Drafting of NRF Act indicates intent to be fiscally prudent in management of petroleum sector – ‘Green’ paper
─ drafting of NRFA required critical work to explore options for a fiscal rule
─ fiscal rule outlines principles and requirements that will govern the amount that can be withdrawn from Natural Resource Fund- NRF in any given year
─ collaborations, technical support and capacity building initiatives guided the development of the proposed fiscal rule
─ fiscal rule crafted to be macro-fiscally prudent and to minimise Guyana’s risk exposure to the ‘resource curse’
DPI, Guyana, Monday, August 27, 2018
Government says the drafting of the National Resource Fund (NRF) Act is another indicator of its intention to be guided by fiscal prudence in the management of petroleum resources and revenues.
This is clearly outlined in the ‘Green’ paper titled “Managing Future Petroleum Revenues and Establishment of Fiscal Rule and a Sovereign Wealth Fund” laid in the National Assembly on August 8.
The ‘Green’ paper highlights that the drafting of the NRFA required critical work to explore options for a fiscal rule. This fiscal rule would outline the principles and requirements that will govern the amount that can be withdrawn from the Natural Resource Fund- NRF in any given year.
Adherence to the fiscal rule will secure the sustainability of the NRF in the process, ensuring that it can fulfil the stated objectives. Given its importance, the Ministry of Finance has fielded multiple missions from the International Monetary Fund (IMF).
This began with an in-country scoping mission, in the second half of 2017, and most recently, in March 2018. The former focused on the need to strengthen capacity for the management of future oil revenues, assisting in the design of a roadmap for fiscal reforms leading up to first oil in 2020, and related public financial management reforms.
The second mission served to quantify and model the terms of the existing production sharing agreement (PSA) from known and potential investment decisions within the Stabroek Block.
The ‘Green’ paper states further that these collaborations, technical support and capacity building initiatives have served to guide the development of the proposed fiscal rule, which is crafted to be macro-fiscally prudent and to minimise Guyana’s risk exposure to the ‘resource curse’.
The ‘resource curse’ refers to the proposition that countries with an abundance of natural resources tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources.
The historical risks such as Dutch Disease and resource curse, which are associated with natural resource revenues of a significant scale, make it important that government ensures its sustainable use to support both near-term and long-term national development and future generations.
The Coalition Government says it recognises the importance of youth in shaping Guyana’s future, and the imperative of providing a secure future for their children and their children’s children, long after petroleum resources are exhausted and is taking steps in this regard.
“To mitigate the serious risks that arise in an economy due to petroleum revenues, a fiscal rule is needed to ensure that public spending is delinked from the volatility of oil revenues and prudently invested to guarantee an equitable intergenerational distribution of wealth in perpetuity,” the paper stated.
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