Gov't to try creative approach to gain further debt relief
By Gitanjali Singh
Stabroek News
December 20, 2003
President Bharrat Jagdeo yesterday said the government would now explore creative ways to further reduce its debt burden, such as debt-for-equity and debt-for-nature swaps, given that the country has received the maximum possible relief it is eligible for under existing multilateral initiatives.
The International Mo-netary Fund (IMF) and the World Bank this week separately approved a US$413.6M or $81B debt-relief package for Guyana under the exit arrangement of the enhanced-Heavily Indebted Poor Countries (HIPC) initiative. This amount is equivalent to US$334M or $65B in net present value (NPV) terms (the discounted sum of all future debt-service obligations - interest and principal). This will allow for debt servicing to fall by an average of US$30M per year in the first 10 years and by a lesser amount thereafter.
Jagdeo said the relief would take the stock of Guyana's external debt, including the borrowings of US$900M (US$300M of which is still to be disbursed) from his administration, to US$1.2B. This entire stock, the President said, was now on concessionary interest rates of between 0.75% and 2% interest per annum with the repayment period averaging 30 years. The burden on the national treasury in the form of debt servicing will now be reduced from 94% of revenue to 20% with an expectation that this will be lowered to 12% in the long run.
"We have restored this country to viability from a state of bankruptcy. We have removed the burden of debt from the backs of future generations....from all of you," he told a media briefing yesterday. But he cautions that the relief on debt service will not free up resources to be spent on wages but rather for increased spending on the social sectors, as stipulated by the international lending agencies.
But a debt stock of US$1.2B, even at concessionary interest rates, is still large and though the servicing burden has been reduced, Jagdeo said if enhanced HIPC relief is the end of multilateral debt relief, it would make sense for Guyana to start looking at alternative solutions such as debt-to-equity swaps. These are where a government owed money by another country agrees for its companies to take stakes either in the debtor's state-owned enterprises or in land for development.
A debt-for-nature swap is aimed at preserving ecologically-sensitive areas by forgiving debts on condition that these areas are preserved.
Finance Minister, Saisnarine Kowlessar, will be heading a team to a Paris Club creditors meeting in January to iron out the mechanics of the new debt relief, whether it will come as a stock write-off (principal) or a flow relief (reduction of interest).
Guyana is the ninth country to reach completion point for enhanced HIPC resources, joining Bolivia, Burkina Faso, Mauritania, Mali, Mozam-bique, Tanzania, Uganda and Benin. The HIPC initiative was launched in 1996 to allow for all creditors, including multilateral creditors, to provide resources to the poorest countries in the world. This was modified in 1999 to allow for greater relief and allowed for more countries to become eligible, including Guyana.
The debt-servicing relief that will flow next year will amount to US$42M but Guyana had started to benefit from interim relief, which is about US$15M annually. Hence the effective increase in debt relief will be about $27M in 2004. In 2005, the total relief will be US$38.1M, to be followed by US$36.2M and $33.9M in 2006/7.
The president said the new resources would be spent on health care, education, housing and water and to some extent to stimulate economic activities and to bring Guyana closer to the millennium development goals.
Guyana had in May 1999 received US$256M under the original HIPC initiative and both operations would have carried down the stock of debt of Guyana by 54% at the end of 2002. This was after Guyana had received a stock of debt treatment from Paris Club on Naples Terms.
Debt relief as well as bilateral assistance will take Guyana's debt-to-revenue ratio to 213% this year, 37% below the sustainability threshold for countries, which benefited from the arrangement under the fiscal sustainability window.
The debt, a joint statement from the IMF and World Bank says, is expected to build up over the next few years and peak at 242% of revenues in 2007, as a result of the planned sugar industry investment. But over the long run this ratio is expected to decline to about 150% in 2022. The statement says the debt-service burden will fall by 10% points of revenue to 14% of revenues next year and about 12% in the long run.
In addition to the debt relief, the World Bank provided US$13.35M in non-interest financing for the poverty reduction programme on December 11.