Consumption of the NRF will cause government to take on additional external and domestic borrowing
Guyana finds itself in an unenviable position by not receiving its Corporation Tax Revenue, calculated under the requirements of the Production Sharing Agreement signed in 2016 and under its Taxation Laws, taking a back seat. In the end result, the amount of taxes owed by the oil companies are not paid to its Treasury. This missing Current Revenue has prevented the Central Government Budget from generating a savings on Current Account that could have helped to finance its national development in economic infrastructure, such as roads and bridges and social infrastructure, such as schools, hospitals and their staffing, along with security and maintenance. Without its Corporation Tax Revenue, the oil companies are taking a free ride on all of Guyana’s infrastructure. Government is cornered into using up its Natural Resource Fund (NRF) to help finance its infrastructural projects outlined in its Capital Budget for 2024: ‘Government’s plans for massive hikes in the domestic and external debt ceilings and a steep rise in extractions from the NRF’ (SN: 2024, January 28).
The using up of the NRF is causing government to take on additional external borrowing and now we see that it also causes a required increase in its domestic borrowing, competing with the Private Sector borrowing. An increase in domestic loans and advances as government borrowing from the banking system, without an expansion of printed money, raises a further question for the intended uses of the loans and advances. Will the borrowings be used to pay for imports of FPSO ships? The offshore FPSOs ships are counted as Guyana’s imports. Are these acquired assets also funded from the banking system and recovered as a cost item by the oil companies? The missing
Profits Tax Revenue to fund infrastructure and pay for all of government imports is causing the Central government to hit the ceiling on its domestic and external debt limits. Further clarification is needed on the uses of government borrowing.