Over the past two weeks there have been a number of newspaper comments complaining about the size of Guyana’s national debt. One newspaper headlined that Guyana’s debt stood at a “whopping” US$3.6 billion at the end of 2022. Its reporting on the issue commenced with the following: “Amid growing concerns about its excessive borrowing, Finance Minister Dr. Ashni Singh announced.…” the amount of the debt. More recently, one letter writer said that “the national debt is set to balloon, with 40 percent ($458B) of this year’s mindboggling budget covered by borrowings.” Similar statements, in and out of Parliament, were made without reference to Dr. Singh’s Budget Speech in which he said that Guyana enjoys strong debt sustainability and is within “prudent risk parameters.” Dr. Singh announced that the ratio of debt to GDP had declined from 38.9 percent at the end of 2021 to 24.6 percent at the end of 2022. The reason is obvious. Guyana’s GDP is growing rapidly. Referring to the Government’s strategy of contracting development financing and meeting debt service obligations as prudent, Dr. Singh signaled that borrowing to finance development, a normal activity, will continue.
Guyana’s debt to GDP ratio in 1991 was 600 percent, and its debt payment was 90 cents of every dollar earned. The Economic Recovery Programme, which commenced under the Hoyte presidency in the 1980s, led to debt relief which continued far into the 1990s. In more recent times the debt to GDP ratio declined substantially but was still significantly higher than it is at this time. For example, the following were the figures: 2014 – 38.3 percent; 2015 – 41.8 percent; 2016 – 43.8 percent; 2017 – 42.9 percent; 2018 – 47 percent; 2019 – 43.6 percent; 2020 – 51.1 percent; 2021 – 43.2 percent. An average rate of debt to GDP ratio of approximately 44 percent for eight years has declined to 24.6 percent in 2022. Remarkable though this is, it was due principally to Guyana’s growing GDP from oil production.
Of 236 countries and territories assessed by the International Monetary Fund, only 27, which included Guyana, had a debt to GDP ratio of less than 30 percent. Our neighbours in the Caribbean are not doing well, according to critics of the size of Guyana’s debt. Jamaica is at 68.4 percent, Trinidad and Tobago at 52.9 percent, Barbados at 107.4 percent, Surinam at 93.9 and Belize at 57.3. Many developed countries are also not doing well. Japan has a debt to GDP ratio of 251.9 percent, yes, 251.9 percent, USA 126.9, UK 105.9, Italy 143.6, France 110.5, Spain 104.7, Greece 160.2, India 82.4. Guyana is in the best position in the Caribbean and among the top 10 percent of countries with the least debt. It is therefore in a very good position at this time to increase borrowing.
The World Bank, Latin American and Caribbean Region, produced in July 2012 a Policy Research Working Paper 5391 entitled “Finding the Tipping Point – When Sovereign Debt Turns Bad.” The Report states: “Does such a tipping point in debt exist?…The present study addresses [this question] with the help of threshold estimations based on a yearly dataset of 101 developing and developed economies spanning a time period from 1980 to 2008. The estimations establish a threshold of 77 percent public debt to GDP ratio. If debt is above this threshold, each additional point of debt costs 0.017 percentage points of real growth. The effect is even more pronounced in emerging markets where the threshold is 64 percent debt to GDP ratio. In these countries, the loss in annual real growth with each additional percentage point in public debt amounts to 0.02 percentage points. The cumulative effect on real GDP could be substantial.”
Thus, on a mere cursory examination of the issue, Guyana can now, on its existing GDP, safely borrow an additional 20 percent. But for the immediate future, Guyana’s GDP is going to explode. Notwithstanding, two comments from different sources, as reported in yesterday’s newspapers, complained about Minister Singh’s proposal to increase the debt limit and to draw down more funds from the Natural Resources Fund (NRF). A judgment has to be made about managing Guyana’s “ballooning” (to borrow a word) resources – whether to park it in the NRF and save it for a rainy day while health, education, infrastructure, poverty reduction, welfare and unemployment need hundreds of billions more, or spend it, and borrow more and spend that as well, to resolve these challenging problems.
The Norwegian Government Petroleum Fund was established in 1990, 19 years after oil production had started. Norway had used its oil revenues, prior to the establishment of its fund, to develop its infrastructure and to expand its welfare system. Guyana has this option but has not followed it, presumably because our spending capacity is limited. Emerging from a past with a colonial economy that had been further devastated in the immediate post-Independence period, no one, except the uninformed, should have an issue with the investment of all of our NRF and borrow as much as 40 percent of GDP to resolve Guyana’s problems and build a strong, thriving, economy.
(This column is reproduced with permission from Ralph Ramkarran’s blog, www.conversationstree.gy)
