Guyana can dive itself into even more debt with oil money – IDB Quarterly Report
With Guyana set to receive some revenue from the sale of its oil resources, the Inter-American Development Bank (IDB) is warning the authorities of the day to be extremely careful about how much it will spend. He advises on saving for a rainy day, and in particular, the way he approaches new loans.
In its latest Caribbean Quarterly Bulletin, the financial institution acknowledged that the oil money will provide the government with the opportunity to close budget funding gaps, avoid debt accumulation and / or retire expensive unpaid public debt. He stressed, however, that budgetary funding needed to be monitored otherwise Guyana could erode savings and return the nation to a position of high debt.
The bank was keen to point out that Guyana has been managing its debt quite prudently over the past two decades. Further explaining, he said the Ministry of Finance is the key organization responsible for formulating and implementing fiscal policy and managing public debt. The objectives of the ministry’s overall fiscal policy are to maintain output stability and debt sustainability.
From 1970 through the mid-1990s, the bank said Guyana was the most indebted country in the world as measured by the ratio of nominal public debt to GDP.
The IDB noted that Guyana has seen tremendous and persistent reductions in levels of public debt, driven by, among other things, debt relief initiatives such as the Severe Severe Poor Countries Initiative (HIPC) and Multilateral Debt Relief Initiative, as well as policy reforms.
Debt relief under the Advanced HIPC initiative was estimated at US $ 387 million based on late 2002 data and parameters (IMF 2003).
DEBT ON THE HORIZON
While it is true that the country now stands for “a little money” that it can use to clear some of its debt, local and regional stakeholders are already warning that Guyana is already waiting for a huge debt. One such person who has rung the alarm bells on this issue is international lawyer and transparency advocate Melinda Janki.
In a recent interview, Janki recalled that, even now, the country had about US $ 900M in costs that it claimed went to offshore Guyana before it signed a highly-criticized Stabroek Block deal in 2016. With ExxonMobil rushing to get five oil vessels in operation. by 2026, development and operational costs will rise to billions of US dollars that Guyana will also have to pay, the lawyer explained. He said this will only be a small portion of the debt that will hang around the neck of the nation in the future.
Also of concern to Janki is the deteriorating health of ExxonMobil, and how dependent it will be on Guyana as a cash machine. In this respect, he reminded that the oil giant had recently said that the impact of the COVID-19 pandemic had forced it to make serious adjustments to its business plans. As part of its restructuring, ExxonMobil said it will place its privileged assets in Guyana, high on its list of priorities.
But to keep the focus on Guyana, Janki said the company had to write off US $ 17-20 billion worth of natural gas assets in other parts of the world. “Obviously they removed the gas because it was worthless. It is a stuck fossil fuel asset. Nobody wants it, ”the lawyer expressed.
Another critical development, he says, is Exxon’s cut of 14,000 jobs or about 15 percent of its global workforce, adding that the company was forced to cut capital spending for 2020 to US $ 23 $ 33 billion billion.
Taking into account the above, Janki said it is clear to see that this company is in ill health by adding that it does not bode well for Guyana. The lawyer said, “… Guyana may be getting some money now but in the long run it will have a huge debt.”