Last week we had established that total stock of debt, which includes both domestic and external debt, stood at US.638 billion, or close to G0 billion.
Further, according to the Bank of Guyana’s half-year report 2017, domestic debt service increased by 31.2 per cent, or G7 million, to G.123 billion due to principal payments and interest payments growing by 2.7 per cent to 1million.
On the external side, external debt service increased by 8.2 per cent to US million from June 2016 level, which represents 6.4 per cent of Central Government’s current revenue and 4.3 per cent of export earnings. Principal and interest payments amounted to US million and US million respectively. Effectively, this brings total Central Government’s debt servicing close to G.9 billion.
Putting these aforementioned figures into context within the economy’s macroeconomic structure, total stock of debt of G0 billion represents 47.8 per cent of GDP (at market price), which stood at G1.7 billion as at the end of December 2016 (BoG Annual report 2016), and total debt service of G.9 billion represents 8.13 per cent of Central Government’s total revenue, which stood at G.1 billion for half-year period ended June, 2017.
At the same time, total current expenditure for the same period stood at G.4 billion.
Guyana’s debt-to-GDP ratio is relatively low (under 60 per cent) compared to other Caribbean countries, such as Trinidad & Tobago’s debt-to-GDP ratio, which stood at 61 per cent as at the end of 2016. The Bahamas was 74 per cent, and Suriname was projected to increase to 68 per cent at the end of 2016, just to name a few.
Despite this, however, the Government of Guyana needs to be careful in debt management, at it seems as though this level of debt is increasing at perhaps not an alarming rate, but certainly at a rate that warrants some degree of heightened monitoring, as could be deduced from the mid-year economic reports. Efforts in this regard need to be engaged to avert a likely unsustainable level of the public debt management structure.
Such an assessment at this point is premised on the fact that key economic sectors are performing poorly. We are losing revenues from export earnings, and in the context of public debt management, this means Central Government’s ability to honour its external debt obligations may be weakened.
Again, quantifying this assertion, export earnings from rice fell by 12.6 per cent, or US million, below the level in 2016 on account of lower levels in volume being exported. Gold export earnings declined by 0.5 per cent or US.9 million less than June 2016; sugar export earnings also fell by US.0 million; timber fell by 8.7 per cent. But total other exports’ earnings increased by 10.8 per cent for the half-year period ended June 2017.
Simultaneously, import value of goods increased by 13.6 per cent; hence, altogether, what these factors indicate is that, as imports increase and external debt service payments increase, the demand for foreign currency will also increase. And this could impose pressure on the Government’s ability to meet these obligations, as this also means it will have an effect on the country’s foreign reserves, which are depleting as an effect of the outcomes of these very factors.
A Working Paper on Public Debt in Emerging Market Economies (EMs) produced by the World Bank (2010) sought to address the impact of the global financial crisis on 24 countries and the responses by their public debt managers. It provides a number of positive lessons for policy makers and international financial institutions. Some of these were as outlined in the paper:
– Sound and well-coordinated macroeconomic policy during the years before the crisis, leading to much improved fundamentals, was elemental in serving as a buffer and placed Ems in a position for quicker recovery.
– In addition to macroeconomic measures, prudent public debt management with a focus on containing risks in debt portfolio was an additional fundamental factor that strengthened EM resilience to the crisis.
Notwithstanding the positive developments that most EMs have enjoyed between June 2009 and March 2010, this current period (2011-2017 and onwards) presents more risks than usual. Given this outlook, it is important that policy makers in EMs maintain the prudent approach to macroeconomic management that has served them well over the last decade. Specific policy measures will depend on individual country circumstances. For those with weaker fiscal positions, as growth recovers, it presents an opportunity to reduce debt/GDP ratios by reversing the fiscal accommodation that was implemented to mitigate impact of the global crisis. For others with more significant external surpluses and fiscal buffers, the emphasis should be on stimulating domestic demand and allowing exchange rates to adjust, while maintaining vigilance on inflationary expectations.
Returning to our situation: against these backgrounds, policy-makers may argue that with the advent of the oil and gas sector, the economy is expected to hit a ‘booming’ period and foreign reserves are expected to experience significant increases, thus averting a debt management crisis. These expectations are, however, yet to materialise, and will only begin three years from now.
So what will happen until then, as other key sectors continue to deteriorate; foreign earnings are lost on account of reduced export earnings; net foreign reserves are depleted; and public debt seemingly keeps on climbing? Is this not a recipe for a debt crisis? How will we mitigate these risks? Shouldn’t there be a review of priorities on spending, and emphasis on value for money as it relates to contracts, just to cite a few suggestions; let alone a stimulus package, as is the call from some private sector agencies?
