Analysis and News

Guyana’s Ministry of Finance aims to Progressively Strengthen Public Debt Management while Securing Financing Needs

BY GEOCAP's Contributor: Richard Bhainie

“The year 2020 brought its fair share of fiscal and debt management challenges. However, out of these challenges emerged opportunities to improve practices, strengthen systems and revolutionise the existing institutional architecture. Through the pursuit of several transformational initiatives, along with responsible debt management practices, we endeavour to consolidate the long-term sustainability of Guyana’s debt,” Guyana’s Senior Minister in the Office of the President with Responsibility for Finance, Ashni Singh said in the country’s Public Debt Annual Report 2020.

The Ministry of Finance, Guyana, has recorded a 230.8 percent increase of the country’s domestic public debt stock, which amounted to $264.6 billion at the end of December, 2020, as compared to the previous period figure of $80 billion.

The country’s Public Debt Annual Report 2020 attributed the increase to two factors; namely the transfer of the National Industrial and Commercial Investments Limited (NICIL) Fixed-rate Bond to the books of Central Government and the inclusion of the Central Government gross overdraft at the Bank of Guyana as part of the domestic debt stock.

It was also reported that an increase in the stock of treasury bills by some 12.9 percent, mainly due to new issuances for the purpose of financing COVID-19 related spending, also contributed to the growth in domestic debt.

“In May 2018, the government at the time had guaranteed a 5-year Fixed Rate Bond, issued by NICIL for an amount not exceeding $30 billion, of which $17.6 billion was issued. NICIL met all of the required Bond payments until July 2020, when a payment was made under the second of the 2 tranches,” the report stated.

In November 2020, a decision was taken by the country’s Cabinet to transfer all outstanding liabilities under this Bond, amounting to $15,438,149,281 (Principal of $14,080,000,000 and Interest of $1,358,149,281), to the books of the Central Government, given NICIL’s inability to meet the requisite debt service obligations.

Further, in an effort to strengthen fiscal management, The Cabinet decided to include a large gross overdraft at the Bank of Guyana, amounting to $163.3 billion in December 2020, as part of the domestic debt stock and separate from the new additions to the domestic debt stock, treasury bills issuance, mainly for fiscal purposes, increased from $71.9 billion to $80.9 billion.

“Notably, the inclusion of the NICIL Bond and government overdraft in the stock of domestic debt necessitated an increase in the domestic debt ceiling. Consequently, the domestic debt ceiling was increased from $150 billion to $500 billion in February 2021,” the report said.

“The new ceiling allows both for the inclusion of the above-mentioned liabilities in the stock of domestic debt, and the contraction of new financing for government’s development initiatives, all while maintaining debt sustainability,” it added.

The Finance Ministry reported that for the review period, no new domestic loans were contracted. The only existing domestic loan is repayable semi-annually to the National Insurance Scheme (NIS), and will mature in 2025; it was also reported that the balance on this loan decreased by 16.7 percent, or from $212.9 million to $177.4 million, as a result of principal repayments.

“At the end of 2020, domestic securities accounted for almost the entire domestic debt portfolio, while the domestic loan was a meagre 0.1 percent of total domestic public debt. Meanwhile, the share of securities grew by 0.2 percentage points,” the report stated.

The banking sector continued to be the largest holder of domestic public debt, accounting for a 92.5 percent share. This represented an increase of 9.8 percentage points, resulting from the Central Government’s debt, through the overdraft with Bank of Guyana, which was brought onto the domestic portfolio; however, commercial banks have been ranked the second largest holder of domestic debt instruments, it continued to hold the largest share of T-Bills of about 86.4 percent.

“Within the banking sector, the commercial banks were traditionally the largest holders of domestic debt instruments. However, at end-2020, their holdings of domestic debt instruments stood at 28.9 percent, representing a decrease of 46.7 percentage points relative to one year earlier,” the report said.

The remaining two institutional sectors - pension funds, comprised the National Insurance Scheme (NIS) and private pension funds, and the “other category”, made up of both private and public, financial and non-financial institutions, accounted for 3.2 percent and 4.3 percent of total domestic public debt, respectively.

Also for the period, the share of domestic debt contracted on a fixed interest rate basis was 98.5 percent, comprising mainly of treasury bills. The share of floating interest rate debt was 1.5 percent and when compared to 2019, the fixed interest rate debt grew by 3.4 percentage point - simultaneously, the floating interest rate debt contracted by the same percentage points.

The Ministry reports that for 2020, the ‘365-day Treasury Bill’ was the most issued tenor. The outstanding treasury bills under this tenor increased by about 6.6 percent or $4.6 billion, mainly as a result of increased issuance to finance COVID-19 related expenditures.

“During 2020, Treasury Bills were issued for both monetary and fiscal policy purposes. At end-2020, $78.2 billion or about 99.6 percent of the stock of Treasury Bills was issued for fiscal purposes,” the report stated.

“This is indicative of government’s increased use of Treasury Bills to finance its operations. The stock of fiscal Treasury Bills increased by $9.6 billion or about 14 percent. On the other hand, Treasury Bills issued for monetary purposes decreased by $352.4 million or about 11.3 percent,” it added.

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