Guyana/China relations and debt sustainability

Dear Editor,

A FORMER prominent ambassador sought to disparage President Dr Irfaan Ali ’ s recent visit to China . His insinuations and characterisation of the President was utterly distasteful, quite an unbecoming trait for a former diplomat.

I would like to address one of his misinformed contentions where he criticised Guyana for its possible collaboration with China to finance the Brazil / Guyana road link and the deep-water port

In so doing, he likened this initiative to the failure of a similar project referencing Sri Lanka, implying that such a project with China’s involvement could expose Guyana to similar risk of economic crisis that Sri Lanka is experiencing

Other well-credentialed persons have also subscribed to this view in the recent past, such as former Auditor General , Anand Goolsaran and a few other accountants who dabble in Guyana ’ s politics

However, the proponents of this view failed to perform a comparative analysis of the economic and political situation of the two countries, which is vastly different China’s belt and road initiative was not the causation of the economic crisis that Sri Lanka experienced

According to the IMF and UNDP country reports, there are principally four underlying factors that were responsible for Sri Lanka’s economic crisis.

The first is the Sri Lankan civil war which lasted for more than two decades from 1983 – 2009 By 2007, up to 70,000 persons had been killed Second, there was the 2017 drought which crippled the agriculture sector, third the 2018 political crisis and fourth , the 2019 terrorist attacks

These events , coupled with other exogenous factors virtually caused the Sri Lankan economy to collapse In 2021, the debt level represented 119 per cent of GDP and even a US $ 4 billion bail-out from the IMF was deemed insufficient to save the country

Contrasting the Sri Lankan situation with Guyana , fortunately for Guyana , we’ve never had a civil war, and was never the victim of terrorist attacks Guyana ’ s political and economic history are immensely different, one in which the country evolved from a bankruptcy in the early 90s, to economic stability before oil discovery in 2015

Before I elaborate on the Guyana situation further , in contrast to Sri Lanka , I have also noted the shadow finance minister describing the recent increase in the debt ceiling as “ reckless borrowing”. The fact is that Guyana’s debt sustainability indicators are well within the sustainable prudential benchmarks

The latest increase of the debt ceiling represents 56.9 per cent of 2022 real-GDP and 45 per cent of the GDP forecast for 2023 As of 2022, the debt-to-GDP ratio was recorded at 26 per cent and debt service to revenue ratio was seven per cent

This means that seven per cent of the current revenue of the government is used for debt service payments Even if the oil revenue is excluded and only consider the debt payments to be serviced by the non-oil economy, the debt repayment represents 12.5 per cent of the non-oil revenue for 2022 This is also well below the sustainable maximum benchmark of 30 per cent of revenue The external debt-to-GDP ratio as of 2022 was recorded at 11 per cent and projected to grow by one percentage point in 2023 to 12 per cent, while the overall debt-toGDP forecast for 2023 is 25 per cent

For context, the debt burden per capita (per person) in the case of Guyana is US$4,679 Conversely, the debt burden per capita of the United States is US$91,743, almost 19 times more than the debt burden per person in Guyana.

Now, let’s test the shadow finance minister’s argument to determine whether a decline in oil price could actually plunge the economy in a real crisis

Based on the table , in 2020 the debt-to-GDP ratio represented 24 per cent of overall GDP and 38 per cent of non-oil GDP, while the debt service to revenue ratio was eight per cent of current revenue Based on the projections for 2023, the total public debt represents 25 per cent of overall GDP and 78 per cent of non-oil GDP, while the debt service to revenue ratio is seven per cent of current revenue, and 13 per cent of non-oil revenue

This means that even if oil revenue is nil (in a worsecase scenario), the non- oil revenue is sufficient to service debt payments which is well below the maximum sustainable benchmark of 30 per cent

Furthermore, from looking at the projected growth in debt repayments from 20202023 relative to the projected growth in current revenue for the same period, current revenue is projected to grow by 154 per cent while debt service payments are projected to grow by 107 per cent or by 47 percentage points less than the growth in revenue

As such, this is another good indicator of financial prudence whereby the rate of growth in current revenue is greater than the rate of growth in debt service payments If the inverse manifests , then there would be cause for concern

Against these backgrounds, whether the government wishes to engage China to build a deep-water port and the road linkage between Guyana and Brazil or not, these developments are unlikely to pose any detri-

Mental Risks For The Economy

Now is the time to build these infrastructure which will aid in creating new industries and new streams of revenue for the country all within a sustainable economic framework

In the final analysis , the notions that the level of borrowing is reckless and that declining oil prices could push the economy into a crisis, are farfetched at this point

Yours respectfully, Joel Bhagwandin

In 2020 the debt-to-GDP ratio represented 24 per cent of overall GDP and 38 per cent of non-oil GDP, while the debt service to revenue ratio was eight per cent of current revenue Based on the projections for 2023, the total public debt represents 25 per cent of overall GDP and 78 per cent of non-oil GDP, while the debt service to revenue ratio is seven per cent of current revenue, and 13 per cent of non-oil revenue (Source: Budget Speeches/Bank of Guyana Reports/Author’s Calculations)

Dear Editor,

PLEASE publish this letter on behalf of the National Accreditation Council (NAC) on the passing of its council member, Dr Olato Sam

The NAC was shocked at the news of the sudden and tragic passing of Dr. Sam on Friday August 4, 2023. To his family and relatives, the Council offers its sincerest condolences

Dr Sam was an outstanding member of the Council who provided critical reviews of proposals that were laid before the Council

At the time of his passing, he was seeking funding for the strengthening of institutional capacity to aggressively pursue the implementation of NAC five-year strategic plan

His contribution to the Council’s business through his wisdom and known intellect and experience as an outstanding educationist and administrator will be sadly missed.

Yours sincerely