Guyana is among several countries at risk of a government external debt crisis, according to a report released this month by UK-based non-governmental movement Jubilee Debt Campaign.
The report, ‘The new debt trap – How the response to the last global financial crisis has laid the ground for the next,’ was released earlier this month and was undertaken with the assistance of the European Union (EU). According to the report, Guyana is among 29 countries that has a significant net external debt and significant projected future government debt payments.
Jubilee Debt Campaign is a UK coalition that has been lobbying for the debts of the poorest countries to be cancelled.
In the report, 22 countries have been identified as being in a debt crisis, 17 at high risk of government debt crisis, 29 including Guyana at risk of government debt crisis, and 28 at risk of private sector debt crisis.
Countries at risk of government debt crisis have significant net debt amounting to more than 30% of GDP, or significant current account deficit amounting to more than 5% of GDP, and also have significant future government debt payments which are projected to exceed 10% of government revenue – or, where projections are not available, current government external debt is already over 40% of GDP.
“These countries have significant imbalances with the rest of the world, either through high net debt or high and persistent current account deficits, as well as significant projected future government debt payments. For some, it may be that the private sector is an even larger source of risk than government debt,” the report said.
According to the report, the net debt of Guyana stands at -59.5 and current government external debt payments, proportion of revenue amounts to 4.4. It said that government external debt as a proportion of GDP stands at 43%. The current account balance as a percentage of GDP stands at -15.2
The report said debt crises have become dramatically more frequent across the world since the deregulation of lending and global financial flows in the 1970s. “An underlying cause of the most recent global financial crisis, which began in 2008, was the rise in inequality and the concentration of wealth. This made more people and countries more dependent on debt, and increased the amount of money going into speculation on risky financial assets,” the report said.
It noted that increasing inequality reduces economic growth as higher income groups spend a smaller proportion of their income on goods and services than middle- and low-earners. “To tackle this problem, countries relied on either increasing debts, or for the countries which are the source of the loans, promoting exports through lending. This allowed growth to continue even though little income was going to poorer groups in society,” the report said.
The NGO pointed out that international debt has been increasing since 2011, after falling from 2008 to 2011. “The total net debts owed by debtor countries, both by their public and private sectors, which are not covered by corresponding assets owned by those countries, have risen from US$11.3 trillion in 2011 to $US13.8 trillion in 2014,” the report said.
It noted that as part of this increase in global debt levels, there is also a boom in lending to impoverished countries, particularly the most impoverished – those called ‘low income’ by the World Bank. “Foreign loans to low-income country governments trebled between 2008 and 2013, driven by more ‘aid’ being provided as loans – including through international financial institutions, new lenders such as China, and private speculators searching overseas for higher returns because of low interest rates in Western countries,” the report said.
According to the NGO, lending and borrowing by the private sector is a major source of risk in terms of future debt crises. “Another factor is the rise of ‘public-private partnerships’ (PPPs). This can mean many kinds of things. One is where the private sector builds infrastructure for a government, such as a road or hospital, and the government guarantees to make set payments over a defined period. This has the same practical effect as if the government had borrowed the money and built the infrastructure itself, but it keeps the debt off the government balance sheet, making it look like the government owes less money than it actually does,” the report explained.
It said that in fact, the cost to a government is usually higher than if it had borrowed the money itself, because private sector borrowing costs more, private contractors demand a significant profit, and negotiations are normally weighted in the private sector’s favour. “Research suggests that PPPs are the most expensive way for governments to invest in infrastructure, ultimately costing more than twice as much as if the infrastructure had been financed with bank loans or bond issuance,” the report said.
