Guyana: Staff Report for the 2019 Article IV Consultation—Debt Sustainability Analysis
Author: International Monetary Fund. Western Hemisphere Dept.
Publication Date:
17 Sep 2019
eISBN:
9781513514093
Language:
English
Keywords:
ISCR; CR; debt; authority; Guyanese authorities; CARTAC; nominal exchange rate; debt-to-GDP ratio; capital investment; long-term debt; service-to-revenue ratio; Oil production; Stress testing; Debt sustainability analysis; Caribbean
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2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Guyana

Abstract

2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Guyana

Public Debt Coverage

1. The coverage of public sector debt used in this report is central government debt and central government-guaranteed debt. As of end-2018, the government had guaranteed a five-year syndicated loan amounting to G$16.5 billion (2.1 percent of GDP) raised by the National Industrial and Commercial Investments Limited (NICIL) for the purpose of restructuring state-owned Guyana Sugar Corporation (GuySuCo).2 The loan, which is also secured by NICIL’s assets, carries an interest rate of 4.75 percent, placing Guyana as one of the lowest sovereign credit risks in the Caribbean.3 The government had undertaken the restructuring of GuySuCo following continued losses which resulted in heavy subsidies amounting to 1–2 percent of GDP per year from 2015–17.4 Proceeds from the privatization of GuySuCo’s estates will be used to repay this loan. The central government debt also includes borrowing from the Central Bank of Guyana, amounting to G$72.5 billion (9.3 percent of GDP) as of end-2018.5 In addition, state-owned enterprises’ (SOEs) debts are included in central government debt as these entities are not allowed to borrow directly. The central government borrows and on-lends to the SOEs. The central government does not issue explicit or implicit guarantees on sub-nationals and local governments’ debts, which are not included in the DSA. External debt is defined based on residency basis.

Coverage of Public Sector Debt

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Background

2. Total gross public debt has declined significantly over the past decade, driven by debt relief, repayments, and prudent debt management. Guyana’s total public-sector debt declined to 55 percent of GDP (including central government guarantee on NICIL’s G$16.5 billion syndicated loan) in 2018 from 61.2 percent of GDP in 2008. The IMF, World Bank (IDA), and Inter-American Development Bank (IDB) provided debt relief amounting to US$640 million in 2006– 07, under the Multilateral Debt Relief Initiative (MDRI). In addition, Paris Club bilateral creditors and some non-Paris Club creditors granted debt relief within the 2004 Paris Club agreement.6 Guyana’s rice exports to Venezuela helped repay part of its debt owed to that country under the PetroCaribe agreement. The PetroCaribe agreement was suspended since 2015 following the revival of a border dispute, and no further borrowing was made since then. The pace of public debt accumulation has slowed following the government’s commitment to containing non-essential expenditures and restraint from contracting large amounts of debt.

3. External debt accounts for two thirds of total public sector debt, mostly to multilateral institutions. Multilateral creditors accounted for around 60 percent of total external debt in 2018. The IDB is the largest multilateral creditor, followed by Caribbean Development Bank, accounting for 39.7 percent and 11.3 percent of total external debt respectively, as of end-2018. China’s state-owned Export-Import Bank is the largest bilateral creditor, comprising 16.1 percent of total external debt at end-2018. Commercial banks are the most important private creditors. Domestic debt comprises mainly Treasury bills (T-bills) and borrowing from the central bank.

uA03fig01

Guyana: External Public Debt by Creditor

(End-2018, in percent)

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

Source: Ministry of Finance.
uA03fig02

Guyana: Domestic Public Debt by Creditor

(End-2018, in percent)

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

Source: Ministry of Finance.

4. The authorities have remained committed to ensuring fiscal prudence and contracting external loans on highly concessional terms before the start of oil production. The government had been prudent in ensuring that its fiscal integrity would not be compromised by contracting large debt. It has been relying on concessional financing from Multilateral Development Banks, consistent with Staff recommendations. One instance of financing from private commercial banks was the publicly guaranteed NICIL syndicated loan to fund the restructuring of GuySuCo, which should strengthen the fiscal position over the medium-term by eliminating further government bailouts to that company.

