Experiences Managing Public Debt in Crisis: The Case of Guyana DMF Stakeholders Forum Tunis, March 29-30, 2010 Ms. Donna Yearwood
Introduction Outline Debt Sustainability Indicators Legal Framework Capacity building Guyana s experience Impact of Capacity Priority Areas in Debt Management Lessons Drawn from Mature Economies Conclusion
Introduction Guyana experienced debt crisis in the 80 s and 90 s. The country defaulted on its external debt service in the 1980 s and its borrowing privileges with the IMF and World Bank was subsequently suspended. In 1997, Guyana entered into the HIPC arrangement under the fiscal openness criteria. It was recognised that Guyana s debt problems were due to insufficient revenues Having benefited from substantial debt relief under the original and enhanced HIPC initiatives, the MDRI, the IDB s initiative and other bilateral arrangements, Guyana has achieved debt sustainability.
Debt Sustainability Indicators NPV of Debt/Revenue and NPV of Debt/Exports are well below the sustainability benchmarks. However, the Debt to GDP remains high (in part due to undervalued GDP). Recently, the GDP has been rebased resulting in almost 40% increase from the old measure. The table below using the old measure of GDP (not rebased GDP) 2005 2006 2007 2008 2009 Total Public Debt 183.9 148.5 94.2 92.5 95.1 External Debt 147.5 114.5 65.6 66.1 70.9 Domestic Debt 36.5 33.9 28.6 26.3 24.2 NPV Public Debt 303.5 258.2 167.7 193.7 189.1 NPV External Debt 204.6 167.4 95.3 118.9 125.6 NPV External Debt 47.4 50.1 64.0 Source: International Monetary Fund Guyana: Public Debt Indicators Public Sector Debt in percent of GDP (%) Public Sector Debt in percent of Revenue (%) Public Sector Debt in percent of Exports (%)
Legal Framework Currently, Guyana has five (5) Acts which define the legal framework for Aid and Debt Management. These are: The External Loans Act of 1974 which sets the broad parameters for external borrowings of the Government. The Guarantee of Loans (Public Corporations and Companies) Act 1974 which stipulates the reporting requirements to the National Assembly of new loan guarantees. The Financial Administration and Audit Act of 1963 which deals with short term local borrowings by the Government. The General Loans Act, passed in 1941 and amended in 1965, 1975 and 1984, which stipulates the authority of the Minister of Finance regarding internal borrowing. The Fiscal Management and Accountability Act (FMAA), passed in 2003, which specifies the sources of finance available to the Government as well as stipulates the reasons the Government may borrow. Implementation Circulars (on issues such as Domestic Debt Management)
Capacity Building Guyana s experience Guyana s Debt Management Division (DMD), within the Ministry of Finance, was only formally established in 1986 but faced a number of capacity constraints, including: an unstructured environment cramped physical space few calibre and administrative staff (due to poor emoluments) minimal equipment (computers) and facilities some hostility by existing debt agencies Initial assistance in the from of computer hardware, programmes and technical assistance received from UNDP, CFTC and UNCTAD. In the early 90 s, some capacity was also built in debt renegotiation and analysis with assistance from the World Bank and COMSEC.
Capacity Building Guyana s experience With the launch of HIPC, Guyana faced serious capacity gaps in terms of doing technical analysis and the legal and institutional framework in place. Govt sought and received assistance from the HIPC Capacity Building Programme (CBP) which was funded by the governments of Austria, Canada, Denmark, Ireland, Sweden, Switzerland and the United Kingdom, and implemented by Debt Relief International (DRI) and its regional partner, such as the Centre for Latin American Monetary Studies (CEMLA). The aims of the HIPC CBP in Guyana included: assisting in designing a debt management capacitybuilding programme for the medium term, and
Capacity Building Guyana s experience Under the HIPC CBP, Guyana benefited from Institutional Missions that helped to identify weaknesses and made recommendations for improving debt management and coordination. Guyana also benefited from intensive training both abroad and in National Workshops which gave handson training in running debt sustainability analyses and development of a National Debt and New Financing Strategy. The country also benefited from expert assistance when requested and gained access to publications, newsletters and online information on debt issues The European Union and IDB gave support to revise the legal and institutional framework for debt management.
