NRF Bill sets transparent provisions for use of Guyana’s oil money

The first schedule to the Natural Resource Fund Bill 2021, sets simple rules for the ceiling on withdrawals from Guyana’s Sovereign Wealth Fund, making the system easy for everyone to understand.

This follows a commitment from Senior Minister in the Office of the President with responsibility for Finance, Dr. Ashni Singh, that the rules would be simpler.

Senior Minister in the Office of the President with responsibility for Finance, Dr. Ashni Singh

The Bill which was tabled in the National Assembly on Thursday, states that in any given year, the government may withdraw 100 per cent of the first US$500 million of deposits from the previous fiscal year, 75 per cent of the second US$500 million, 50 per cent of the third, 25 per cent of the fourth, 5 per cent of the fifth, and 3 per cent of any amounts in excess of the first two US$500 million.

For cases when the actual figures for deposits from the previous fiscal year are not yet available, the figures will be substituted with the best estimate amount. The exception to these rules for the maximum withdrawals made in a fiscal year do not apply to emergency financing, which apply in cases of major natural disaster(s) occurring in the same or preceding two fiscal years.

These proposed rules stand starkly in contrast from the current rules governing the maximum withdrawals from the Fund.

The rules set formulas which involve the calculation of benchmark oil prices based on a moving average of past prices and forecasts of future prices, estimates of oil production, non-oil revenues, and the NRF’s balance.

In a report titled “Economic Institutions for a Resilient Caribbean”, the Inter-American Development Bank (IDB) suggested that the rules be reformed.

“The formula for the maximum permissible withdrawal is among the most complex operational rules for a resource fund in the world. Its design departs from good practices,” the bank stated.

“State-of-the-art advice based on international experience and good fiscal management principles emphasises simplicity, flexibility, transparency, and close integration with the budget and public asset-liability management,” the IDB stated.

The IDB’s position is that the formula guiding maximum withdrawals should be simple enough for an outsider to read and comprehend, and that unnecessary complexity would be an affront to transparency and public understanding. Dr. Singh believes the new dispensation will serve this purpose, and will serve the country well when it is ready to make withdrawals to serve Guyana’s development agenda.