…says central bank, private external financing should be avoided
Having completed its Article IV consultations with Guyana, the International Monetary Fund (IMF) is warning Government against using central bank financing for the short term. This is according to the IMF Executive Board, which released its findings on Friday.
Finance Minister Winston Jordan
Instead, the Bank urged Government to rely on Multilateral Development Banks. Besides warning against central bank financing, the IMF also urged the Guyana Government to avoid private external borrowing.
“Short-term financing needs should be carefully managed,” the IMF stated. “The authorities’ prudence and restraint towards borrowing in anticipation of future oil revenue is commendable.”
“They should rely as much as possible on Multilateral Development Banks, including their non-concessional financing operations. Developing the domestic capital markets would provide a more stable source of financing and help meet the needs of domestic long-term institutional investors.”
The IMF’s warning against borrowing from private external investors comes as the Government has just arranged a US$85 million bond at a 4.75 per cent rate of return over five years – ostensibly to be sunk into the Guyana Sugar Corporation (GuySuCo).
While the National Industrial and Commercial Investments Limited (NICIL) had said that this sum was raised from local investors, a second tranche of US$65 million is expected to be raised from both local and regional investors.
Recently also, the World Bank group approved a US$35 million Development Policy Credit to support Guyana’s efforts to strengthen the financial sector. The money will also go towards improving fiscal management to better prepare the country to benefit from its newly-discovered oil and gas reserves and transform its oil wealth into human capital.
Government also secured a US$900 million line of credit from the Islamic Development Bank (IsDB) earlier this year, to develop areas of agriculture, banking and finance, human development, energy and rural development.
Public debt
The Public Debt Annual Report released by the Finance Ministry last year had highlighted that since 2015, there has been a 4.1 per cent rise in Guyana’s indebtedness to creditors. The report details that Guyana’s total debt, inclusive of external and domestic, increased to $330 billion as of December 2016.
The Ministry attributed this to disbursements from the Export Import Bank of China towards the Cheddi Jagan International Airport (CJIA) expansion project, as well as monies from multilateral creditors.
A breakdown of the figures shows that total external debt amounted to $240 billion, 72.6 per cent of the total public debt. Domestic debt stood at $90.6 billion, or 27.4 per cent of the total.
“At the end of December 2016, multilateral creditors continued to be the predominant creditor category, accounting for 59.7 per cent of the external debt portfolio, a slight decrease from the 2015 position of 60.6 per cent. Bilateral lenders and commercial lenders represented 38.8 per cent and 1.5 per cent of the public external debt portfolio, respectively,” the Ministry explained.
“Although the nominal public debt increased, the total external public debt to GDP [Gross Domestic Product] ratio declined from 36.1 per cent as at end-December 2015 to 33.7 per cent as at end-December 2016, as a result of GDP growth outstripping the rate of growth of public external debt stock,” the Ministry said, in justifying the increase.
In 2012, the public external debt was $277.8 billion, but by early 2015, that had been reduced to $236 billion. In similar manner, the domestic debt had been reduced from $93.4 billion in 2012 to $81.6 billion in 2015 before a sudden spike in the figures after the A Partnership for National Unity/Alliance For Change (APNU-AFC) took office.
Guyana’s four main external creditors are the Inter-American Development Bank (IDB); the Caribbean Development Bank (CDB); the State-owned Export-Import Bank of China (China EXIM Bank) and Venezuela State-owned oil company (PDVSA).
Together, they constitute some 77.7 per cent of Guyana’s public external debt stock, as at end-December 2016, with the IDB the most dominant creditor. According to the report, the IDB has an average share of 42.0 per cent of the debt portfolio. (Jarryl Bryan)
