Gov’t wants Guyanese to secure financing with contracts as collateral

Vice President, Dr. Bharrat Jagdeo has announced that the PPP/C Government will devise a plan that would see Guyanese securing financing from banks, using contracts as collateral.  

For context, the term collateral refers to an asset that a lender accepts as security for a loan. Collateral may take the form of real estate or other kinds of assets, depending on the purpose of the loan. The collateral acts as a form of protection for the lender. That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.

“This issue came up in the consultations with the local companies. A lot of them win a contract, but they can’t raise money using the contract. That has a lot to do with our commercial banks and the instruction from the Central Bank on how we treat collateral and what we can use as collateral.

We would have to work to ensure an arrangement where people can raise funds against verified contracts or contracts that they have already won. This happens in some countries,” the Vice President articulated during a press conference on Thursday afternoon.

Dr. Jagdeo mentioned that the commercial banks are willing to facilitate this route if it is chosen.

Because of the capital-intensive nature of the oil and gas sector, locals have to compete with established international companies that have easier access to capital. Since the oil and gas industry is still new to Guyanese and the level of capital required is high, locals have difficulty accessing capital.

While the local content act sets aside strong targets to provide for local involvement in the sector, the government’s decision to finance the budget with oil revenues this year will help to provide easier access to capital for local companies. This is because previous budgets relied heavily on domestic borrowing, forcing the local private sector to compete with government for loans.

During a prior engagement, the Vice President said that a reduction of competition in this regard will reduce the upward pressure to which interest rates have been historically subjected. Banks will now have to find creative ways to lend their money and new borrowers.

Importantly, former head of the National Industrial and Commercial Investments Limited (NICIL), Winston Brassington had said that as the government continues to aggressively develop its resources in the oil and gas sector, there will inevitably be a massive influx of revenues for Guyana.