By Joel Bhagwandin

EXECUTIVE SUMMARY
IN a recent press statement, Chairperson of the Alliance for Change (AFC) Opposition party, Cathy Hughes, argued that the projected increase in public debt by the end of 2022 as reported in the mid-year economic report, 2022, will chain future generations to debt which may leave Guyana impoverished.

This article seeks to weigh in on the debate put forth by the AFC officials by comparing and contrasting the level of public debt increases relative to total expenditure under their tenure in government during the period 2015–2019 versus the incumbent government.

Having examined the composition of public expenditure under the previous government, relative to the level of increase in the public debt in comparison to the same indicators under the incumbent government, hereunder mentioned are the findings, put simply:

> The level of increase in current / recurrent expenditure under the previous government represented 74 per cent of the level of increase in total public debt.
Conversely, the level of increase in current expenditure represents 37 per cent of the level of increase in the total public debt under the incumbent government. This means that the previous government borrowed two times more than the current government to finance recurrent expenditure, which is unsustainable and a recipe for bankruptcy.

> The total (projected) increase in public debt by the end of 2022 from its 2019 position is an estimated $291 billion or 285 per cent. However, it should be noted that the overdraft balance of $147 billion which was racked up by the previous government and never reported on, accounts for 51 per cent of the total level of increase in public debt.

The debt-to-GDP ratio stood at an estimated 29 per cent for the first half of FY 2022 and the non-oil debt to GDP ratio an estimated 63 per cent for the period. Both of these ratios indicate that the level of public debt is relatively low to moderate in terms of the risk of default. This is despite the massive increase in public expenditure, especially towards capital expenditure which is partly due to about 23 per cent of the 2022 budget being financed through the first drawdown from the Natural Resource Fund (NRF).

Moreover, it is worthwhile to examine the debt-to-GDP ratio from another perspective where another adjustment is perhaps imperative. During the period 2015–2020, the previous administration racked up an overdraft of some $147 billion in the government deposit accounts at the Bank of Guyana. This practice, as was flagged by the Auditor-General Report, was in contravention of the Fiscal Management and Accountability Act.

In this regard, section 60 of the Act speaks to “overdraft facility” where it states that “the Minister shall repay in full all advances in the form of an overdraft on all official bank account on or before the end of the fiscal year during which that overdraft was drawn.”

Further to note, the overdraft balances were never reported as part of the public stock of debt during the period 2015 – 2020. Hence, should this overdraft amount be excluded from the stock of debt of $147 billion, the non-oil debt to GDP ratio would have been around 54 per cent and overall debt-to-GDP ratio below 29 per cent. This partly explains the reason why the Senior Minister with responsibility for Finance, Dr. Ashni Singh had to seek the National Assembly’s approval to raise the public debt ceiling so as to now regularise the Government Deposit Accounts by clearing the overdraft balances and adding same onto the official stock of public debt.

Notwithstanding, with the expansive development trajectory of the economy and the relatively low debt-to-GDP ratio suggests that the level of public debt is quite sustainable with a low to moderate default risk, and the government of the day must be commended for this type of prudent public debt management by restricting the temptation to borrow excessively against future oil revenues.

CONCLUDING REMARKS
The key difference in the composition of the public expenditure and the debt financing employed by the incumbent government versus the previous government, is such that the previous government borrowed heavily to finance recurrent expenditure (non-productive spending), while the incumbent government borrowed to finance capital projects, which in turn, creates value for the economy in more ways than one.

Contrary to the views of the Opposition party, the AFC, with no supporting analysis, the government is not on an excessive borrowing spree 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 which is substantiated by a relatively low debt-to-GDP ratio of 30 per cent.

Moreover, the government is borrowing to finance capital projects which will add value to the economy over the long run and support the enabling environment for the creation of new industries and businesses to prosper, thus generating more organic tax revenues for the State. This is contrary to the previous government’s borrowing spree, which was used to finance, predominantly, recurrent expenditure that does not help in any way to create value for the economy, but more a recipe for bankruptcy, if continued.

BACKGROUND
In a recent press statement, Chairperson of the Alliance for Change (AFC) Opposition party, Cathy Hughes, argued that the projected increase in public debt by the end of 2022 as reported in the mid-year economic report, 2022, will chain future generations to debt which may leave Guyana impoverished.

The AFC went on to argue that “the consequences could be further down the line in terms of when it comes to repayment. If we don’t manage our oil resource funds properly (or) effectively, we may not see the results now, but further down the line when the country and the people have to struggle to repay these loans. It is a major challenge.” The Vice-Chairman of the AFC, Ricky Ramsaroop also weighed in on the subject, noting, “It’s really unfair to put that tab on our future children and grandchildren to come.”

This article seeks to weigh in on the debate put forth by the AFC officials by comparing and contrasting the level of public debt increases relative to total expenditure under their tenure in government during the period 2015– 2019 versus the incumbent government.