Savings and Spending on Green Transformation

─ at heart of Sovereign Wealth Fund

DPI, Guyana, Tuesday, August 14, 2018

As first oil approaches in early 2020, the government is sticking to its promise to establish a sovereign wealth fund that will save for future generations and allow for the orderly transformation of Guyana to a green state.

On August 8, a Green Paper on the Natural Resource Fund that is intended to spark discussion on the complex issues of managing oil revenues was presented to the National Assembly.

According to Minister of Finance, Winston Jordan, the paper captures key issues and mechanisms that will ensure the sustainable use of revenues from the petroleum sector to achieve a diversified and green economy; avoid the mismanagement of the national patrimony and the dreaded “resource curse”; and ensure that all Guyanese especially youths and future generations benefit from the windfall revenues thereby enabling them to live in security and comfort

“The first of these listed objectives stabilization is particularly important for resource-rich countries that are dependent on natural resources for two simple reasons. One, commodity prices are volatile, and two production levels can be difficult to predict. These two factors can result in unstable revenue and by extension government spending which will negatively impact the stability and scale of social programmes and interventions. To achieve this, a portion of revenues will be invested in safe and liquid assets external to the domestic economy,” Minister Jordan said.

In addition, the Green Paper proposes the investment of portions of revenue generated from the petroleum sector in foreign markets to assure financial sustainability upon the eventual depletion of the country’s oil reserves.

“The second key function of our sovereign wealth fund is savings to ensure the equitable distribution of benefits of the extraction of nonrenewable resources across current and future generations. This will allow for the transformation of a depleting asset base, that is oil, to a permanent asset base which is financial assets.” Minister Jordan explained.

This, he said, will also allow for public spending during resource extraction to be maintained long after extraction has ended. Given the uncertainty surrounding the future of fossil fuels, Minister Jordan said it is necessary to begin saving from day one of production. To achieve this function, revenues will be invested in a diversified portfolio comprised of financial assets external to the domestic economy with long investment horizons and higher expected returns.

Kidackie Amsterdam

Image: Jules Gibson