Dear Editor,
I have noted the shadow finance minister describing the recent increase in the debt ceiling as “reckless borrowing”. Guyana’s debt sustainability indicators are well within the sustainable prudential benchmarks. The latest increase of the debt ceiling represents 56.9% of 2022 real-GDP and 45% of the GDP forecast for 2023. As of 2022, the debt-to-GDP ratio was recorded at 26% and debt service to revenue ratio was 7%. Even if oil revenue is excluded, and only the debt payments to be serviced by the non-oil economy, debt repayment represents 12.5% of non-oil revenue for 2022. This is also well below the sustainable maximum benchmark of 30% of revenue. The external debt-to-GDP ratio as of 2022 was recorded at 11% and projected to grow by one percent in 2023 to 12%, while the overall debt-to-GDP forecast for 2023 is 25%.
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. In 2020 the debt-to-GDP ratio represented 24% of overall GDP and 38% of non-oil GDP, while the debt service to revenue ratio was 8% of current revenue. Based on the projections for 2023, the total public debt represents 25% of overall GDP and 78% of non-oil GDP, while the debt service to revenue ratio is 7% of current revenue, and 13% of non-oil revenue. This means that even if oil revenue is nil (in a worse-case scenario), the non-oil revenue is sufficient to service debt payments which is well below the maximum sustainable benchmark of 30%.
Furthermore, from looking at the projected growth in debt repayments from 2020-2023 relative to the projected growth in current revenue for the same period, current revenue is projected to grow by 154% while debt service payments are projected to grow by 107% or by 47 percent 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.
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.
Sincerely,
Joel Bhagwandin
