Dear Editor,
The Stabroek News’ recent editorial entitled `The China Loan’ suggested that Guyana’s Natural Resource Fund Act (establishing our sovereign wealth fund) required only “… some minor tweaks …” before it could safely become fully operational. I disagree. In fact, I strongly disagree.
The NRF Act is deeply flawed in ways that are already having a significant impact on Guyana’s development and its response to the COVID pandemic. None of Guyana’s US$198M in oil earnings during 2020 was available to; support frontline health workers, buy vaccines, support affected businesses & unemployed workers, provide internet for online schooling etc. Further, the Fund is not yet in a position to let the Government know how much of the Fund’s US$534M cash balance the Government can have in 2022, after the Fund has had its fill! So, one must wonder how planning for the 2022 budget is going. How will Guyana finance the expansion of services, jobs, infrastructure and regional development that the country now surely expects a full two years after First Oil?
So, what’s wrong with the NRF? There are two immediate problems. First, with regards to its relationship with government, this is a “tail wags the dog” sovereign wealth fund. Second, there is a hubristic amount of “mission overreach” in the Fund’s purpose.
Article 21 of the Act, “Deposits into Fund”, instructs that “Petroleum revenues shall be directly paid into a bank account denominated in United States of America Dollars and held by the Bank as part of the Fund.” Article 22 “Withdrawals from the Fund” and the whole of Parts VI and VII of the Act then elaborate the procedures for getting money back out again. With-drawals go into the Consolidated Fund where, only then, do they become available to the country’s budget.
This ‘Fund before Country’ arrangement is a major structural error in the establishment of the NRF. It’s as if you took your whole salary and locked it into a long-term deposit account from which withdrawals are difficult and, only then, started to worry how to get money for family dinner that night! Not only that, but you’ve also arranged for the bank manager, not you, to decide how much of your own money you can get for meals! It is this structural error (together with the inexplicable government delay in addressing the problem) that has led to the ridiculous position where US$534M sits in a bank in New York while Guyana’s developmental needs continue to increase without adequate redress. The country’s finances are being wagged by the tail of their own construct, the NRF.
Article 3 of the Act, “Establishment of Natural Resource Fund” describes the purpose of the NRF. Four aspects are itemised the first two of which are;
a) “Ensuring that volatility in natural resource revenues do [sic] not lead to volatile public spending”, and
b) “Ensuring that natural resource revenues do not lead to a loss of economic competitiveness”.
Well, that’s going to be a problem! The problem being that the management of these macroeconomic bugbears (often identified with the ‘Dutch disease’ complex) goes far beyond the remit of most sovereign wealth funds. They are quite clearly tasks for government. Ascribing these responsibilities to the NRF can, euphemistically, be described as “mission creep” but on a scale that few would dare to contemplate!
It is governmental economic policy, marshalled through the agencies of the Ministry of Finance, Ministry of Econo-mic Planning and Business Development (hmm, we don’t have one of those!), the Central Bank, the NRF and the Financial Sector, that has the scope and reach to manage these macroeconomic tasks. In so doing the NRF does have a role to play, most notably by being a ‘sink’ into which excess cash in the economy, with its potential to foster inflation, can be neutralised. In a properly conceived and managed sovereign wealth fund that excess cash should not only be kept out of circulation but be invested to build a resource for future national projects, generations and for the amelioration of disasters.
To return to that Stabroek News editorial, what is certainly true is the editor’s insistence that fixing the NRF is urgent. Lulling the population into acceptance of growing oil earnings which are not being deployed to deliver the uplift in personal and national development that many expect is a recipe for bad governance. There are few that wish to endure the consequences.
Yours sincerely,
David Pollard
Pollards Et Filles (Guyana) Inc.
