Guyana on the road to exorbitant debt levels – Ali

At the end of December 2017, the Finance Ministry’s Public Debt Annual Report showed that Guyana’s total debt, inclusive of external and domestic, stood at US$1.66 billion or 45.2 per cent of Gross Domestic Product (GDP). However, according to former Housing Minister Irfaan Ali, despite this figure, Government in 2018 moved to acquire $30 billion in loans and investments to support the Guyana Sugar Corporation’s (GuySuCo) three remaining estates. This move, Ali said, shows that the coalition Government is obsessed with large-scale borrowing.
Just recently, Government secured a US$900 million line of credit from the Islamic Development Bank (IsDB) to develop the areas of agriculture, banking and finance, human development, energy and rural development. However, in Ali’s view, these decisions will lead to a “massive” increase in debt. Ali on Saturday noted that based on estimates, the country’s new debt-to-GDP ratio, using the 2018 GDP forecast of 3.8 per cent, would now be 73 per cent.
“This Government sees it economically sound to increase the country’s total debt by more than 28 per cent, when our growth rate in GDP is projected optimistically, at 3.8 per cent. Guyana is once again on the road to exorbitant debt levels. In response, the Government continues to remain obstinate in adhering to the various calls to reduce large-scale borrowing by international observers,” the former Minister pointed out.

Speaking on the $30 billion bond for GuySuCo, Ali pointed out that since much needed capital would likely be diverted from private investment, this could “further dampen economic growth through reduced national savings and income.”
He observed that the vulnerable and poor are the ones that will be affected the most. With regards to the business community, the People’s Progressive Party (PPP) Executive noted that unemployment rate will likely increase which could drive private consumption further down.
“As consumption dwindles, less revenues will be generated, which means larger budget deficit. In the long run, as production levels shrink, prices for basic commodities will increase, which add pressure on disposable income. Hence, the recipe for an economic concussion is completed. As the country grapples with its unruly debt, the first shock might be in the form of a sovereign debt crisis, whereby investors will perceive the country’s debt as unsustainable and will no longer be willing to finance it,” Ali explained.
The PPP/Civic Member of Parliament reasoned that the A Partnership for National Unity/ Alliance For Change (APNU/AFC) Administration will attempt to boost confidence by claiming that prospects from the oil economy will counter the country’s “economic misfortunes.”
“By the time oil begins to flow, not to mention Guyana received one of the worst oil deals in history, the crippling manufacturing and industry sector would stand no chance against Dutch Disease. With the inflow of foreign currency, if one is to be optimistic, local currency will appreciate, causing our domestic goods to become uncompetitive on the global market. Export of our traditional goods will shrink dramatically, which will further stoke unemployment,” he warned.
It was only on Friday that Opposition Leader Bharrat Jagdeo echoed similar sentiments. Jagdeo opined that Government was “pawning our futures”. The funding for GuySuCo’s $30 billion bond is expected to cover a four-year period, and will provide capital and support infrastructure maintenance and upgrades at Albion, Blairmont and Uitvlugt estates.
The funds are also expected to go towards developing new co-generation capacity for the estates’ operations and for the national electric grid. In addition, Finance Minister Winston Jordan explained that IsDB financial arrangement has a resource envelope of US$900 million that is potentially available, from which the Government can borrow.
To this, Jagdeo had however posited that the coalition Administration “has a failed approach to economics.” He even asserted that if the US$900 million credit line was pursued, Government would have accumulated almost US$1.1 billion in debt, which is equivalent to the amount of debt the GuySuCo was in from the start to the end of the 23 years of PPP reign.