Guyana’s current debt level sustainable without future oil revenue
Share on facebook
Share on twitter
Share on google
Share on whatsapp

Dear Editor,
ECONOMIC Adviser to the Opposition Leader, Elson Lowe, in a recent article published in the Kaieteur News edition dated July 13, 2022, argued that “at present, Guyana is borrowing based on its projected oil-and-gas revenues,” in his review of the first-quarter report 2022, published by the Bank of Guyana.
Indeed, it is never a good idea to borrow against future oil revenues simply because of price volatility of the commodity. If one were to perform a debt-sustainability analysis, one would find that Guyana currently has the lowest debt to GDP ratio in the region and possibly the world, of less than 30 per cent projected for this year, and an external debt to GDP ratio of 16 per cent. This means that the government is doing well in terms of debt management within a sustainable framework and avoiding a borrowing spree that will rack up the debt above sustainable levels: a debt-to-GDP ratio of up to 60 per cent is considered sustainable.

An examination of the country’s public-debt situation for the period 2012 to 2022 (using budget 2022 forecast for 2022) the total public debt stood at US$1.359B in 2012 which increased to US$3.127B by the end of 2021, representing an increase of 130 per cent over this 10-year period, or an average annual growth rate of 13 per cent. At the same time, real GDP moved from US$4B in 2012 to US$8.6B by the end of 2021, representing an increase of 115 per cent over this period, or an annual average growth rate of 11.5 per cent.
During the period 2012 – 2021, the debt-to-GDP ratio was 34 per cent in 2012 which further decreased below 30 per cent in 2014 and remained below 30 per cent up to 2018. During the period 2018 – 2020, the debt-to-GDP ratio reached its highest of 37 per cent, 52 per cent and 43 per cent, respectively – higher than the period between 2013 – 2017– albeit below the 60 per cent benchmark. However, by the end of 2021, the debt-to-GDP ratio declined from its highest level of 52 per cent in 2019 to 36 per cent.

Source: Author’s computation / Bank of Guyana Reports and Budget Estimates
In 2022, the debt-to-GDP ratio is forecast to be reduced further from 36 per cent to 28 per cent. This is reflective of prudent debt management, coupled with the broad-based expansion of the economy driven by the oil economy and the draw down from the NRF, thereby reducing the level of borrowing. Moreover, this outturn is indicative of the fiscal space available to support the economy’s aggressive development and expansionary agenda within the framework of a sustainable development model.
Table 1:

2019
2020
2021
2022 F
GDP (G$)
1,044,093
1,498,061
1,796,865
2,650,375.88
Non-oil GDP (G$)
1,023,788
949,162
993,699
1,073,194.92
Non-oil GDP (US$)
4,910
4,552
4,766
5,147
GDP (USD$)
5,008
7,185
8,618
12,711.63
Total Public Debt (USD$)
2,592
3,140
3,127
3,531
Debt-to-GDP Ratio (%)
51.76
43.70
36.28
28.11
Non-oil Debt-GDP
52.79
68.98
65.61
68.60
Source: Author’s calculation/ Bank of Guyana Reports
Of note, table 1 above shows the debt-to-GDP ratio using non-oil GDP which is close to 69 per cent. Though some analysts can argue the case that with this level of debt-to-GDP ratio using the non-oil GDP, that this is borrowing against the future revenues. However, one has to dissect the numbers deeper to understand why the non-oil debt-to-GDP ratio is almost close to 70 per cent. This is reflected in tables 1 and 2 with further explanation below.
When the previous government assumed office in 2015, the government deposit accounts held at the Bank of Guyana had a surplus balance of $21B, in 2012, the balance stood at $57B. During the period 2011 – 2014, the government then was forced to make withdrawals from the deposit accounts because it was a minority government at the time and the then Opposition practically created a deadlock situation by not approving the national budgets, given that they controlled the National Assembly with a one-seat majority.
By the time the previous government left office in 2020, the deposit accounts had racked up an overdraft of over $120B. It should be mentioned, importantly, that this practice of allowing the deposit accounts to have an overdraft balance and was not cleared by the end of the fiscal year – was in contravention of the Fiscal Management and Accountability Act. On the other hand, the current government has now reversed this situation to what it was before under their previous tenure – that is having surplus balances. In this regard, the latest Bank of Guyana report confirmed that as of March 2022, the deposit account balances have a surplus of $36.4B.
Table 2:

2019
2020
2021
2022 F
GDP (G$)
1,044,093
1,498,061
1,796,865
2,650,375.88
Non-oil GDP (G$)
1,023,788
949,162
993,699
1,073,194.92
Non-oil GDP (US$)
4,910
4,552
4,766
5,147
GDP (USD$)
5,008
7,185
8,618
12,711.63
Total Public Debt (USD$)
2,592
3,140
3,127
3,000
Debt-to-GDP Ratio (%)
51.76
43.70
36.28
28.11
Non-oil Debt-GDP
52.79%
68.98%
65.61%
58.28%
Source: Author’s calculation/ Bank of Guyana Reports
In table 2 above, the total stock of debt is adjusted to exclude the overdraft balance that was previously not reported in the domestic stock of debt for the period 2015 – 2020 which amounted to over $130B. In this case, using non-oil GDP, the debt-to-GDP ratio is less than 60 per cent. This, coupled with the fact that countries globally that were affected by the COVID-19 pandemic also had to borrow to help their economies to recover from the adverse economic impact. In this regard, Guyana was no different, Guyana also had to borrow additionally during 2020 and 2021 (when the government opted not to use the oil funds until the NRF was amended), for this purpose as well.
With these in mind, it can be safely concluded that at this point in time, Guyana is not borrowing against future oil revenues to the extent where such practice would expose the country to risks of default in the future on its debt-service obligation. The government is not on an excessive borrowing spree, which is the view expressed in the article by the Economic Adviser to the Opposition Leader, as was the case evidently by their predecessor, inter alia, the unlawful overdraft balances on the deposit accounts.
It can be safely concluded, therefore, that Guyana’s current debt level is sustainable without future oil revenues.
Yours faithfully,

Joel Bhagwandin

Director

Corporate Finance Advisory | SPHEREX Analytics

SHARE THIS ARTICLE :
Share on facebook
Facebook
Share on twitter
Twitter
Share on google
Google+
Share on whatsapp
WhatsApp
Share on facebook
Share on twitter
Share on google
Share on whatsapp
Scroll to Top
All our printed editions are available online
emblem3
Subscribe to the Guyana Chronicle.
Sign up to receive news and updates.
We respect your privacy.