Background on Macro Forecasts

5. Guyana is poised to be the major crude oil exporter in the Caribbean by 2020 as further oil discoveries have been made since 2015. ExxonMobil made a significant offshore oil discovery in 2015, conservatively estimated to hold between 800 and 1,400 million barrels. A recent 13th offshore discovery has been made in the Stabroek Block, adding to existing recoverable resources of approximately 5.5 billion oil-equivalent barrels, estimated by ExxonMobil. The oil company and its partners have also indicated potential for at least five floating production, storage and offloading vessels on the Stabroek Block producing more than 750,000 barrels/day (bpd) by 2025. The government has plans to undertake a third-party area reviews to ascertain the country’s total oil reserves. The existing associated gas is being considered for the domestic market, allow Guyana to replace the heavy fuel oil (HFO) currently used for power generation.

6. Commercial oil production is expected to start in the first quarter of 2020 as planned. Liza Phase I will begin in the first quarter of 2020, averaging 102,000 bpd during that year. Liza Phase II is estimated to commence production in 2022, starting with an average output of 108,000 bpd. Additional discoveries have been made but their oil production prospects are not known at this time and thus, are excluded in the baseline.

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Guyana: Oil Production and Government Oil Revenue 1/

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

Sources: Authorities, data: and IMF staff calculation.1/ Based on projections on Liza Phase I and II only.

7. The main direct effect of oil on the economy will be through fiscal revenues. Under the revenue-sharing agreement, 75 percent of oil production is initially allocated to “cost recovery” to ExxonMobil and its partners. The remaining 25 percent is considered “profit oil” and is shared 50–50 with the government. The agreement sets a royalty of 2 percent on gross earnings, which brings the government share to 14.5 percent of total oil revenues. The government share will increase substantially once cost recovery on the initial investment is met, and most of production consists of “profit oil.” As the breakeven price for Liza Phase II is relatively low at around US$35 per barrel, it would take a major adverse price shock to delay its development plans. Upside potential remains considerable with prospects for new offshore oil discoveries in other blocks besides Stabroek, and many companies have expressed interest for the ultra-deep offshore block.

8. The assumptions in the baseline scenario are consistent with the macroeconomic framework presented in the staff report. As in the 2018 DSA, the baseline scenario incorporates the macroeconomic effects of oil through fiscal revenues and value added to domestic economic activities through employment and capital flows.7 The discount rate used to calculate the net present value of external debt remains at 5 percent, consistent with the 2018 DSA and other LIC economies. The main assumptions are:

  • Real GDP growth is projected at 16.7 percent, on average, during 2018–28. The projection takes into account three factors: (i) contribution of oil production starting from 2020 as Liza Phase I begins operation and Liza Phase II commences in 2022; (ii) stimulus to the domestic economy from an increase in central government developmental and capital spending to address social development and infrastructure needs, supported by oil revenues; and (iii) broadening of growth of the domestic non-oil sectors, benefitting from public capital investment, which improves infrastructure, connectivity, and efficiency. It also assumes a fiscal responsibility framework-consistent with the rule already in place governing transfers from the National Resource Fund (NRF) to the budget—that targets an overall balanced budget from 2022 onwards, by ensuring that the non-oil overall deficit do not exceed fiscal transfer from the NRF. This minimizes the “Dutch” disease crowding out effects on private investment and consumption while ensuring long-term fiscal sustainability and the accumulation of assets in the NRF as a buffer against shocks and for future generations.

  • Inflation (measured by CPI) is projected to average 2.8 percent during 2018–28, slightly higher than the previous DSA projection to capture the structural rigidities associated with capacity constraints as the government increases spending to address infrastructure gaps and social development needs.

  • Fiscal outlook: The ten-year forward-looking central government overall fiscal position is expected to average -0.9 percent of GDP, reflecting an overall balanced budget from 2022 onwards (in line with the fiscal path described above) compared to the assumption of accumulating surpluses in the 2018 DSA.8 This allows some front-loading of government spending to address infrastructure gaps and social development needs, and ensures that the accumulation of assets in the NRF will not be offset by the accumulation of public debt.9 It is assumed that the path of ramping up public spending would be gradual given the need to address capacity constraints and minimize macroeconomic distortions related to “Dutch” disease. Going forward, external financing is also not required as capital and current expenditures will be met by oil revenues and non-oil revenues.

  • External sector outlook: The current account balance is projected to worsen to a deficit of 5.3 percent of GDP, on average, during the forecast period due to high value imports of oil-related equipment and services. However, the flow of foreign direct investment will increase, by an average 11.1 percent of GDP, reflecting mainly the private sector financing of these oil-related imports and oil exploration activities.

