— tumbles from 22.1B in 2015 to $13B the following year

LAST year, Guyana’s total public debt service amounted to $13B, which represented a significant decrease of 41.2 per cent from $22.1B the previous year.
According to the Public Debt report for 2016, tabled in the National Assembly on Friday, of the total public debt service, external debt service payments amounted to $11.1B whilst domestic debt service amounted to $1.9B.

“Domestic debt service increased due to increased activities in the domestic market through open market operations,” the report stated.
On the other hand, the country’s external debt service significantly decreased in 2016, from $20.3B to $11.1B or by 45.4 per cent compared to 2015. “Principal repayments accounted for this sharp reduction in external debt service; this was due to the halt of the PetroCaribe Agreement and Guyana’s Rice Trade Agreement, which resulted in principal repayments to Venezuela being stopped,” the report noted.

According to the report, external debt service during the review period continued to steadily decline, being driven by a reduction in principal repayments by 55.8 per cent.
However, interest payments were 3.9 per cent higher when compared to 2015, increasing marginally over the review period as a result of new disbursements from Guyana’s external creditors.

“Debt service payments fell in the second quarter. Owing to the payment profile of their loans, most multilateral creditors were not serviced during this time. However, debt service payments peaked in the third quarter, as a result of payments to IDB – Guyana’s largest multilateral creditor.”

Meanwhile, public domestic debt service payments continued to increase steadily over the last three years. In 2016, domestic debt service payments increased by 9.6 per cent, compared to an 11.8 per cent increase in 2015. Principal repayments increased by 0.1 per cent, whilst interest payments increased by 9.8 per cent.
The increase in interest payments was attributed to, mainly, the higher issuance of 182-day and 364-day T-bills by the Bank of Guyana during the year.

“Increased issuance of T-bills is in keeping with the bank’s monetary policy of mopping up excess liquidity in the economy, so as to curb inflationary bouts and prevent ‘overheating’. It can be inferred, therefore, that these interest payments on T-bills represent the cost of maintaining a stable monetary condition of the economy,” the 2016 report stated.

Public domestic debt service recorded its lowest interest payments during the second quarter of the year, due to a decline in the redemption of 364-day T-bills. However, the redemption of all T-bills (91-day, 182-day and 364-day) peaked during the third quarter.
Principal repayments remained the smallest contributor to domestic debt service, since these are only made on one (1) domestic debt instrument the NIS Loan for the CARICOM Building Project. These principal repayments are made semi-annually in the second and fourth quarters of each year.

On-lent loans
On?lending arrangements refer to arrangements whereby a government contracts a loan – typically a concessional loan from an international financial institution – and then lends the funds to a public entity within the borrowing country.

On-lending is a means by which the Government can support strategically important projects that aid in national development. The Government usually enters into an On-lending arrangement with primary loan proceeds being earmarked to fund capital expenditure(s) for the State Owned Enterprise (SOE).

Often-times, the capital expenditure, for which money is on-lent, has a social benefit component to it, where its execution does not solely benefit the SOE, the report stated.
In 2016, there were no new on-lending loans between the Government and the SOEs. Given the issues regarding the financial health of Guyana Sugar Corporation (GuySuCo), this SOE was unable to make payments of principal and interest to the Government for the loans on-lent to them. On the other hand, GPL resumed servicing its debt to the Government. In 2016, GPL paid the Government $1B towards the China EXIM Bank on-lent loan.

Publicly Guaranteed Debt and Contingent Liabilities
Meanwhile, a Government Guarantee is an undertaking by a government to honour the obligations of a beneficiary (a third party) in circumstances where the beneficiary fails to honour its obligations and defaults on the loan.
As a result, a guaranteed loan is a contingent liability of the Government. This means that a liability to the Government is realised in the event that a particular event occurs, often times the beneficiary being unable to reach the debt service payments or payment obligations of the loan.

“Government guarantees are categorised as explicit contingent liabilities because they are specific obligations to assume the liabilities by law or by contract should the event occur,” the 2016 public debt report said while noting that Government guarantees, like on?lending arrangements, are typically used to fund development projects that are a priority to the Government.

The report said entities benefitting from Government guarantees are usually able to secure more favourable terms with Government’s support than had they negotiated on their own. While these funds are not considered a direct liability of the Government and are not reflected in the accounts of the Central Government, they represent a potential risk to the Government’s balance sheet if the debt obligations are not honoured by the beneficiary.
“It is in this sense that a Government guarantee is considered a contingent liability to the Government. During 2016, the Government did not issue any guarantees,” the report, the second of its kind produced by the coalition government, stated.

During the period under review, the stock of publicly guaranteed debt, remained relatively stable, totalling US$14.9M at the end of December 2016. Currently, there is only one publicly guaranteed loan on the books of Central Government, that is, the debt to Argentina (BICE).

Arrears continue to accumulate on this debt since Guyana is yet to receive comparable HIPC debt relief from this creditor.
“Notably, the Government has not issued guarantees for the past three decades, due to conditions stemming from the IMF’s Structural Adjustment Programme in 1988.”
The current policy is to on-lend loans to public corporations rather than to issue guarantees.