In the aftermath of a report in Stabroek News that the PPP/C government is seeking a loan worth US$1.5b from China, former Finance Minister Winston Jordan has raised concerns about the debt load that the country could be saddled with.
In a letter in the November 8th edition of Stabroek News, Jordan said that the 2021 Mid-Year Report produced by the Ministry of Finance records the stock of public debt as US$2.905 billion.
This, he said, can easily rise to US$5.3 billion within a few years, if one were to factor in the proposed US$1.5 billion from China and the undrawn US$0.9 billion from the Islamic Development Bank.
He added that it becomes even starker when one considers:
i. The burgeoning overdraft of the Consolidated Fund;
ii. Borrowing from traditional sources, such as the World Bank, IDB and CDB; and
iii. New sources of borrowing, such as the Sovereign Wealth Funds of the United Arab Emirates and Kuwait.
“All of this borrowing is taking place, ostensibly, to fulfil manifesto promises, regardless of how implausible many of them appear to be. The repayment of these loans is premised on future oil receipts coming to the government. In this regard, however, the experience of Ghana is most instructive and the government should avail itself of the lessons learnt”, Jordan asserted.
Referring to the Stabroek News editorial of November 7th where the Chinese loan was discussed, Jordan said that there was no guarantee that the proposed Chinese loan would be available at a concessionary rate of 2%.
“I say this based on previous attempts by a PPP/C government to secure funding from China for the Amaila Falls Hydro-power Project (AFHP). A major sticking point during the negotiations was the interest rates on the two major loans that were to be provided by the two Chinese funding institutions. These interest rates were far in excess of 2%”, Jordan stated.
In a response late on November 8th, the very day Jordan’s letter appeared in Stabroek News, the Finance Ministry rejected several of the claims he made but was silent on the matter of the contracting of the loan from China. It did however refer to the overdraft of the Consolidated Fund.
The Ministry said “Jordan also in his most recent letter speaks of a burgeoning overdraft of the consolidated fund. It is a matter of public record that it is Jordan who ignored the advice of the Inter-national Monetary Fund as well as his own technical staff, and refused to address the rapid accumulation of the overdraft during his tenure. It is also a matter of public record that it is this PPP/C government that has regularized that overdraft, securitizing it with appropriate debt instruments, and putting in place arrangements to ensure that the fiscal operations of government are adequately financed without recourse to re-accumulation of the overdraft. Despite this publicly known fact, Jordan soldiers on, continuing to repeat yet another falsehood”. (Jordan has responded to this point in a letter in today’s edition on page 6.)
The Finance Ministry also challenged Jordan’s letter on the matter of the Natural Resource Fund (NRF) which is still to be activated.
It said that Jordan attempted to give the impression that the APNU+AFC Govern-ment had crafted a superlative NRF. It noted that Jordan asserted that “the NRF Act was the product of extensive national and international consultations”, but said that he conveniently omitted to disclose that that Act was rushed through the National Assembly after his Government had already lost the December, 2018 No-Confidence Motion (NCM) and had therefore lost their mandate to govern.
“This is the single most important piece of legislation to have been enacted in many years, and the APNU+AFC government saw nothing wrong with sneaking it through Parliament at a time when they had lost their mandate to govern, when they were widely regarded as an illegal and illegitimate government, and without any Opposition input whatsoever. Yet, Mr. Jordan now has the audacity to speak of `extensive national and international consultations’”, the Finance Ministry asserted.
Noting that Jordan had stated that the NRF legislative work had been shepherded by two experienced professionals: Dr Daniel Wilde from the Commonwealth Secretariat and Alache Fisho, a Ghanaian national and Dr Vilas Gobin and Sonya Roopnauth of the Ministry of Finance, the ministry statement cited an opinion by the Inter-American Development Bank (IDB) on the NRF.
“Without any disrespect intended to any of these four distinguished professionals, it is apposite to note how subject matter experts have assessed the same NRF Act”, the Ministry of Finance said on Monday.
The ministry listed the following observations made in the IDB publication:
“The objectives and design of the NRF raise several issues. The fund on its own cannot achieve the objectives that have been set for it. The rigid withdrawal rules may do little to foster stabilization or saving but may entail fiscal costs”;
“The formula for the maximum permissible withdrawal is among the most complex operational rules for a resource fund in the world. Its design departs from good practices”;
“State-of-the-art advice based on international experience and good fiscal management principles emphasizes simplicity, flexibility, transparency, and close integration with the budget and public asset-liability management. The rule’s complexity may also conspire against fiscal transparency and public understanding.”
The ministry added that the “irrefutable fact of the matter is that the NRF Act in its current formulation was a piece of legislation which was very poorly conceived, and was ‘rammed down the throats’ of the nation” during a period when the APNU+AFC government was illegitimate.
In his letter in Monday’s edition, Jordan had also expressed concern that the PPP/C government might ditch a section of the NRF which is intended to manage public debt.
“In an effort to meet all of the (Santiago Principles for the NRF), the Coalition government drafted a Public Debt Management Law, which should have been passed in 2019, were it not for the No Confidence Motion (NCM). Such a law is vitally important, since it is recognised that a government may want to bypass the stringencies, transparency and accountability of the NRF (Act) by engaging in indiscriminate borrowing while funds are accumulating in the NRF. While we await the enactment of this legislation, the present NRF (Act), at Section 34, precludes any arrangement or agreement that would encumber the current and future resources of the NRF. With the government borrowing like a drunken sailor, it seems that this section would be axed in the amendments contemplated”, Jordan said.
The Ministry statement also rapped Jordan over his “astonishment” that it was an official of the Ministry of Finance who had written the Chinese Ambassador seeking the US$1.5b loan and not the Finance Minister.
“The Laws of Guyana are crystal clear. Only the Minister responsible for Finance can contract loans on behalf of the Government of Guyana. This is enshrined in the External Loans Act and it is reinforced in the (Fiscal Management and Accountability Act). As a result, in practice, only the Finance Minister signs loan agreements on Guyana’s behalf. This has been in place since time immemorial, and has always been honoured, even during Jordan’s lacklustre tenure which was marked by repeated breaches and illegalities.
“However, while the Finance Minister is the only authority empowered to sign loan agreements, it is routine practice for senior technical staff of the Ministry of Finance to communicate with donors and development partners throughout the project cycle, including at the earliest stages of mobilizing resources to fund projects. Indeed, the Head of the Project Cycle Management Division, which division is charged with responsibility for resource mobilization, has always been the lead government interlocutor with development partners and has been engaged in communication with development partners on issues of resource mobilization for many, many years”, the ministry said.
The ministry released letters that had been written by the same official – during Jordan’s tenure – seeking loans.
The ministry’s response on Monday contained a series of attacks on Jordan. At one point, it stated: “History is replete with examples of Winston Jordan trying to mislead the nation. It would be recalled that at one of his first sittings in Parliament in 2015, he attempted to mislead the nation by quoting incorrect debt numbers, a matter on which, after he was challenged on the accuracy of his statements, he would subsequently reluctantly apologize to the Assembly for the misinformation he was caught peddling red-handedly and for creating an erroneous impression”.