Guyana: Baseline Macroeconomic Assumptions

(In percent of GDP, unless otherwise stated)

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Sources: Guyanese authorities, IMF staff calculations and projections.

Measured as percent (y/y) change.

After grants.

The deterioration in external current account balance reflects high value imports of oil goods and services for 2018 onwards.

9. The favorable outlook is subject to downside and upside risks. The significant challenges associated with measuring economic performance amid major structural changes could cause reported outturns to differ from the baseline.10 Also, on the downside, increased dependence over time on oil revenue could expose the economy to oil price volatility. In addition, excessively rapid increases in government spending from oil revenues could subject Guyana to the “natural resource curse,” with significant inflationary pressures, eroding competitiveness, and governance concerns. A slowing global economy could also affect non-oil exports, particularly sugar, rice, and other commodities. On the upside, further oil discoveries and production, if managed effectively, could significantly improve Guyana’s economic welfare over the long-term. Concrete measures are needed to address issues relating to capacity constraints to mitigate the risks of under-execution of public capital investments.

10. The realism tools support the reasonableness of our projections, in line with historical and peer experiences, and expected structural changes in Guyana’s economy with the emergence of significant oil production.

  • Forecast errors (Figure 3): In the past, changes in both public- and publicly-guaranteed (PPG) external debt and public debt are largely due to economic performance. This factor continues to be a major determinant underpinning the changes in debt levels in our forecast. For the projection of PPG external debt, FDI is now a significant contributor, consistent with large FDI inflows arising from oil production and continuing exploration. Forecast errors of our past debt estimates (measured as the difference between actual and anticipated contributions on debt ratios) suggest that that we have been conservative—our estimation of PPG external debt and public debt had been higher relative to their actual levels compared to the distribution of other LIC economies.

  • Realism of fiscal adjustment (Figure 4): The three-year adjustment in the primary balance of 2 percentage point of GDP is consistent with our recommendation to a adopt fiscal responsibility framework that targets an overall balanced budget It is worth noting that fiscal policy will remain expansionary in the three years, supported by the new-found oil wealth.11 The baseline growth path in 2020 is higher than implied under different fiscal multipliers due to the start of oil production which leads to a significant increase in exports, fiscal revenue, and FDI. This is consistent with the chart which shows significantly higher contribution of other factors (namely private capital from ExxonMobil and other oil-related companies) to economic growth compared to public capital. In addition, the chart on public and private investment rates shows that private investment will pick up gradually from 2022 onwards, in line with our current DSA assumption of a gradual increase in public capital spending which mitigates “Dutch” disease.

Figure 1.
Figure 1.

Guyana: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2019–2029

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Guyana: Indicators of Public Debt Under Alternative Scenarios, 2019–2029

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

* Note: The public DSA allows for domestic financing to cover the additional financing needs generated by the shocks under the stress tests in the public DSA. Default terms of marginal debt are based on baseline 10-year projections.Sources : Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2029. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Guyana: Drivers of Debt Dynamics – Baseline Scenario External Debt

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs were produced.3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 4.
Figure 4.

Guyana: Realism Tools

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

Figure 5.
Figure 5.

Guyana: Qualification of the Moderate Category, 2019–2029 1/

Citation: IMF Staff Country Reports 2019, 296; 10.5089/9781513514093.002.A003

Sources: Country authorities; and staff estimates and projections.1/ For the PV debt/GDP and PV debt/exports thresholds, x is 20 percent and y is 40 percent. For debt service/Exports and debt service/revenue thresholds, x is 12 percent and y is 35 percent.

Country Classfication and Determination of Scenario Stress Test

11. Guyana is assessed to have a “medium” debt carrying capacity. Based on the April 2019 WEO macroeconomic framework, the country’s composite indicator (CI) score is 3.01, within the range of 2.69–3.05 for “medium” rated countries. From the 2018 Guidance Note on The Bank-Fund Debt Sustainability Framework for Low Income Countries, the relevant indicative thresholds for public and publicly guaranteed (PPG) external debt in this category are: 40 percent for the PV of debt-to-GDP ratio,180 percent for the PV of debt-to-exports ratio, 15 percent for the debt service-to-exports ratio, and 18 percent for the debt service-to-revenue ratio. The benchmark of the PV of total public debt for “medium” debt carrying capacity is 55 percent.

