Earnings from Guyana’s oil resources being prudently utilised – Report
Withdrawals from the Natural Resource Fund (NRF) are clearly aligned with the government’s development priorities as identified in the National Budget.
This is according to a detailed report released on August 2 by Joel Bhagwandin MSc, Director of Financial Advisory, Market Intelligence and Analytics at SphereX Analytics.
According to the report, the governance structure of the Natural Resource Fund Act satisfies the requirements of the Santiago Principles which is “a voluntary set of 24 guidelines designed to promote good governance, accountability, transparency, and prudent investment practices as well as maintain a stable and open investment climate.”
“The national development priorities of the country are clearly outlined by the government, in its manifesto, the LCDS, budget presentations, policy positions, and demonstrated through the types of policies being pursued within the broad framework of its development agenda,” the report stated.
This report comes amid concerns that the earnings from Guyana’s oil resources may not be utilised prudently, questions of specificity regarding the expenditure of the withdrawals from the NRF in certain sections of the media, as well as concerns on whether Guyana has sufficient safeguard in place to avert the mistakes made by other countries.
The report stated that the NRF Act of 2019, placed full management responsibility on the finance minister, which deviated from the Santiago Principles and compromised “transparency, accountability and good governance of the fund.”
There were some changes in the 2021 act, with this changing to a Board of Directors comprising a minimum of three and a maximum of five persons appointed by the President, and guided by the legislation on how the fund ought to be managed.
“The ultimate oversight body of the fund is the National Assembly, the Public Accounts Committee, the Central Bank/Bank of Guyana, the Board of Directors, the Public Accountability and Oversight Committee which by design will exercise non-governmental oversight, and the Ministry of Finance. With respect to transparency and accountability, the Act mandates monthly, quarterly, and annual reporting,” Bhagwandin’s report further stated.
In addition, the annual report has to be tabled in the National Assembly, while the fund is subject to both internal and external audits.
The Board, cannot (legally) deviate from the investment mandate of the fund as stipulated by the Act.
Therefore, “the 2021 Act is in line with a more prudent structure from a transparency and accountability perspective as well as a governance standpoint,” the report stated.
Withdrawal from the Fund
In accordance with the Act, “all withdrawals from the NRF to finance the National Budget are subject to approval by the National Assembly. Once the budget is approved, only then the withdrawal can be effected, and this is done, not all at once, but throughout the fiscal year in various sums.”
And, all withdrawals from the NRF have to be deposited into the Consolidated Fund.
The withdrawal rule of the fund is not calibrated to withdraw all of the monies from the NRF.
“The upfront drawdown from the fund is necessary to accelerate Guyana’s massive development agenda in infrastructure (new roads and bridges, social infrastructure, health care, education, national security, and ICT etc.), all aimed to modernise and transform the economy and diversify the economy,” the report added.
Budget 2023 sources of funding
This year the Natural Resource Fund account for 27 per cent of the 2023 National Budget funding amounting to $208.9 billion.
According to the act, NRF withdrawals shall be used for financing of National development priorities including any initiative aimed at realising a green economy and essential projects that are directly related to ameliorating the effect of a major natural disaster.
According to Guyana’s National Budget 2023, its development priorities are the Gas-to-energy project, roads and bridges, air transport, river transport, sea and river defence, education, and housing development, all of which a percentage will benefit from the withdrawals from the NRF.
Other sources of funding are Debt Finance, Tax Revenue, Non-Tax Revenue and Carbon Credit inflow.
Investment
The NRF Act also establishes the “eligible investment, the minimum investment in very safe investments, investment for long-term savings, passive investment management, and the investment mandate of the fund. Investment of fund applies to the balance net of withdrawals to finance the national budget. To this end, the Bank of Guyana which is vested with the operational management authority for the NRF, publishes monthly, quarterly, and annual reports,” the report stated.
The report concluded that the “national development priorities of the country are clearly outlined by the Government, in its manifesto, the LCDS, budget presentations, policy positions, and demonstrated through the types of policies being pursued within the broad framework of its development agenda. The withdrawals from the NRF can be clearly aligned with these priority areas identified in the national budget.”