Dear Editor,
I have arisen, albeit temporarily, from my self-imposed letter-writing retreat, to comment on your Editorial, “The China Loan” (SN, November 6, 2021). First, a word of congratulations for a superb editorial; it was worth reading twice for what it sought to identify, clarify and educate about the borrowing binge upon which this government has embarked.
I had begun to hear rumours, around March, about the government’s approach to China for loans totalling US$1.5 billion, to finance various infrastructure projects. But I was only able to confirm this, recently. What I found to be astonishing was that the letter to the Chinese Ambassador, requesting the loan, was signed by a senior official of the Ministry of Finance and copied to the President, Vice President, and the Senior Minister in the Office of the President with responsibility for Finance, among others. Section 58(1) of the Fiscal Management and Accountability Act 2003 (FMAA) reposes in the Minister of Finance the sole authority to borrow on behalf of the Government of Guyana. The act of borrowing is initiated by a letter to the lender and ends with the consummation of a loan agreement.
The 2021 Mid-Year Report records the stock of public debt as $2.905 billion. This can easily rise to $5.3 billion within a few years, if one were to factor in the $1.5 billion from China and the undrawn $0.9 billion from the Islamic Development Bank. It becomes even starker when one considers:
i. The burgeoning overdraft of the Consolidated Fund;
ii. Borrowing from traditional sources, such as World Bank, IDB and CDB; and
iii. New sources of borrowing, such as the Sovereign Wealth Funds of the United Arab Emirates and Kuwait.
All of this borrowing is taking place, ostensibly, to fulfil manifesto promises, regardless of how implausible many of them appear to be. The repayment of these loans is premised on future oil receipts coming to the government. In this regard, however, the experience of Ghana is most instructive and the government should avail itself of the lessons learnt.
You assert that “borrowing at a concessionary rate as low as 2% … makes a lot of sense.” That is true, provided that the projects being financed guarantee a return greater than the cost of borrowing. Since moneys are accumulating in the Natural Resource Fund (NRF), then it makes sense to finance a project by borrowing at 2%, once the return on the NRF’s funds are greater than 2%. But here is a reality check: first, the funds in the NRF are earning almost zero return because, as you correctly identified, the government refuses to activate the Investment Committee, among the other Committees of the NRF. Second, you assume that the $1.5 billion loan can be secured at an interest rate of 2%. This is highly unlikely. I say this based on previous attempts by a PPP/C government to secure funding from China for the Amaila Falls Hydropower Project (AFHP). A major sticking point during the negotiations was the interest rates on the two major loans that were to be provided by the two Chinese funding institutions. These interest rates were far in excess of 2%.
Editor, your “Fifteen months into this administration and we are yet to see the amendments to the Natural Resource Fund Act [NRFA]” struck a nerve with me. The NRFA remains the only piece of new legislation that has been enacted since oil was discovered in 2015. It has been maligned by the then Opposition, now government, who continues to gripe that it puts too much power in the hands of politicians. One waits with bated breath to see the amendments that would free the legislation of this supposed malady. Equally, one awaits the setting up of the so-called autonomous body to govern the NRF in a country driven by ethnic strife and political partisanship.
Guyana’s NRFA was the product of extensive national and international consultations. It benefitted from Sovereign Wealth Funds (SWFs) such as Ghana, Chile, Norway and Trinidad and Tobago. Ultimately, its design was tailored to meet the peculiar needs of Guyana, taking into consideration the country’s stage of development. Hence, we eschewed any wholesale copying of the SWFs of other countries. It was expertly shepherded by two experienced professionals from the Commonwealth Secretariat: Dr Daniel Wilde and Ms Alache Fisho, a Ghanaian national. I note the government has brought to the country a Ghanaian contingent to review Local Content legislation and the NRF. I suppose nothing is wrong with them reviewing the work of their compatriot. Dr Vilas Gobin and Ms. Sonya Roopnauth were among key Ministry of Finance officials working closely with the experts. I commend them publicly for their dogged determination in helping to forge a piece of legislation that meets 23 of the 24 Santiago Principles (SPs), thus allowing Guyana to be admitted to the International Association of Sovereign Wealth Funds (IASWF), in 2019.
In an effort to meet all of the SPs, the Coalition government drafted a Public Debt Management Law, which should have been passed in 2019, were it not for the No Confidence Motion (NCM). Such a law is vitally important, since it is recognised that a government may want to bypass the stringencies, transparency and accountability of the NRFA by engaging in indiscriminate borrowing while funds are accumulating in the NRF. While we await the enactment of this legislation, the present NRFA, at Section 34, precludes any arrangement or agreement that would encumber the current and future resources of the NRF. With the government borrowing like a drunken sailor, it seems that this section would be axed in the amendments contemplated.
The Coalition made strenuous efforts, in 2019, to activate the NRFA, after it was passed in January 2019. In May 2019, I met with the Bank of Guyana, the Association of Bankers (AB) and the Private Sector Commission (PSC). We were able to conclude an Investment Agreement with the Bank of Guyana and establish the NRF at the Federal Reserve Bank of New York, in accordance with the NRFA. The AB named their representative to the Committee. However, the PSC, while praising the strength of the NRF, appeared reticent to name their representative to the Macroeconomic Committee. Of course, the then Opposition, in their typical display of hubris, refused to participate in any discussion, much less naming officials to any of the Committees.
At the Ministry of Finance, we were engaged in identifying suitable candidates for the Investment and Macroeconomic Committees. In that regard, we were on the verge of attracting a well-known Nobel Economics laureate to chair the Macroeconomic Committee, while Guyanese nationals at Stanford University and UCLA-Berkley were among persons being canvassed for other positions on the two Committees. Finally, we had contracted out the hosting of awareness sessions for the organisations comprising the Accountability and Oversight Committee to the University of Guyana. Alas, the limitations of governing imposed by the NCM precluded greater success and activation of the NRFA. But this much is clear: we wanted an NRF that was of the highest calibre, manned by persons of impeccable character and integrity, transparent in its operations, and accountable to the Parliament and the people of Guyana.
Sincerely,
Winston Jordan
Former Minister of Finance