Guyana: Debt Carrying Capacity Under the Composite Indicator Index

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Guyana: Composite Indicator Index Thresholds

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12. The stress test for combined contingent liability shock adjusts the default setting for public–private partnership (PPP) debt. The authorities indicated no PPP debt outstanding as of end-2018 and any financing requirements by developmental agencies are met directly through central government borrowing. The World Bank Investments in IDA Countries Report also shows no outstanding PPI investments and projects in Guyana from 2013–17.

Guyana: Combined Contingent Liability Shock

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The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country’s public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE’s debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%.

Debt Sustainability Analysis

A. External PPG Debt

13. Under the baseline scenario, all external PPG debt indicators remain below the policy relevant thresholds for the next ten years (Figure 1). The PV of debt-to GDP ratio is expected to decline gradually from 22 percent in 2019 to 3 percent in 2029 as existing debt is being amortized and the need to incur additional new external debt is significantly reduced with the incoming oil revenues to the central government starting from 2020 onwards.

14. The standardized stress test shows that combined shocks have the largest negative impact on the debt trajectory, causing a breach of the threshold for the PV of debt-to-GDP ratio in the immediate-term which normalizes in the medium-term. The combined shocks include temporary shocks to real GDP growth, primary balance, exports, other flows (including current transfers and FDI), and nominal exchange rate depreciation.12 Under these shocks—a very extreme scenario—the PV of debt-to-GDP ratio could increase to 145 percent in the first year after the shocks, rising to 183 percent in the second year before declining gradually to 56 percent in 2029. In addition, the combined shocks which include a large nominal exchange rate depreciation13 could also result in the PV of external debt service-to-revenue ratio breaching its threshold in 2021. Significant shocks to exports could also potentially lead to a temporary breach in the PV of debt-to-exports ratio in 2021 and 2022.

15. The results suggest that the risk of external debt distress remains moderate although in the baseline scenario, all sustainability indicators remain below their vulnerability thresholds. It is important to note that the breaches in the ratios of PV of debt-to-GDP, PV of external debt service-to-revenue, and PV of debt-to-exports are caused by shock assumptions which, under current and anticipated developments in Guyana, may be less relevant and probable.

  • External debt-to-GDP: One reason for the PV of debt-to-GDP ratio threshold breach is that the sensitivity analysis neglects the high real GDP growth in 2020 (as if oil production in Liza Phase I did not start).14 The historical standard deviation may be distorted by the underestimation of GDP, imports, and FDI in years prior to the start of oil production as the authorities’ current data on the national accounts and balance of payments do not reflect foreign companies’ investments in developing Guyana’s offshore oil resources during the preparatory phase. Thus, while this scenario is meant to capture large but plausible adverse shocks, in this case it is mainly removing the level effect on GDP of going from no oil production to becoming an oil producer.

  • External debt service-to-revenue ratio: The assumption of a one-time 30 percent nominal exchange rate devaluation in 2021 is not reflective of Guyana’s current economic cycle and past exchange rate path (the steepest exchange rate depreciation since 1990 was 11 percent, in 1998). On the contrary, the start of oil production in 2020 will substantially increase international reserves and may create significant appreciation pressures on the Guyanese dollar.

  • Debt-to-exports: The shock on exports is distorted by the high standard deviation of export growth in the historical data due to the high share of commodity exports (85 percent of total exports), high volatility of commodity prices, and a few idiosyncratic shocks (e.g. the suspension of rice exports to Venezuela, and the collapse of the sugar sector).

16. Guyana has substantial space to absorb shocks, reflecting the current low level of external debt. Figure 5 shows that all debt burden indicators in the baseline scenario are well below their respective thresholds. Only shocks in the upper quartile of the observed distribution of shocks would downgrade the country to high risk of debt distress.

B. Public Sector Debt

17. Under the baseline scenario, the PV of public debt-to-GDP ratio does not breach the 55 percent vulnerability threshold (Figure 2). The PV of debt-to-GDP ratio is expected to decline gradually from 46 percent in 2019 to 6 percent in 2029 as existing debt is being amortized and the need to incur large additional new external debt is significantly reduced with the increasing oil revenues as well as the fiscal responsibility framework that targets an overall balanced budget.

