The Amaila Falls Project continues to dominate the newspaper headlines as well as the letter writers’ columns, not to mention the interesting comments and views of bloggers. The high cost of the project remains a key burning and controversial issue that is kept alive as a result of more piecemeal disclosures emanating from leaked information from what the authorities claim to be confidential documents. This is despite the fact that the investor, Sithe Global, has decided to be no longer associated with the project because of a lack of consensus at the parliamentary level.
Concerns also continue to be expressed about the implications for the public debt as a result of the National Assembly’s approval of the raising of the ceiling for Government guarantees from $1 billion to $50 billion. Today, we continue our discussion of the public debt.
Recapitulation of last week’s article
We examined the concept of public debt and how it relates to Guyana. Public debt is defined as the accumulation of the financial obligations of all government bodies of a nation. It is the total of a nation’s debts i.e. debts of local, state and national governments. Traditionally, Guyana’s public debt is considered in terms of the financial obligations of central government only and does not include those of public corporations and other state-owned/controlled entities. This approach is reflected in the consolidated financial reporting of the public accounts that is done annually and audited and reported on by the Auditor General, the latest being 2011.
Section 69 of the FMA Act, however, requires the Minister, as part of the annual consolidated financial statements, to certify and issue an official schedule of public debt outstanding in the name of the Government, other levels of government and public enterprises. This suggests a broader view of Guyana’s public debt than what is currently being reported and is consistent with prevailing practices in other countries. Although not specifically mentioned last week, the increase in the ceiling for government guarantees to facilitate the proposed Power Purchase Agreement between the Guyana Power and Light (GPL) and the Amaila Falls Hydro Inc. has the effect of increasing the public debt, despite the arguments to the contrary by government officials.
The Government’s guarantee of loans and the public debt are very much interlinked because: (a) public entities are owned by the State, and any default by such an entity on a loan backed by a government guarantee makes the State liable for the discharge of that financial obligation; and (b) Section 69 of the Act extends the public debt to include other levels of government and public enterprises. That apart, guarantees are in the nature of contingent liabilities, and the probability of occurrence has implications for the public debt. GPL is facing severe financial difficulties despite the provision of Government subsidies. It is therefore almost inevitable that the contingent liability will crystallise out into actual liability, hence the implications for the public debt as is currently being reported.
One hopes that the debate about the lifting of the guarantee of loans ceiling having an impact on the public debt can now be brought to a closure and that any future reporting of the public debt will be consistent with the Act.
Guyana’s public debt falls into two categories: external debt and internal debt. Internal debt comprises amounts owing to individuals and organisations within the country and relates mainly to the issuing of Treasury Bills and debentures. Treasury Bills are short and medium term borrowings (90, 182 and 365 days) and are mainly used to mop up excess liquidity in the economy. The proceeds of the latter two categories are kept in the Monetary Sterilisation Account which had a balance of $90.852 billion as at 31 December 2011.
Debentures, on the other hand, have longer time duration for maturity, usually 10 to 15 years, and are used mainly as an instrument to raise capital. This could be a convenient and less expensive method of securing funds for large infrastructure works, such as the Amaila Falls Hydro Project. Both Treasury Bills and Government debentures are risk free and the rates of return reflect this, bearing in mind the higher the risk, the greater the return investors will demand.
Guyana’s internal debt stood at G$150.9 billion at the end of 2011, comprising $G$52.3 billion and G$98.6 billion in debentures and Treasury Bills respectively.
Guyana’s external debt are financial obligations to individual countries, international financial institutions, organisations and individuals outside of Guyana. Such obligations have foreign currency implications in that if the value of the Guyana dollar depreciates against major currencies, more Guyana dollars will have to be found to service these debts, hence an increase in the public debt.
At the end of 1992, Guyana’s external debt stood at US$1.236 billion. The following table shows the status of the external debt as at the end of the respective years, commencing 1999. The information was extracted from the Auditor General’s reports. However, reports for 1993 to 1999 are not available at the Audit Office’s website while the information for 2012 was calculated from the Minister of Finance’s midyear report for 2013. This report indicated that the external debt stood at US$1.2 billion as at 30 June 2013, a decrease of 8.1 per cent compared with the position at the end of 2012.
As can be noted, there was a significant decrease in the external debt in 2007 from US$927 million to US$589 million or 58 per cent although nine new loans, whose disbursements amounted to US$147.1 million, were entered into by the Government. The Audit Office’s report did not explain this decrease as has been the practice for previous years. In 2003, for example, the Auditor General reported that the external debt increased by US$20 million due to: (a) repayments totaling US$23.6 million; (b) disbursements totaling US$57.7 million; and (c) movement in the exchange rate for the US dollar from G$191.3 to G$193.8. However, with effect from 2006, the Audit Office’s report ceased providing a reconciliation of the movement in the external debt from one year to the next.
During the periods 2000 to 2005 and 2007 to 2011, the Government entered into agreements in respect of 78 new loans, as shown below. The Audit Office’s report did not provide information in respect of loan agreements entered into in 2006.
Next week, we will attempt further analysis of new loans entered into as well as repayments, rescheduling and write-offs, to the extent of the availability of the related information.
To be continued