How well has Guyana managed its debt over the years?
Debt management, which refers to strategies state and local governments use to manage their accumulated debt, is a grueling and demanding task which faces almost every nation.
But over the years, the Guyana government has displayed a commendable aptitude for managing state debt effectively while not allowing it to affect the landscape for low inflation and continued increased in the Gross Domestic Product (GDP).
According to the Bank of Guyana which like the Ministry of Finance, also has a role to play in managing the way the state handles its international loans and debts, Guyana perhaps has been one of the few Caribbean countries which is doing an exceptional job in that regard.
With the use of annual statistics, the Central Bank has been keeping a track record of how the debt of the state is managed with an aim to providing some fiscal measures for improvement where necessary.
For example; it has noted in its reports that the overall balance of payments deficit narrowed marginally to US$116.4 million from US$119.5 million in 2013.
This development is explained by a decrease in the deficit on the current account as well as a contraction in the capital account surplus. The lower current account deficit was largely due to lower net payments for services and higher unrequited transfers.
Also revealed is the fact that the merchandise trade deficit expanded from a decline in export earnings. The capital account surplus contracted on account of a decline in disbursements to the non-financial public sector while the overall deficit was financed from the gross foreign reserves of the Bank of Guyana and debt forgiveness.
At the end of 2014, Guyana’s total external debt stock stood at US$1.2 billion. However, Guyana was able to secure debt relief from the Caricom Multilateral Clearing Facility in the sum of US$35.9 million, under the enhanced Harmonised Index of Consumer Prices (HICP) initiative.
Two debt compensation agreements were concluded with Venezuela, Guyana’s continental neighbour, for a total value of US$124.5 million. Total external debt service amounted to US$50.9 million, 10.9 percent higher than in 2013, owing to increased principal and interest payments to multilateral creditors, especially. The domestic debt stock stood at $78.4 billion at the end of 2014.
The years 2013 and 2014 saw the management of the state debt by the former Government, the People’s Progressive Party/ Civic. With a new government taking over, that being the A Partnership for National Unity and Alliance For Change (APNU+AFC) some areas for macroeconomic stability were identified. According to Guyana’s Finance Minister, the Honourable Mr. Winston Jordan, macroeconomic stability is the cornerstone for the achievement and sustainability of a “good life” for all.
He said that his Government will implement macroeconomic policies that promote both external and internal balance, which will also encompass the improvement of the way debt management is handled by the state.
In so doing, Jordan revealed that over the next five years, the coalition administration will commit to the maintenance of macroeconomic stability by creating conditions to foster a positive growth trajectory while improving expenditure management and revenue administration, low inflation, stable exchange rate and sustainable debt.
He said that this will involve the undertaking of prudent and targeted fiscal policy, in order to reduce the deficit in both the Central Government and Public Enterprises. He noted that high deficits can lead to a build-up of the public debt; the repayment of which takes away from spending in critical areas, such as education and health, as well as on key social safety net programmes for the poor. As such, the Government will reform the tax system, a process which has already started, so as to make it more robust, allowing for the reaping of efficiency gains from greater compliance and an expanded tax base.
The Finance Minister asserted however that in the interim, Guyana’s debt remained sustainable, for during the first half of 2015 the country’s total public debt amounted to US$1.6 billion of which external debt amounted to US$1.2 billion, and domestic debt US$0.4 billion.
External debt decreased marginally by 0.5 percent, compared with the same period in 2014. This reduction in the external debt stock arose from the signing of the fifth Debt Compensation Agreement with Venezuela in September 2014 which saw US$69 million of the oil debt effectively compensated, equivalent to the value of rice and paddy shipped by Guyana to Venezuela under the Guyana-Venezuela Rice Trade Agreement.
The Government Minister asserted that sustainable debt is defined as the ability to repay the debt without changing your fiscal policy. He noted that the mid-year external debt stock increased between 2010 and 2012 primarily as a result of increased borrowing from Venezuela under PetroCaribe. Thereafter, the mid-year external debt stock gradually declined due to the reduction of the debt to Venezuela since the value of rice and paddy exported to that country is offset against the debt.
It was explained that the general decline in the domestic debt stock over the 5-year period was mainly due to the redemption of Government of Guyana debentures held by Republic Bank over the period 2010 to 2013 and the redemption of treasury bills by the Bank of Guyana.
Also of note is that in the first half of 2015, principal and interest payments amounted to US$50.96 million, of which Central Government payments totaled US$45.8 million.
Compared with the previous year, these amounts were lower by 36 percent and 38 percent respectively. Central Government debt service includes payments made to Venezuela in the form of rice and paddy that was shipped to that country under the Petrocaribe arrangement.
The significant decline in these payments in the first half of this year was due to level of rice and paddy exported to Venezuela compared with the first half of 2014. 3.39 Over the period July 1, 2014 to June 30, 2015, the actual external disbursements totaled US$137.5 million with Venezuela (Petróleos de Venezuela, S.A. –PDVSA) accounting for 54 percent and the Inter-American Development Bank (IDB) accounting for 22 percent of this total.
Guyana’s domestic debt stock reduced by 13.1 percent, reaching $75.8 billion at the end of June 2015 compared to $87.3 billion at the end of June 2014. This decline was primarily due to the redemption of the Treasury Bills by the Bank of Guyana.