the two debt ceilings.
It was proposed that the domestic debt ceiling be increased to $500 billion, almost three decades after the last upward revision to $150 billion in 1994.
Additionally, a new external borrowing ceiling of $650 billion was proposed almost three decades after its last increase to $400 billion.
The move to increase the domestic debt ceiling was influenced by several factors, one of which is the existence of a large Consolidated Fund overdraft at the Bank of Guyana, accumulated over the last five years under the APNU/AFC regime. Minister Singh told the media that Government is now seeking to remedy this situation through the issuance of appropriate instruments.
“Given the situation that we inherited in the case of the domestic debt ceiling, it would have been exceeded; at the moment we came into office, there would’ve been no room to borrow. And on the external side, there would have been room, but there would have been relatively modest room if one were to assume that the existing portfolio of external debts were to be exhausted,” he posited.
At the time when the PPP/C assumed office in August 2020, the Public Account at the Central Bank had a net overdraft of $93 billion, and according to Dr Singh, this does not take into account billions of dollars in cheques that were issued by the State but were not yet encashed.
“As you know, if the Government writes and issues a cheque and it does not hit the bank balance, it would not be reflected in the overdraft… Needless to say, the overdraft, of course, has been increasing. First of all, there was a large stock of cheques that had been issued that would’ve increased the overdraft. That would have impacted heavily. Then there was the 2020 Budget that we would’ve enacted; that itself required financing,” the Finance Minister explained.
It was noted that if the overdraft were to be addressed under the existing ceiling for domestic debt, a breach would have resulted. More so, Government would eventually require the issuance of new domestic instruments in future, to finance various policy initiatives and to stimulate development of the domestic financial market.
With regard to the move to increase the external debt ceiling, this is to accommodate the existing level of external debt contracted, plus anticipated new borrowing to fund Government’s development agenda.
Dr Singh went on to say, “Having come back to office, we maintain the strong commitment to ensuring that we manage the fiscal operations of Government, and that we manage the public finances in a way that will ensure that we stay on a path of sustainable public finances and sustainable public debt; but, at the same time, that we are able to invest in the areas that are required.”
Further, it was noted that these revisions to the external and domestic debt ceilings do not threaten Guyana’s long-term debt sustainability, given the substantial economic progress made since the early to mid-1990s, when the ceilings were last revised, coupled with the country’s current robust economic outlook.
At the time of the last revision, in 1991, Guyana’s external debt ceiling was set at more than 1,000 percent of GDP. In contrast, the new proposed external debt ceiling would amount to less than 60 percent of GDP, using the latest 2020 GDP estimates.
At time of the last revision, in 1991, Guyana’s external debt ceiling was set at more than 1,000 per cent of the Gross Domestic Product (GDP). In contrast, the new proposed external debt ceiling would amount to less than 60 percent of GDP, using the latest 2020 GDP estimates.
On the domestic side, when last revised in 1994, Guyana’s domestic debt ceiling was set at almost 200 percent of GDP. In stark contrast, the revised domestic debt ceiling would amount to less than 50 percent of GDP. These comparisons clearly depict that Guyana’s current debt- carrying capacity could safely accommodate the proposed ceiling increases.
The Finance Ministry has said this landmark move serves to regularise and accurately reflect significant liabilities accumulated over the last five years, and harness Guyana’s debt-carrying capacity to finance Government’s transformative development agenda.
It added that this is further consistent with the PPP/C Administration’s sterling track record of prudent debt management in the course of safeguarding Guyana’s long-term fiscal and debt sustainability.