Further debt relief hinges on public sector reform - Yadav By Gitanjali Singh Stabroek News December 28, 1999 The multilateral agencies will consider Guyana's case for further debt relief in the first half of 2000 but crucial to such relief would be public sector reform and a stable macro-economic situation. An International Monetary Fund (IMF) mission to Guyana recently began discussions with the government on what needed to be put in place to strengthen Guyana's case to benefit from the Cologne Initiative, known better as the enhanced Heavily Indebted Poor Countries (HIPC) initiative. Chief of the IMF's Caribbean Division, Gopal Yadav, said Guyana was among the first four on the proposed eligibility list for this enhanced relief, but the government had to prepare a forward-looking policy on poverty reduction in consultation with the broader society for the IMF/World Bank. "The Cologne Initiative is very much on our minds...in fact, part of the discussion we are holding now is about that..," Yadav told Stabroek News in an interview recently. But whilst the government's preparation of a paper can rely heavily on the revised draft National Development Strategy, which is at an advanced stage and which encompasses the views of the broader section of society, actual relief can be threatened if adequate reform to the public sector is not effected and if the economy does not perform in line with a pre-set IMF programme. "Under the Cologne Initiative, Guyana is eligible to receive quite a substantial sum [which will allow it to be debt sustainable] but the government has to do certain things to qualify for this relief," Yadav stated. The first condition for relief is a stable economic environment and Yadav pointed out that at this moment, with the large public sector wage award, "things look very unstable". He said the award has made life difficult for policy makers and has thrown the macro situation [inflation is running at high levels and the budget deficit has widened] off track. "If government and the society do not agree to take some of these other measures [public sector reform and cutting public spending] to assure that you can achieve macro stability within a reasonable period of time, it can threaten further relief of course," Yadav said. Yadav said the details of what needed to be achieved had not been discussed fully but spending has to be reduced and the deficit lowered. He noted that real and hard choices had to be made to ensure that if spending in one area went up, it was balanced by cuts in other areas. Asked whether the government getting out of public infrastructure projects would help the situation, Yadav said it would be ideal for the private sector to get involved in infrastructure projects and be allowed to apply cost recovery methods to recoup their investments. Debt relief from the Cologne Initiative will see Guyana's debt to revenue ratio going down to 250% from the current 400% at which it stands. This would mean an additional US$500 million in nominal debt servicing relief over 25 years and US$322 million in net present value terms. Net present value (NPV) is a measure of the future market value of the debt. It is anticipated that the relief from Cologne will take Guyana's debt down to around US$500 million excluding new borrowings by this government which stand at about US$300 million. Yadav said every effort was being made to have the documentation on Guyana ready for the IMF/World Bank board meeting early next year where a new programme, an enhanced ESAF (now called the Poverty Reduction and Growth Facility) will be determined for this country. He said once the IMF and World Bank were satisfied with the implementation of this new facility, the relief under Cologne will be provided. And once all goes well, the programme could be reviewed by the end of 2000 and the delivery of assistance could flow from there. Given that 2000 is an election year (elections are due before the end of January 2001), disruptions can be anticipated in the economy's performance and even in efforts to reform the public sector. But Yadav said he believed from his discussions that everyone would co-operate to ensure growth in the economy was not stifled. A © page from: Guyana: Land of Six Peoples