Sovereign Wealth Fund is key to ensuring transparency, accountability – CDB Economic Director
GINA, Guyana, Tuesday, February 21, 2017
The recent discovery of oil and natural gas deposits in Guyana’s offshore territorial waters will result in a lot of revenue, and employment, hence it is imperative that the Government maintains a high level of transparency and accountability in handling the new found financial gains.
The Caribbean Development Bank’s Director of Economics, Dr. Justin Ram made this statement during a recent exclusive interview with the Government Information Agency (GINA).
Dr. Ram noted that there is clear evidence that in countries with similar finds, there has been misuse and misallocation of resources. He explained that the more the people can see how much the Government is earning from all of the mining sectors and how it is being used or spent, “that’s going to be beneficial to Guyanese in the long- run.”
Dr. Ram added that, “If the Government is accountable to the people, they will ensure that they get the best value for it, and spend it where the people want that money to be spent.”
The CDB Director stated that there is a need for better infrastructure, improving links to neighbouring countries such as the road network to Brazil, and the ports, and access to higher standards of education. He also spoke of housing especially for those in need, opining that, “These are the sort of areas that Government should think of spending any revenue on.”
Dr. Ram further noted that it’s not about spending money on particular projects, because “If that money is not managed in a proper way then it can actually be debilitating for other industries in Guyana.”
The CDB official explained that, “Since individuals employed in the oil sector tend to earn higher salaries than those in other sectors, this could drive inflation higher. Other individuals in other sectors could start to demand higher wages. This is well documented across the world. That tends to drive up labour costs throughout the entire economy, and also make other import industries to the Guyanese economy less competitive.”
As an example, he cited agricultural diversification such as the move into aromatic rice production and other areas, as well as gold mining.
He said, “If you can’t get workers to work at rates which will be prudent for the gold sector, then that could have a negative impact there.”
Dr. Ram suggested that some of the resources be “sterilised or put away in a Sovereign Wealth Fund,” a move which has already been proposed by Government under the Ministry of Natural Resources. This, Dr. Ram noted, also provides another buffer of transparency and accountability.
“Any country that is exploiting a natural resource that is exhaustible over time, needs to ensure that they save some of the proceeds from that exploitable resource for posterity, for future generations.”
Developing a Sovereign Wealth Fund is very, very important at this time for Guyana,” he emphasised, “to help save some of its revenue from its mining industries, not only oil and gas, but also from the gold as well.”
Minister of Natural Resources, Raphael Trotman has indicated that measures are being put in place particularly to ward against corruption. Internally, legislation like the draft Sovereign Wealth Fund Bill and Policy and joining the Extractive Industries Transparency Initiative (EITI) are part of efforts to promote open and accountable management of the extractive sector.
“We are working very steadily to put in place the EITI,” Minister Trotman said. Persons have been identified to make up the Multi-Stakeholder Group (MSG), a key requirement of the EITI.
Minister Trotman pointed out that one of the features to be included in the Sovereign Wealth Fund is the portioning off of revenues from the other extractive sectors. “We start getting into the discipline now by putting aside a portion of the revenue for gold, from timber, from manganese and from diamond so that by the time oil revenue comes, we would have had gained both experience and become more disciplined in managing our resources,” the Minister said.
Since the first significant oil discovery in 2015 at the Liza 1 well, and the announcement in June 2016 of another find at ExxonMobil’s Liza 2 well, Guyana has been actively preparing for oil production. Last month, the company announced that it has found more oil, this time at its Payara well in the Stabroek block. This discovery is about 10 miles north-west of the May 2015 find.
By: Paul McAdam