Pay demands threaten Guyana debt plan - World Bank warns
THE Board of Directors of the World Bank yesterday approved a plan to write off some US$256M more in debt for Guyana, but there were warnings that public sector pay demands can cripple the scheme. The board, meeting in Washington, took about 90 minutes to approve the plan under the Heavily Indebted Poor Country (HIPC) initiative drawn up by the bank and the International Monetary Fund (IMF) to ease the debt-servicing burdens of the most affected countries, including Guyana. "This is a major achievement for Guyana, it is very good", World Bank Director in the Caribbean Country Management Unit, Ms. Orsalia Kalantzopoulos told the Chronicle last night in a telephone interview. She said Guyana can be considered for even more debt relief but warned that the scheme could be overturned if the Government agrees to unacceptable pay increase demands for public sector employees. "They can throw the country out of financial sustainability if the wage increases are too high. There are very grave risks for Guyana", she emphasised. Kalantzopoulos told the Chronicle the Guyana Government "has to be very careful with what it does in the wages negotiations" now under way with unions representing public sector workers. "Everything can go down the drain; they have to maintain fiscal sustainability and social sector spending for the poor", she said. The World Bank board, she said, was "extremely positive about the efforts the Government has been making. They have practically turned around the economy and they could have done even better if they were not hit by the (El Nino) weather (phenomenon) and political troubles last year." Kalantzopoulos said some Executive Directors of the bank at yesterday's meeting "expressed reservations that the reforms (the Guyana Government has undertaken) may not be sustainable because of the (current) noise from labour (about more pay)." "They all cautioned that the Government should continue the course", she reported. The administration here has to do more on privatisation, rationalising public sector spending and in other structural reforms, she explained. The bank official said Guyana was the first country that has completed the HIPC approval run, which took just more than a year while the normal course is three years. The bank has explained that the HIPC scheme represents a commitment by the international community "to reduce to sustainable levels the country's external debt burden so as to enable the country to pursue economic and social policy reforms that are conducive for sustainable development." Kalantzopoulos said the government will have to preserve expenditures for health, education and for poverty reduction. She said the directors yesterday also agreed that Guyana and other countries eligible for HIPC could be considered for more debt relief if they "continue on a good macro performance and fiscal prudence and structural reforms." Yesterday's final approval followed the okay Wednesday by IMF Board of Directors. An IMF official told the Chronicle the fund approval in Washington came after it completed a review of the country's Economic Structural Adjustment Programme (ESAP), which is a condition for disbursement of HIPC funds. Other sources said the agreement will reduce Guyana's external debt by US$256M and the Paris Club of creditor nations will take the cue from the IMF and World Bank approval. The World Bank has told the Guyana Public Service Union (GPSU), which has called the current strike by government employees for a 40 per cent pay increase this year, that HIPC funds should be used to benefit all Guyanese and not for more wages and salaries for government employees. GPSU President, Mr. Patrick Yarde, last month wrote World Bank President, Mr. James Wolfensohn seeking clarification on the use of funds under the scheme. In a response to the union boss, the bank pointed out that because of several factors, government revenues declined sharply last year and real Gross Domestic Product (GDP) growth and government revenues are "expected to be lower over the next few years." "As such, the fiscal burden of the external debt and its servicing is expected to remain high even after the HIPC assistance", Yarde was advised. The bank explained that most of the resources released from the HIPC-related reduction in debt servicing during this year "are to be allocated for education, health care and poverty reduction." "A lesser amount of resources are to be allocated for civil service reform, especially for restructuring the ministries and ensuring an appropriate employment size in the public sector while making it attractive for professional, managerial and technical personnel to be retained in the civil service", Kalantzopoulos said. The bank acknowledged the "economic hardships" facing government employees at the lower pay scales and many more people outside government in covering their basic needs. "You may agree with me that HIPC-related resources should be effectively used in the social sectors in order to benefit all people of Guyana rather than be earmarked for a general wage increase to government employees", the official told Yarde. The World Bank noted that the HIPC Initiative alone cannot address "all the difficult problems facing Guyana" and that other programmes by bilateral donors and multilateral agencies "will support the Government in addressing the developmental challenges."
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