18. The standardized stress test shows that the largest shock that leads to the highest PV of debt-to-GDP ratio in 2029 is the shock to real GDP growth. Under this shock, the debt ratio could reach 122 percent of GDP in 2020.15 In addition, commodity price shock could result in a breach of the vulnerability threshold in 2026, pushing the PV of debt-to-GDP ratio to 68 percent in 2020. The vulnerability to such a shock highlights the importance of structural reforms to diversify the domestic economy to ensure broad-based growth and reduce over-reliance on oil which could lead to large volatility in economic growth. The susceptibility these shocks also underscore the importance of adopting a fiscal responsibility framework to safeguard long-term debt sustainability.

Conclusion

19. The debt sustainability analysis under the new LIC DSF framework suggests that Guyana’s risk of external and overall debt distress remains moderate. While the country’s debt dynamics improve considerably under the baseline, it remains vulnerable under the standardized stress test. In the baseline scenario, debt indicators remain well below their respective vulnerability thresholds over the projection period. The PV of external debt-to-GDP ratio is projected to decline to around 3 percent in the long run as the need for external borrowing is eliminated by the accumulation of external assets. However, stress tests indicate that Guyana’s external public debt ratio is vulnerable to an extreme shock which combines simultaneous shocks to real GDP growth, primary balance, exports, other flows (current transfers and FDI), and nominal exchange rate depreciation as well as second order effects arising from interactions among these shocks. While some of these shocks are less probable given the distortions in the historical standard deviations used in the stress test, it highlights the importance of structural reforms to diversify and strengthen the domestic economy and reduce over-dependence on oil which could exacerbate economic growth volatility. At present, Guyana has substantial space to absorb shocks, reflecting the current low level of external debt. While the NRF Act enshrines a budget transfer rule that ensures fiscal transfers are determined by the expected financial return on the NRF in the long-run, a complementary fiscal responsibility framework is needed to ensure that fiscal policies remain disciplined in line with the principle underlying the budget transfer rule, which in turn is necessary to safeguard debt sustainability and the accumulation of net wealth (that is, asset accumulation without a corresponding accumulation of public debt) in the NRF.

Authorities’ Views

20. The authorities agreed with the debt sustainability assessment under the new framework and are committed to preserving fiscal discipline. They noted that prudent fiscal policies over the last 5 years had helped reduce the debt-to-GDP ratio, from 61.2 percent in 2008 to 55 percent (including central government guarantee on NICIL’s G$16.5 billion syndicated loan) in 2018. Nevertheless, the authorities recognized that extreme shocks emanating from external risks such as fluctuations in global commodity prices and capital flows could put pressure on the domestic economy. As such, they are committed to maintaining fiscal prudence to ensure enough buffers to weather such shocks. They concurred with staff’s recommendation of adopting a fiscal framework that anchors fiscal policy by constraining the annual non-oil deficit to not exceed the expected transfer from the NRF as this will ensure that public debt does not rise. To improve public financial management, the authorities intend to adopt rigorous project selection, prioritization and costing criteria that will also inform multi-year budgeting. They indicated that they would consider other mechanisms to further improve fiscal transparency and have requested further information on the Fiscal Transparency Evaluations.

Table 1.

Guyana: External Debt Sustainability Framework, Baseline Scenario, 2016–2039

(In percent of GDP, unless otherwise indicated)

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Sources : Country authorities; and staff estimates and projections.1/ Includes both public and private sector external debt.2/ Derived as [r – g – ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt.3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation ad justments. For pr ojectio ns also includes contribution fro m price and exchange rate changes.4/ Current-year interest payments divided by previous period debt stock.5/ Defined as grants, concessional loans, and debt relief.6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).7/ Assumes that PV of private sector debt is equivalent to its face value.8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.Notes: The residuals reflect external debt comprising mainly concessional borrowing with long-term maturities. Projected real GDP growth in 2020 is potentially overstated and subject to large subsequent revisions because of the very high growth rate of oil GDP, which in turn is elevated on account of the very low (zero) base in 2019. Hence, even small changes to the projected oil output in 2020 would result in large changes in real oil GDP and overall real GDP growth rates. Work is ongoing to rebase the real GDP series to account for oil-related activities since 2015 in advance of actual oil production in 2020. The GDP deflator in 2020 reflects deflators in the non-oil and sectors. The deflator in the oil sector accounts for prices of ancillary services relating to oil production, in addition to oil price projections.
Table 2.

