Summary
Contrary to a news article by a local media entity, Guyana is no longer a heavily indebted poor country as per the IMF and World Bank’s classification. Three decades ago, Guyana was considered a heavily indebted country. It has successfully graduated out of this state before becoming an oil producer.
Guyana’s debt sustainability indicators are sound which further corroborates the argument that it is no longer a heavily indebted country.
Moreover, there is adequate fiscal space to cushion any adverse impact arising from exogenous factors―and to comfortably advance the country’s aggressive development agenda.
Background
On April 14th, 2023, an article was published in a certain section of the media with the caption “Oil-rich Guyana among five countries in the region listed as heavily indebted poor countries”. The article was based on an International Monetary Fund (IMF) World Economic Outlook Report, 2023. The contents of the article and the interpretation of the analytic metric cited from the IMF report implied that the author/journalist does not understand the analytic metric and the classification altogether. As such, Guyana’s classification as illustrated in Table E in the referenced IMF report was completely misunderstood and misinterpreted by the author/media entity.
This is despite the IMF report of itself―contained explanations of the analytic metric, the method of classification, and footnotes with explanation just below the table, all of which were completely ignored.
This article, therefore, seeks to explain the IMF’s classification and the analytic metric used in determining “heavily indebted poor countries”.
Discussion and Analysis
The IMF report in its statistical appendix explained that “emerging markets and developing economies are classified according to analytic criteria that reflect the composition of export earnings and a distinction between net creditor and net debtor economies”. The analytic criterion source of export earnings distinguishes between the categories fuel (Standard International Trade Classification [SITC] 3) and non-fuel and then focuses on non-fuel primary products (SITCs 0,1,2,3,4, and 68). Economies are classified into one of these groups if their main source of export earnings exceeds 50 percent of total exports on average between 2017 and 2021.
The financial and income criteria focus on net creditor economies and net debtor economies, heavily indebted poor countries (HIPC), low income developing countries (LICDs), and emerging market middle-income economies (EMMIEs). Economies are classified as net debtors when their latest net international investment position investment, where available was less than zero or their current account balance accumulations from 1972 (or earliest available data) to 2021 were negative. Net debtors are further differentiated on the basis of experience with debt servicing.
The HIPC group comprises the countries that are or have been considered by the IMF and the World Bank for participation in their debt initiative known as the HIPC initiative, which aims to reduce the external debt burdens of all the eligible HIPCs to a sustainable level in a reasonably short period of time. Many of these countries have already benefited from debt relief and graduated from the initiative.
Commentary
Guyana was classified as a HIPC country three decades ago but is no longer part of the HIPC programme. Guyana has already benefited from the debt relief programme and has graduated from this initiative. In this respect, the footnote below the table in the report explained that under the “Heavily Indebted Poor Countries” column, a “Dot instead of star indicates that the country has reached the completion point, which allows it to receive the full debt relief committed to it at the decision point”. In other words, the ‘dot’ below this column for Guyana (in the table) indicates that Guyana was once a HIPC country but has now graduated from the HIPC programme. On the other hand, a ‘star’ under this column would indicate that the country is still an eligible HIPC country. This is clearly not the case for Guyana.
Based on the financial and income criteria, Guyana is classified as a net debtor country and an emerging market middle-income country respectively. For simplicity, a net debtor country runs a current account deficit or an external trade balance deficit whereas a net creditor country runs a current account surplus or external trade balance surplus.
Guyana is considered a net debtor country because prior to becoming a crude oil exporting country, it has always recorded a current account or trade balance deficit. During this period, gold exports accounted for the larger share of export earnings. Following oil production in December 2019, Guyana is now a crude oil exporter resulting in a current account surplus balance. However, it is a nominal surplus to a large extent since the nominal value of crude oil exports includes 100% of the crude oil produced offshore Guyana which is reflected as part of the total export value of crude oil. Thus, the real crude oil export value that Guyana actually earns in foreign exchange (FX) is derived from Guyana’s share of profit oil and royalty.
In applying the IMF’s analytic criteria to determine whether Guyana is a net debtor or net creditor country, given that crude oil export accounts for more than 50% of total exports, by excluding this sum from total exports―this adjustment will result in a current account deficit. Hence, it is on this basis that Guyana is classified as a net debtor country though it is an exporter of crude oil with a nominal current account surplus.
In the medium to long-term, however, considering the development trajectory of the economy aimed at achieving greater national competitiveness, viz-á-viz, halving energy cost and ensuring more reliable energy, coupled with all of the investment in building out the physical infrastructure to support the growth across all sectors etc., Guyana is poised to become a net creditor country.
Debt Sustainability Indicators
Guyana’s debt sustainability indicators are sound which further corroborates the argument that it is no longer a heavily indebted country. To this end, in FY 2022, the debt-to-GDP ratio stood at 26% and external debt-to-GDP ratio stood at a record low of 11%. In 2023, debt-to-GDP ratio is an estimated 25% and external debt to GDP ratio is an estimated 12%. The debt service to revenue ratio in FY 2022 was also low at 12.5%, and external debt service to non-oil export ratio was low at 6%. Altogether, these are sound debt sustainability indicators which indicate that the country can comfortably service its domestic and external debt obligations with sufficient fiscal space available to help the country navigate any adverse impact arising from unforeseen exogenous factors.
Conclusion
In view of the foregoing, the referenced local media report incorrectly interpreted the IMF classification of Guyana as a ‘heavily indebted country’. Guyana has in fact graduated from this state and in so far as its debt sustainability indicators are concerned, these remain sound and stable. Moreover, there is adequate fiscal space to cushion any adverse impact arising from exogenous factors―and to comfortably advance the country’s aggressive development agenda.
Recommendation
These (IMF/World Bank) reports, as illustrated herein, are beyond the simplistic comprehension by journalists who do not possess the relevant technical training and background. Therefore, it is strongly recommended that media houses seek an interpretation and explanation of these often times highly technical and complex reports from the relevant professionals, in this case, a finance professional or an economist. In so doing, this will help to improve the quality of reporting on technical issues and minimize unnecessary errors.
ABOUT THE AUTHOR
Joel Bhagwandin is a financial, economic, and public policy analyst. He is also an entrepreneur with more than 15 years of experience in the financial sector and academia. Bhagwandin is also actively engaged in providing insights and analyses on a range of public policy, economic and finance issues in Guyana for the past 6+ years.
He has authored more than 300 articles covering a variety of thematic areas. Academically, Bhagwandin is the holder of an MSc. in business management with a specialism in banking and finance from Edinburgh Napier University. He is currently pursuing his second and third masters: 1) MBA (Finance) (Top-up) through Edinburgh Napier University, and 2) MSc. in Finance (Economic Policy) through the University of London.
(The views expressed are those of the author and do not necessarily reflect the official policy or position of Guyana Standard)
