Guyana’s debt-to-GDP ratio records another increase

…country expected to breach IMF benchmarks in 2019 – analyst

Guyana’s total public debt to Gross Domestic Product (GDP) has increased from 45.7 per cent, in 2016 to 46.2 per cent in 2017, according to the Public Debt Annual Report of 2017, recently released by the Finance Ministry and made available to Parliament.

By comparing what a country owes with what it produces, the debt-to-GDP ratio indicates its ability to pay back its debts. A high debt-to-GDP ratio may make it more difficult for a country to pay external debts, and may lead creditors to seek higher interest rates when lending.
The higher the debt-to-GDP ratio, the less likely the country will pay back its debt and the higher its risk of default. A specific debt-to-GDP ratio demonstrates an ideal position has not been agreed to, but instead, it is typically focused on the sustainability of certain debt levels.
In Guyana’s case, while debt-to-GDP has seen slight increases over the years, this number continues to grow, and local economists have warned that Guyana’s increased debt could complicate things. Guyana’s total public debt has moved from $317.7 billion in 2015 to $344.9 billion in 2017.
According to the Report, the increase in the debt-to-GDP ratio was mainly caused by an increase in public debt stock as a result of increased disbursements from Guyana’s external creditors such as the Inter-American Development Bank (IDB); International Development Association (IDA); Caribbean Development Bank (CDB) and China Eximbank.
“Of total public debt to GDP, external debt and domestic debt represented 34.3 per cent and 11.9 per cent respectively, in 2017,” the Report revealed, adding that the total debt service to revenue ratio increased from 7.2 per cent in 2016 to 7.6 per cent in 2017.
This increase was the result of an increase in debt service payment. The Report also pointed out that the cash debt service payments to Venezuela recommenced, in 2017. There was also new debt service payments made to Republic Bank Limited for the Marriott Hotel.
Meanwhile, it was noted that in 2017 the debt service ratio increased to 3.8 per cent from 3.4 per cent in 2016. The ratio, according to the Report, increased on account of higher levels of debt service for payments again to Republic Bank Limited and Venezuela.
“This ratio is considered to be a key indicator of a country’s debt burden. The increased debt- service-to-exports ratio over the last year shows that the country’s debt is growing faster than exports, but would need to be reversed in the medium and long term.”

Breach
According to Washington DC-based financial analyst Sasenarine Singh, the core issue with respect to Guyana’s debt profile remains the breach of the external debt threshold construction after the International Monetary Fund (IMF) crunched its gathered numbers during its annual Article IV Consultations. He said given the state of the foreign currency inflows from the sugar sector, Guyana was now exposed to unexpected adverse shocks.
“As the debt continues to rise, because of what was done to the sugar industry, the ability to pay back these debts, most of which is in foreign currencies, has now declined and this state of affairs will remain so in 2019 and 2020,” he told Guyana Times.
Of note, Singh said, Guyana is expected to breach the IMF benchmarks in 2019. A significant breach is classified, according to the IMF, as one that is five per cent above the benchmarked percentage. Guyana, he said, will break those macro-economic boundaries adversely in 2019.
“This breach is expected to continue until 2022 if we have favourable conditions in the oil sector. But what happens if the oil prices (like today) remain low until 2020? Would the developer harvest the raw crude at a lower-than-expected level because of the lower price?”
The financial analyst said that could cause the breach to extend to as far as 2024-2025, noting that there was nothing good in making the Guyanese economy totally dependent on one sector (oil) to save it. “That is why this 2019 Budget must demand prudence in how we borrow before oil production really starts to add value to Guyana,” he added.
Singh said he would strongly recommend to the Government that it eased up on all the reckless borrowing and focused on the efficient disbursement of what was in the pipeline. “Focus on getting the right value for money out of the big projects like the Airport Expansion Project.”