Guyana’s total stock of public debt hit a new record high of G$417,256,000,000 (including the G$55 billion overdraft at the Central Bank) at the end of 2018 which translates to G$556,241 in debt assigned to each child and adult. Rather than giving new mothers and fathers some lands or some tools to help them provide for their newborns, Team Granger in 2019 is giving them a special gift – half a million in debt. But I admit these statements are not the best measure of the deterioration debt situation.
The better measure of the surging debt crisis is Debt as a percentage of GDP (the calculated size of the economy). In 2018, if using the IMF model of including the overdraft at the Bank of Guyana, the Debt to GDP (DoG) ratio was 58.8%. (see graph below)
When Guyana finally got the full benefits from the HIPIC initiatives in 2007, the DoG ratio fell to 59.9%. Since then it peaked at 65.3% in 2010 but has since declined to 48.2% by 2015, the lowest level since 1969. But like 1969, the reigns of the economy fell into the hands of the PNC and the rest is history. Exactly what has happened after 1969 has happened since 2016 – rampant, wild and reckless borrowing to fund massive acts of corrupt spending on mostly non-productive pageantry schemes.
In 2019, if this pace of borrowing continues, the DoG ratio will climb to 62.6% adding a further G$31,000 in absolute debt to every child and adult in just one year. Only financial and policy terrorists will remain indifferent to this crisis.
Do we have a hydropower plan to show for all this debt? Do we have a modular oil refinery to show for it? Do we have 50% of the road to Lethem to show for it? Do we have a larger, export-focused plantation agriculture system to show for it?
This debt business have two burdens? The first one was addressed above – the load (the stock of debt). As we observes, it is like an albatross on the people’s back that is getting heavier by the minute. But there is a second burden (the flow), which are the annual debt service payments.
The cost of debt service has been rising rapidly since 2009 and the evidence proves that it has almost doubled since then. In 2018 the Debt Service to Revenue (DSR) ratio was 8.2% of the taxes collected and is expected to climb even more in 2019 to 8.8% (see chart below).
The escalating cost reflects in part the increasing reliance on debt to fund government spending rather than using its policy tools to increase productivity both in the public and private sector and hence enhancing the taxpaying ability of all sectors of the economy. But if you look at almost all of the borrowing under this Granger regime, almost half of it is on non-productive projects, which does not have a payback capacity. This means, the burden on the taxpayers will increase as we advance into the future.
However you slice it or dice the issue, the taxpayers will lose because of this addiction to debt, in the people’s name, to fund projects that will indirectly feed the lifestyles of the ruling political class. No nation has ever survived successfully a debt burden that is climbing this fast. We have been down this road before and lost much ground internationally. We must never forget that it was these PNC boys and girls that took Guyana to a position of uncreditworthiness because of debt overload. Today again, the PNC now under Mr. Granger is marching Guyana down the same road to more debt. The psychologist said that when a team does the same thing over and over and expect different results it is defined as textbook insanity. I call it policy paralysis because what I am observing is absolute policy laziness to think outside of the box and develop better alternative paths.
So while Team Granger sells a story of Alice in Wonderland with this oil revenue, what we in the analyst community are fully aware of, is that within the first 5 years of it starting to flow, the majority of these funds will be diverted towards paying the debt, leaving very little for the Guyanese people.
Guyana with this now elevated government debt is vulnerable to changing financing conditions. Even with the oil funds, the government of the day would be unable to deploy sufficient fiscal support into the economy in a timely manner to kick start it again. This then raises the issue of the Sovereign Wealth Fund being placed in a position of a clear and present danger as the politicians panic. But that debate is for another day.
Wither Guyana under Mr. David Arthur Granger!