Natural Resource Fund will ensure secured investment of petroleum revenues – ‘Green’ paper

─ NRF will minimise risks associated with Dutch Disease, associated afflictions

─ fund will secure and build financial wealth for future generations

─ establishment of NRF will sterilise economy from boom revenues

─ Macroeconomic Committee will assess economy’s ability to absorb additional expenditures from petroleum revenues

DPI, Guyana, Tuesday, August 28, 2018

The Coalition Administration, in recognising the importance of preserving and investing some of the petroleum revenues that will be accrued when the country begins production in 2020, has sought to establish a Natural Resource Fund-NRF.

In its ‘Green’ paper on the NRF, which was laid earlier this month by Minister of Finance, Winston Jordan, the government assures that these investments will be done in a transparent and effective manner.

The NRF is similar to a Sovereign Wealth Fund (SWF) and will serve to minimise the risks associated with Dutch Disease, the resource curse and other associated afflictions.

The term Dutch Disease was coined by the Economist, in the 1970s, to describe the experience of the Dutch economy a decade after large gas reserves were discovered. The discovery resulted in significant increases in exports, but a decade later, unemployment began to increase because of falling corporate investment. Further, the increase in exports resulted in an influx of foreign currency earnings, which led to an appreciation of the local currency. Other sectors of the economy also began to suffer due to their decreased competitiveness in international markets.

The Government of Guyana, cognisant of these experiences in other oil producing nations, said the establishment of the NRF would secure and build a financial wealth of future generations, even as the current generation benefits from scaled up budgetary investments.

The fund has been recognised by the government as an effective fiscal mechanism, which together with the appropriate fiscal rule, can achieve the objectives of intergenerational savings and stabilisation.

The ‘Green’ paper advises that spending for national development be done via the National Budget and preferably under the auspices of a national development plan. Financial market investments are touted as a medium for securing future generational wealth.

Government reasons that establishment of the NRF can also help to protect Guyana from Dutch Disease by sterilising boom revenues and ensuring that export earnings from petroleum only enter the economy at a rate at which it can absorb the additional resources.

Importantly, the NRF Act will mandate the formation of a Macroeconomic Committee, comprising leading experts from the public and private sectors, as well as Academia, who will be responsible for assessing the economy’s ability to absorb the additional expenditures from petroleum revenues.

By: Stacy Carmichael

Image: Department of Public Information