Why Guyana is not yet tapping into its oil fund

Some US$534 million is sitting in Guyana’s Natural Resource Fund (NRF), in the Federal Reserve Bank of New York.

The PPP/C Government has maintained its decision not to spend Guyana’s oil money until the provisions governing the management of the Fund are amended.

The following are reasons why the Government is not tapping into the NRF.

First off, the PPP/C Government has always held that the NRF Act was passed during a period when the government in power was illegitimate.

On December 21, 2018, the former APNU+AFC Administration was defeated in the National Assembly by a No Confidence Motion. From all indications, the then administration should have cut its losses from the month prior and started preparing for the election of a new government.

Yet, one month later, the government moved to pass its NRF Bill through Parliament, while the Parliamentary Opposition abstained from the House, in protest of the then government’s defiance of the No Confidence vote.

In a recent missive, Guyana’s Senior Minister in the Office of the President with responsibility for finance, Dr. Ashni Singh said, “This is the single most important piece of legislation to have been enacted in many years, and the APNU/AFC government saw nothing wrong with sneaking it through Parliament at a time when they had lost their mandate to govern, when they were widely regarded as an illegal and illegitimate government, and without any Opposition input whatsoever.”

The PPP/C had committed to replacing the Act once the political uncertainty ended through the swearing in of a new, democratically elected government.

Moreover, it was not only the uncertainty of the circumstances under which the Act was passed that made it troublesome. It was also its contents.

Responding to Former Finance Minister, Winston Jordan’s recent statements about the NRF Act in the letter pages of Stabroek News, Dr. Singh pointed out a key criticism of its configuration, by Guyana’s development partner, the Inter-American Development Bank (IDB).  The Bank published a report entitled “Economic Institutions for a Resilient Caribbean” which includes a detailed assessment of Guyana’s NRF (pages 268-274).

In outlining options for reform, the IDB stated, “The objectives and design of the NRF raise several issues. The fund on its own cannot achieve the objectives that have been set for it.”

The fund’s stated objectives are stabilisation, competitiveness, saving and development. The IDB stated that these objectives transcend what the NRF’s operations can achieve.

“The rigid withdrawal rules may do little to foster stabilisation or saving but may entail fiscal costs,” the Bank stated.

“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”.

“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.

Put simply, for the purpose of accountability, 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 said, “The irrefutable fact of the matter is that the NRF Act in its current formulation was a piece of legislation which was very poorly conceived, and was ‘rammed down the throats’ of the nation during a period when the APNU/AFC was in a state of illegality and illegitimacy.”

Vice President Dr. Bharrat Jagdeo has also said that, in its current configuration, he believes the Act is not insulated from political maneuvering. Hence, the Act must be amended.

His Excellency Dr. Mohamed Irfaan Ali has said the legislation will be laid in Parliament before the year ends.

Vice President Jagdeo told News Room in August that the government will make public

a comprehensive plan for the spending of Guyana’s oil money, with priority areas such as infrastructure and social upliftment, including investments in education and healthcare.

He had explained that the proposed projects will go through a process of accountability, requiring the scrutiny and approval of the National Assembly.

Moreover, the Government intends to allow Guyana’s oil money to accrue in the NRF, as current periodic deposits from the sale of Guyana’s crude are not significant.

In the years to come, when ExxonMobil operationalises more development projects, steeply ramping up production, the fund will see a corresponding increase in inflows.

In the meantime, the government will ensure it maximises Guyana’s earnings from the oil and gas industry, in accordance with its deals with oil companies.

Even though the oil money is not being spent, positive transformations in Guyana’s economy have already begun. While the oil and gas industry is a helpful catalyst, it is the government’s business-friendly policies which have commanded the confidence of international investors, and prudent management which has made relief available for the most vulnerable in times of economic hardship.