Reducing the national debt
Faced with a national debt of roughly US$1.65 billion, the equivalent of roughly 60 percent of the country’s gross domestic product (GDP) of US$3 billion, huge debt-servicing cost, a bankrupt GuySuCo and a declining growth rate, the government must act swiftly to prevent any further erosion of the economy.
This has predictably set off an intense public debate in which the Government and Opposition have taken starkly differing positions. Guyana’s debt is enormous; there is no getting around that, and the cost of servicing it is crippling for a country whose post-colonial plantation economy has been gradually declining.
Experts have suggested that the solution is a debt-management strategy by the government that puts the growth of the economy, reduction of the debt and the increase of exports as its main goals.
A lower debt-to-GDP ratio will, indeed, result in a better credit rating for the country and the opportunity to secure lower interest rates on new debt. The increase of the public debt has been as a result of excessive borrowing, reckless spending and unbridled corruption which have created a snowballing effect, with additional loans being taken to pay the interest on existing ones.
Financing this increased debt-service cost is a major challenge to the current administration for two reasons. One, the people are entitled to know how the increased payments to service the debt will be made without the introduction of new taxes or further debt. Two, they need accurate information on the financial health of the sugar, rice and mining industries, the main pillars of the economy, which the Government relies on to service the debt. The declining economy and the lower prices for gold, rice, sugar and bauxite on the world market have made it extremely difficult for the administration to lower the debt and reduce the cost on the interest.
The government’s other problem is how to grow the economy, create jobs and make the major industries profitable. Obviously, the debt-to-GDP ratio must be lowered in order for the country to attract foreign investment. Even though Guyana’s debt-to-GDP ratio is considered medium risk according to the IMF debt sustainability analysis, the country’s low economic growth rate cannot sustain the current debt indefinitely.
The government has to take prudent measures to make sure that the debt-to-GDP ratio does not increase further. If this is not done urgently and the debt-to-GDP ratio and the cost of servicing the debt increase, it could spell more trouble for the country in that the debt could turn out to be more of a suppressant than a stimulant.
It is a fact that any increase in the cost of servicing the debt would take funds away from the treasury which in turn would deprive the economy of much needed funds for its growth and development. It would also take funds away from the social programmes, education and health care.
There are ways to reduce the debt or the cost of servicing it, but the decision rests squarely with the government, which is usually influenced by its advisers. Their advice, while probably well meaning, often reflects partisan or personal interest. For this reason, it is the responsibility of the powers that be to examine the advice through the prism of the interests of the people.
Because of the huge debt and the exorbitant cost to service it, the country’s productive efforts will be denied valuable investment capital, its social systems will not improve, roads and bridges will not be repaired as well as other infrastructure. In addition, increase in production capacity will not continue and jobs will not be created. In the end, the people’s interests would not be best served.
