Minister with responsibility for Finance, Dr Ashni Singh, has approached the National Assembly to increase the ceilings on both domestic and external debt in what he described as an attempt to regularize the outstanding debt of the last administration while creating space for the current government to finance a robust development plan.
The Minister yesterday laid in the Assembly “The Public Loan (Increasing of Limit) Order 2021” and the “External Loans (Increas-ing of Limit) Order 2021.
The first order once approved will increase the amount that the Guyana Government can borrow from domestic lending agencies to $500 billion dollars. Currently government can have a cumulative domestic debt of no more than $150 billion.
Similarly the external debt threshold will increase from $400 billion to $650 billion once the proposed measure is debated and passed by the Legislature.
Speaking with reporters during a recess, Singh stressed that the new threshold would be sustainable as the ongoing expansion of Guyana’s economy is steadily increasing its carrying capacity.
“As the size of the economy grows your capacity to contract debt increases…you still have to be mindful of the debt you contract [and] we have considered these dynamics very carefully and we have ensured that we have set it at a level that ensures sustainability,” the Minister said.
Experts in the field have however told Stabroek News that while raising the ceiling is a legitimate action the huge increase in the domestic debt ceiling is cause for concern as is the significant increase in the external debt threshold.
“The limit is reviewed periodically to take account of outstanding debt and proposed contracting of new debt but this level of increase indicates the planned rapid buildup of debt,” one source indicated.
So far the PPP/C administration has already announced that is seeking to raise US$250m ($50b) to support its housing development plans for the next five years.
“Guyana is poised to quadruple its GDP in the upcoming years as a result of the oil and gas sector. In parallel, the GoG intends to transform the infrastructural landscape of Guyana with the undertaking of major urban development plans”, an advertisement inviting expressions of interest had said last year.
The government is also proceeding with a Demerara Harbour Bridge project, a bridge over the Corentyne River and a number of major road programmes.
In a statement issued yesterday on the proposed measures, Singh maintained that the thresholds which were last set in 1990s required revision to allow for the financing of development projects.
“At the time of the last revision in 1991, Guyana’s external debt ceiling was set at more than 1,000 percent of GDP [Gross Domestic Product]. In contrast, the new proposed external debt ceiling would amount to less than 60% of GDP, using the latest 2020 GDP estimates. On the domestic side, when last revised in 1994, Guyana’s domestic debt ceiling was set at almost 200% of GDP. In stark contrast, the revised domestic debt ceiling would amount to less than 50% of GDP,” the statement explained.
While Singh was keen to establish the individual percentages there is no acknowledgment that cumulatively the two thresholds if reached simultaneously will result in a stock of public debt in excess of Guyana’s GDP.
Currently, based on information provided in the 2020 budget, Guyana’s stock of public debt is US$1,689.1 million, 32.6% of nominal GDP.
Singh repeatedly noted that the former administration left behind a large Consolidated Fund overdraft at the Bank of Guyana.
“Government is now seeking to remedy this situation through the issuance of appropriate instruments. However, if the overdraft were to be addressed under the existing ceiling for domestic debt, a breach would result,” he argued while adding that government also requires the issuance of new domestic instruments to finance various policy initiatives, and to stimulate development of the domestic financial market.
Singh further explained that in the case of the external debt ceiling the increase will accommodate the existing level of external debt contracted, plus anticipated new borrowing to fund government’s development agenda.
“This landmark move serves to regularize and accurately reflect significant liabilities accumulated over the last five years and harness Guyana’s debt-carrying capacity to finance government’s transformative development agenda,” he repeatedly stressed adding that this latest move is consistent with the incumbent administration’s sterling track record of prudent debt management in the course of safeguarding Guyana’s long-term fiscal and debt sustainability.
