Gov’t cautious about borrowing despite growing interest by lenders

 Guyana’s expected revenue from oil production has resulted in more interest from multilateral banks, which Finance Minister Winston Jordan believes is demonstrative of a sound economy although he remains guarded about rushing towards every offer.

Jordan says that while banks and investors are keen to extend resource envelopes to Guyana, he is in no rush to accept, as is evidenced by his application  for US$20 million from a recent Islamic Development Bank (IsDB) four year purse offer of US$900 million, interest-free.

“Isn’t that a good thing for Guyana, that more funds coming? And doesn’t that send a nail into the doomsday scenario that this and that is happening? Isn’t that a sign that the economy is healthy enough to accept the money that they are lending you? These banks would not lend you money if you were in trouble,” Jordan said.

“But every multinational that we engage, they will have an envelope for you over a specified period so it is not as if they finding money from somewhere and saying ‘Come!’ The envelope has been set,” he added.

Sources close to government have told Sunday Stabroek that Guyana has seen “a significant increase from multinational banks and investors” vying to get the country to commit to borrowing from them. 

“Apart from business investors looking for opportunities in the oil and gas sector since the Liza discovery, there has also been a significant increase from multinational banks and investors wanting to capitalise. They see the money from oil as a surety… they are saying that Guyana can use oil as collateral,” an official recently told this newspaper.

“This country has seen that increase and has to be prepared to see this sort of activity increased tenfold over the next few years and must be very cautious in its borrowing. No one is lending because of humanitarian gestures and because they so love Guyana, it is about profits. Our financial experts and policymakers must, yes I repeat must, scrutinise all the offers. They have to be prepared to bring in the experts to look at the numbers, if they don’t have the qualified persons, they have to be willing to accept that they don’t have those qualified persons and get them to analyse the monetary policies or we would be heading for trouble,” another source added.

The source said that government is right in adopting a cautious approach to borrowing. “You have to look at borrowing as the total debt. When you borrow you have to increase the debt to GDP [Gross Domestic Product]. The debt to GDP is an indicator of the economy’s ability to have stability. In other words, if it is not too high, persons looking in as potential creditors will come and looking at the World Bank Financial Development Report you would see that they have to be cautious,” the source said.

“The catch is simple: if you use oil as a collateral you are borrowing against expected production. You are making the assumption that there will definitely be oil. You expose the country to manipulation. There is no guarantee that you will get the oil you said you will.  They can tomorrow say the well didn’t meet expectation or ‘I didn’t get the production I expected.’ Don’t borrow on an expectation, it is how some countries get trapped. They get money to borrow and something unpredictable happens and they slump. They must look at the PBL [policy based lending], which is generally based on meeting certain conditionalities. Yes, there may be money looking at you right now but wait,” the source added.

Jordan gave a breakdown of funding that has been made available and listed some of the projects that the lending agencies slated the monies for.

“In the case of the Islamic bank, they set an envelope of US$900 million over a four-year period from which you can draw… The World Bank is US$90 million and we will draw down somewhere in the vicinity of US$30 million to US$35 million first. The next tranche is next year and is somewhere between US$20 million to US$25 million and so forth. But there is a tranche of US$20 million which has been identified for oil and gas and of which I have just signed the project preparation facility of about US$2 million,” he said.

The US$2 million, Jordan explained, will help Guyana to speed up operations for oil and gas, including the setting up of government’s proposed Department of Energy, which President David Granger said will be established by the end of August this year.

Jordan has said that government is not rushing to access the remainder of the IsDB funding. The US$20 million it has sought is slated to be approved in late August for a Guyana Power and Light project. He noted that the US$900 million was offered under Islamic Sharia law where there is no interest on the loan.

He went on to explain other loans earmarked by respective banks for Guyana. “Then there is the Caribbean Development Bank and they have about US$100 million, thereabout. But almost all of this money is earmarked for our first phase of the Linden-Lethem road up to Mabura and the bridge to Kurupukari. The significant sums will be used for that purpose,” he said. “We have money from IFAD [International Fund for Agricultural Develop-ment]. They gave a small amount they identified for maybe one project. We also have from the OPEC fund. Yes, there is another small amount there and they have identified a project or two and then we have some other small funds,” he added.Jordan stressed that although the loan offers are available, government wants to ensure that they will be used towards financially sound projects.

“We have to get bankable projects and in many cases for our projects, we have ideas but feasibility studies for many of them have not been done. Therefore, it is why it is taking this length of time. Even the Linden highway. It is not a case of just going there and throwing bitumen as some may think. The Linden highway was built since in the 1960s and since that time a lot of things that should not have happened, including major mining of sand close to the highway. This apparently is undermining the highway and as such you see all those sinks and so on when you travel. We need a new feasibility study to examine the whole foundation and so on before you actually go and start work,” he said.

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