Dear Editor,
Mr Moses Nagamootoo in a letter in SN dated July 24 without credible justification attempted to discredit the arguments presented by the government on the motion to amend the Guarantee of Loans (Public Corporations and Companies) Act (‘The PPP’s alternative to gridlock is constructive engagement and compromise’). The gravity of the inaccuracies contained necessitates a response for the benefit of the public. In this regard, kindly permit me to offer some insights into the motion as well as the government’s contribution in the ongoing national discourse on the motion. Apart from addressing the flawed arguments contained in Mr Nagamootoo’s missive, it is important to highlight the economic soundness of the project as well as the benefits and outcomes to be accrued; benefits which will diversify the country’s economic base, create additional wealth, improve competitiveness, and strengthen our macro-economic fundamentals.
Myth of debt ceiling
First and foremost, it is important to establish and emphasize that the proposed amendment to the Guarantee of Loans and Public Corporation and Companies Act will not add to the stock of national debt. Mr Nagamootoo sought to make the point that the amendment will automatically increase the national debt. An argument so premised is void of logic and would only be made by someone engaging a topic beyond their technical competence; such is the comedy of the reasoning.
The government proposed amendment to the Guarantee of Loans and Public Corporation and Companies Act in part, is a contingency to cater for any operational shortfall of Guyana Power and Light (GPL) during the life of the AFH project. This point has been repeatedly made by members from the government side to prevent any misinterpretation of the objective of the proposed amendment.
Soundness of project
Existing feasibility analyses conclude that the Amaila Falls Hydro Project (AFHP) is not only financially sound but more importantly it is economically feasible. The IMF Article IV Surveillance Report (2010) highlighted the following financial and economic benefits:
● lead to a reduction in the current cost of generation between 20 to 40 per cent
● save consumers approximately US$3.5 billion over 20 years through the reduction of tariffs to GPL consumers;
● reduce the fuel import bill by approximately 20 to 25 per cent and save the country in excess of US$90 million, in the process . This will protect GPL from volatile international oil prices;
● add cumulatively 6 percentage points to real GDP during project construction phase; and
● allow for the generation of electricity using 100% renewable sources. This has the potential of earning approximately US$10 million annually from the sale of carbon credit.
Editor, the derived benefits will translate into tangible savings for all categories of consumers. If one were to work with a 40 per cent reduction in tariff, benefits will accrue as follows:
● residential consumers would save approximately $417.4 million monthly (or $5 billion annually)
● Commercial consumers (Tariff B and C) would save $182.6 million monthly (or $2.2 billion annually
● Industrial consumer (Tariff D) would save $168.2 million monthly or 2 billion annually. These are the large-scale production units of the economy and the drivers of innovation and structural transformation.
The catchment of our population which stands to reap significant benefits is the residential consumers. These are the low-income earners, our public servants, farmers, pensioners, and the vulnerable amongst us who will save $5 billion annually. This translates to $5 billion additional disposable income for residential consumers that could transform the lives of our citizens. These are persons who should be foremost in the consideration of our parliamentarians. They are a priority for the government. The AFC has repeatedly hidden behind unsubstantiated arguments while showing complete disregard for low income earners who stand to benefit.
Further, by ensuring the realization of the AFHP through the amended guarantee, it will position the country on a path to energy security which is an important prerequisite to continued national growth and development. A country lacking energy security runs the risk of being held hostage to the vagaries of the international market and external political uncertainties and pressures.
Affordable and reliable energy is also important to accelerating our national efforts to structurally transform our economy and to expand our production portfolio by making manufacturing and agro-processing activities feasible. No government, PPPC or other can contemplate continued national growth and development in an environment of energy insecurity.
National debt
Equally misleading, is the attempt by Mr Nagamootoo to paint a picture of a deteriorating national debt scenario resulting from the amendment to the Act. On this point Mr Nagamootoo had apparently experienced some exciting recollection of the PNC governed economic error triggered by his more recent associations and propaganda mandate on behalf of his new political allies, the morphed version of the PNC, APNU and its ally the AFC.
As noted earlier, the amendment will not add to the country’s debt stock which can only change with additional borrowing. This feeble attempt at a debt analysis in isolation of the performance of the wider economy is mediocre at best. Mr Nagamootoo should be aware of the important technical distinction between absolute and relative dimensions to such analysis. Any analysis of the performance of public debt has to take into account the other important dynamics within the economy – exchange rate movement and the growth in the economy over the years.
The $1 billion guarantee set in 1980 was approximately 73.2 per cent of GDP at factor cost in 1980. The amendment to the guarantee proposed approximates to 27 per cent of projected GDP for 2013. Based on projected nominal GDP by the IMF ratio of public guaranteed debt to GDP it is likely to improve further to 20.8 per cent (2015); 14.4 per cent (2020); 9.9 per cent (2025) and 7.1 per cent (2030).
Prudent economic management and fiscal consolidation has resulted in marked improvement in our debt position over the past twenty years. Guyana’s total public debt was approximately US$2.1 billion in 1992 when the PPP/C assumed office and ninety-six cents of every dollar earned was used for debt service payment. As at 2012 debt stood at US$1.7 billion, a reduction of 22 per cent when compared with the 1992 figure. Guyana is now using less than ten cents of every dollar as debt service payment. This reversal occurred under the stewardship of the PPP/C. At the same time, our GDP has moved from US$371 million in 1992 to US$2.8 billion in 2012. Government’s revenue has risen from US$141 million in 1992 to US$637 million in 2012.
Debt sustainability analysis by the International Monetary Fund (IMF) for 2012 has confirmed that the debt sustainability of the country has improved significantly over the past 20 years and it is projected to be robust over the medium and long term based on most standardized sensitivity analysis. The national debt position will remain sustainable based on all the key debt indicators. This positive debt outlook is projected to obtain for at least the next 17 years, which is three years less than the estimated payback period for the AFHP.
Editor, this discussion will likely continue and the opportunity will be taken to provide relevant details and add required clarity for the benefit of the public.
Yours faithfully,
Mohamed Irfaan Ali
Minister of Housing and Water
