Guyana’s debt distress risk remains moderate but is rising according to the Country Report released by the International Monetary Fund (IMF) this month.
According to a debt sustainability analysis of Guyana by the IMF and World Bank, debt indicators remain well below their respective thresholds over the projection period in the baseline scenario. The present value of external debt-to-GDP (Gross Domestic Product) ratio rises to around 28 per cent in the long run.
The analysis warned that Guyana remains vulnerable to large terms of trade shocks given the concentration of its exports on a few commodities, and its reliance on imported oil (which also has large implications for the fiscal sector).
The sensitivity analysis and bound tests show high susceptibility of Guyana’s debt to shocks, in particular, in the case of new loans on less favourable terms and one-time 30 per cent depreciation.
This caution is seen as particularly important in relation to large investment projects that the government may be considering.
The now-stalled Amaila Falls Hydropower Project was one of those with a large debt-financed component and there had been concerns about finance charges and how this would impact on debt sustainability.
Nevertheless, the IMF/World Bank analysis said that debt service would remain manageable, reflecting the high concessionality of public borrowing. However, under some scenarios and bound tests, the analysis said that debt service could rise significantly, reducing the amount of resources available to public investment and social spending.
It said that in light of the risks associated with plans to significantly up expenditure, the authorities “should proceed with extreme caution (e.g., by ensuring that the projects are financially viable and that they increase the economy’s productivity) and improve debt management.”
A significant hike in non-concessional debt, including domestic borrowing, may be required to finance persistent deficits, the analysis said. That, the analysis added, would pose additional risks and warrant close monitoring. Guyana’s gross public debt to GDP ratio is projected to reach 60 per cent of GDP by 2021, a relatively high level which can bring greater financing risks on the non-concessional component, the analysis said.
In March this year, the IMF held an Article IV consultation with Guyana and a staff report on this consultation was completed on April 25, 2016.
This report was then reviewed by the board of IMF which issued a release on May 9, 2016 on the issues it discussed with the government here. The May 9 release made only a glancing reference to debt.
Meanwhile, in a statement on May 9, 2016 on the discussion by the IMF on the staff report and released this month by the IMF, Guyana’s Executive Director Octaviano Canuto addressed the debt matter.
He noted that the fiscal deficit is projected to remain between 5 and 6 percent of GDP over the medium term.
“Given the ambitious development agenda undertaken to bridge the significant infrastructure gap and address unmet social needs, the authorities intend to carefully calibrate their consolidation strategy to limit the adverse impact on the debt-to-GDP ratio, without forfeiting their objectives.
They continue to improve their debt management strategy and emphasize that they will refrain from utilizing non-concessional external borrowing. Private sector funding would be mobilized through the increased use of well-designed private public partnerships,” Canuto said.