Impact of Capacity Building Guyana s debt management capacity has improved significantly, in particular in the following areas: Periodic updating of the national debt strategy. External debt recording, renegotiation and servicing. Guyana now has a very good debt recording system that allows for the generation of timely and reliable information. Its renegotiation team is highly trained and capable. Guyana now has the capability to develop and pursue a consistent and comprehensive capacity building plan. Guyana has developed capacity nationally to better perform many technical analyses on debt that could not be done previously.
Priority Areas in Debt Management Among the priority areas that will need attention are: The need to keep abreast with best practices in other LICs and new developments and initiatives internationally such as the DSF, MTDS and DeMPA tools. The need to maintain well-trained staff and reduce staff turnover. Efforts need to focus on motivating staff through monetary and non-monetary incentives. The need to develop better domestic debt strategies so as to better access domestic finance without crowding out the private sector. This is especially important given that domestic resource mobilisation will become more important for LICs in view of the developed countries reducing their aid budgets and international capital markets not so willing to lend to LICs.
Priority Areas in Debt Management Monitoring and prioritisation of grant disbursements. There is need to build analytical capacity and strengthen institutional arrangements. Monitoring and identifying priority donors and creditors. Need to go beyond the compendium of donors to encompass other strategies. Increasing coordination and concentration of resources. Government needs to ensure that there exists a deeper and broader level of coordination among the various departments currently involved in the financing and follow-up process.
Priority Areas in Debt Management Increasing coordination on macroeconomic and debt management policies. Government needs to ensure regular coordination on the macroeconomic issues exists at a high level of decision-making. Increasing the number of national experts available on macroeconomic management, poverty reduction and debt strategy issues. Enhancing the capacity of the Foreign Service. Training staff on Domestic Debt Analysis and clarifying the roles of the institutions involved in conducting DSAs.
Lessons Drawn from Mature Economies Staff Retention- In order to minimise the disruptions caused by staff turnover, the following options may be considered: Implementing viable incentives for staff such as good working conditions, competitive emoluments, comprehensive personal training programmes and a clear career path and skills acquisition. Motivating staff by allowing the DMD to have a clear mandate to advise government on debt strategy and make a real contribution to national development. Reporting and Transparency following the example of the UK and other developed countries which provide timely reports to Parliament and the wider public either through publications or online. This will help to improve confidence in the debt management system and the economy as a whole while providing for external review of the functioning of the overall public debt management system.
Lessons Drawn from Mature Economies Accountability and Auditing having annual audits of the Debt Management Office and public sector debt by an independent auditor such as in the UK. Coordination with Monetary Policy Authority maintain the effectiveness and efficiency of both monetary and fiscal policy, between the Central Bank and the Budget Office as done in many developed countries. The Central Bank of Guyana can advise on the effects debt management decisions will have on its ability to conduct monetary policy operations. This coordination among the relevant agencies may be done within the context of an overall debt strategy formulation and macroeconomic planning and may require more frequent reviews of the National Debt and New Financing Strategy.
Lessons Drawn from Mature Economies Domestic Debt Issuance Given the current difficulties that developing countries face in obtaining external financing, Guyana may consider the possibility of expanding its range of domestic debt instruments and developing the market for internal debt as was successfully done in many emerging market economies such as Brazil. However, this will require extensive training and capacity building to ensure that all agencies involved in domestic debt management are effectively integrated and capable of performing domestic debt analysis in order to avoid future debt sustainability problems.
Conclusion Progress has been made in returning Guyana to a sustainable debt position and in building debt management capacity over the years. However, more needs to be done to build and maintain debt management capacity in Guyana. A number of priority areas for action have been identified. Government needs to address these quickly so as not lose the momentum built to-date. It is important that LICs, such as Guyana, continue to assess capacity gaps and address any weaknesses since strong debt management capacity is essential in preventing countries from returning to past unsustainable debt levels.
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