Guyana set to earn further debt relief under Cologne Initiative -Jagdeo By Gitanjali Singh Stabroek News July 10, 1999 Guyana's foreign debt stands at US$1.5 billion, including some $400 million in loans by this government. But Finance Minister, Bharrat Jagdeo, is optimistic about a further reduction in debt stock and servicing under the Cologne Initiative. "We are well set... we are one of the first countries that must qualify under the Cologne terms...," Jagdeo told reporters yesterday at a press conference at the GTV studios. This new initiative, which was recently approved by the G8 countries is expected to provide substantial relief to Guyana given the criteria set for debt sustainability. Even with relief under the Heavily Indebted Poor Countries (HIPC) Initiative, which yielded bilateral and multilateral debt service relief of US$25 million annually, Guyana's debt burden is not considered sustainable. Guyana is expected to pay about US$80 million in debt servicing from next year, but revenue collection is only averaging about $34 billion or some US$193 million annually. Debt sustainability under the HIPC initiative includes a net present value of debt to revenue of 280%. However, Jagdeo said that even with the HIPC relief, this ratio for Guyana stood at over 400%. After HIPC, Guyana's debt in net present value terms stood at some US$894 million. The Cologne Initiative, seeks to have the debt to revenue ratio reduced from 280% to 250%, which according to Jagdeo, means a relief in terms of debt sustainability of 150%. He could not quantify this in debt relief terms. Jagdeo, who recently returned from a Paris Club creditors meeting where he sealed their contribution for the HIPC relief, said that a memorandum was put to the creditors for more favourable terms than the Lyons terms. Subsequent to the memorandum to the Paris Club creditors, the G8 leaders agreed to up to 90%, the debt relief for very poor countries. Under the HIPC package, Guyana's debt service to its bilateral creditors, which accounts for about 17% of Guyana's foreign debt (US$270 million), falls by US$6 million annually. This was as a result of a reduction in interest cost by Trinidad on its stock of debt of US$170 million and a stock reduction by Russia of over US$10 million and the participation of other Paris Club creditors in the Lyons terms package. The Lyons terms allows for an 80% reduction on 65% of a country's debt and a 67% reduction on the other 35% of the debt. Russia, which Guyana owed US$11.1 million as military debt, recently joined the Paris Club and granted an upfront discount of 80%. It then applied the Lyons terms on the remaining stock. The result is a debt of US$547,000, which has been rescheduled over 23 years with a six-year grace period. With the interest reduction option taken by Trinidad instead of a stock reduction, Guyana will now pay about US$5 million to US$6 million to that twin island nation, instead of the US$11 million which was paid before. Other non-Paris Club bilateral creditors, which account for about US$122 million of Guyana's debt stock, have not responded to efforts to provide similar treatment as the Paris Club and their debts are not being serviced. Jagdeo feels comparable relief here can yield a further US$90 million in debt relief. Guyana got a stock reduction of 67% from Paris Club creditors and Trinidad in 1996 and lobbied for HIPC relief under the fiscal openness criteria. It is one of a few countries to have benefited from that package. It is listed among 16 countries to benefit from the Cologne Initiative, and at a maximum, is expected to see a debt service saving of up to 33% in total (inclusive of HIPC relief). Jagdeo said he was able to secure a goodwill clause from the Paris Club creditors that once the terms of the Cologne Initiative are agreed to, Guyana can approach the club for a further ten percent write off of its bilateral debt in net present value terms. The minister stated that the Cologne Initiative has two sub-criteria. One is a lowering of the tax to GDP ratio from 20% under the HIPC to 15%. Guyana, Jagdeo said, has a tax to GDP ratio of 30% which shows that the country is making a tremendous effort to collect revenue. The other criterion is that the openness of the economy should be evaluated at 30%, ten percent less than HIPC. Again, Jagdeo said, Guyana surpassed this at 105% in 1996. Noting the arguments against the Cologne Inititative which were published in this newspaper but sourced to international newspapers, Jagdeo said there are several others countering those positions. The minister feels the debt relief is good for Guyana and will enhance the balance of payments position and bring stability to the foreign currency market. However, he acknowledged that the depreciation of the Guyana dollar negates some of the benefits which the US$25 million yields. As to the issue of a debt swap, which is a consideration of the bilateral Paris Club Creditors, Jagdeo indicated that this option will not be considered until all possible debt relief is secured. A © page from: Guyana: Land of Six Peoples