Guyana: Public Sector Debt Sustainability Framework, Baseline Scenario, 2016–2039

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections.1/ Coverage of debt: The central government plus social security, government-guaranteed debt . Definition of external debt is Residency-based.2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections.3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt.4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows.5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question.6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Guyana: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2019–2029

(In percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Guyana: Sensitivity Analysis for Key Indicators of Public Debt, 2019–2029

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

1

This DSA was jointly prepared by IMF and World Bank staff under the new debt sustainability framework (DSF) for low-income countries (LICs), implemented since July 2018. The debt-carrying capacity is classified using the country-specific composite indicator (CI) derived from three macroeconomic indicators and the World Bank’s Country Policy and Institutional Assessment (CPIA). Guyana’s capacity is assessed as “moderate” using the CI based on the April 2019 WEO and the 2017 CPIA.

2

NICIL was incorporated as a Private Limited Company under the Companies Act of 1991 and is 100 percent owned by the Government of Guyana.

3

The spread was broadly in line with investment-grade countries in the region. For example, Trinidad and Tobago’s US$ sovereign bond maturing January 16, 2024 (rated BBB+ by S&P) traded at a yield-to-maturity of 4.36 percent at the point when NICIL raised the syndicated loan.

4

The restructuring of GuySuCo is ongoing as offers have been received for the privatization of 3 of the 6 sugar estates, and all severance payments have been made to the 5,500 displaced workers.

5

The central bank does not borrow externally on behalf of the central government.

6

Debt relief under the Heavily Indebted Poor Country (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) was granted by all multilateral creditors, by Paris Club bilateral creditors, and five non-Paris Club creditors (China, India, Venezuela, Bulgaria, and Cuba). Debt owed to Brazil and North Korea was paid off without relief.

7

Based on staff projections for Liza I and II from the Fiscal Analysis of Resource Industries (FARI) Model with inputs from the authorities, taking into consideration oil royalty and production profit-sharing with ExxonMobil, and the fiscal rule in the NRF Act.

8

The framework assumes accumulation of assets in the NRF following the provisions of the NRF Act.

9

The zero-overall balance framework will also allow a gradual repayment of the central bank overdraft.

10

Projected real GDP growth in 2020 is potentially overstated and subject to large subsequent revisions because of the very high growth rate of oil GDP, which in turn is elevated on account of the very low (zero) base in 2019. Hence, even small changes to the projected oil output in 2020 would result in large changes in real oil GDP and overall real GDP growth rates. Work is ongoing to rebase the real GDP series to account for oil-related activities since 2015 in advance of actual oil production in 2020.

11

While the overall fiscal deficit will narrow and move to a balanced budget, the ratio of non-oil deficit to non-oil GDP (often used to measure fiscal stance in oil-exporting countries) would be widening gradually over the medium term, indicating a sustained expansionary fiscal stance.

12

Section VI of the 2018 Guidance Note provides further details.

13

Assumes a one-time 30 percent nominal depreciation of the domestic currency in the second year of the projection period, or the size needed to close the estimated real exchange rate overvaluation gap, whichever is

14

The standardized shock on real GDP growth is set to its historical average minus one standard deviation, or the baseline projection minus one standard deviation, whichever is lower for the second and third years of the projection period.

15

As in external debt, this standardized sensitivity analysis totally neglects the high real GDP growth in 2020 and treats as though oil production in Liza Phase I does not exist.

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Other Publishers

Cover IMF Staff Country Reports
Guyana: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Guyana
Author: International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2019: Issue 296
Publisher:
International Monetary Fund
ISBN:
9781513514093
ISSN:
1934-7685
Pages:
91
DOI:
https://doi.org/10.5089/9781513514093.002

Guyana: External Public Debt by Creditor

(End-2018, in percent)

Guyana: Domestic Public Debt by Creditor

(End-2018, in percent)

Guyana: Oil Production and Government Oil Revenue 1/

Guyana: Indicators of Public and Publicly Guaranteed External Debt under Alternatives Scenarios, 2019–2029

Guyana: Indicators of Public Debt Under Alternative Scenarios, 2019–2029

Guyana: Drivers of Debt Dynamics – Baseline Scenario External Debt

Guyana: Realism Tools

Guyana: Qualification of the Moderate Category, 2019–2029 1/