Former Auditor General Anand Goolsarran has added his voice to the barrage of criticism that has greeted the Natural Resource Fund Act which was rushed through the National Assembly on December 29 by the government without any prior consultation.
In today’s Stabroek News, in his Accountability Column (see page 8) which has been evaluating the legislation against the Santiago Principles, Goolsarran took particular aim at the oversight mechanisms for the Act and its proposed Board of Directors.
He noted that the Board of Directors has overall responsibility for the management of the Fund and comprises not less than three and not more than five persons appointed by the President who also appoints the chairperson. One representative each will be drawn from the National Assembly and the private sector.
“On the face of it, this arrangement is an improvement over the predecessor legislation since there was no provision for the establishment of a Board, and the Minister was responsible for the overall management of the Fund and for preparing the Investment Mandate. We had expressed that in that legislation there was an over-concentration of powers in the hands of the Minister. Our concern with the new legislation, however, relates to the composition of the Board and how its members are to be appointed. Since the private sector will be the main beneficiary from the withdrawal and utilization of the resources of the Fund, its representative should not be part of the Board as this may present a conflict of interest. There have also been credible allegations that some key members of the Private Sector Com-mission, the parent body, are so closely associated with the ruling party that this may pose some difficulty for the selected person to act independently and objectively. In addition, with the Government holding the majority in the Assembly, it is likely that the representative will be selected from among Government members. It would have been more comforting if the legislation had specified that the representative should be from the political Opposition’, Goolsarran said.
He added that three members on the board would be woefully inadequate to execute the Board’s mandate. How-ever, the Act gives the President flexibility to select up to five persons and Goolsarran said that he hoped that he would appoint five members to ensure a good balance and to allow for more meaningful discussions before decisions are taken.
“It would have been a good idea if the membership of the Board could have comprised two representatives from the accounting profession, one from the legal profession and one from the academia, leaving the President to choose the other member. At least three members should constitute a quorum.
“If the President decides to appoint a five-member Board, three members will be selected by him based on his own deliberate judgment, which is undesirable. While the President can follow in the footsteps of the late President Desmond Hoyte and rise to the occasion by selecting persons with the appropriate technical and professional backgrounds and who are considered politically independent in the eyes of the public, it would have been preferable if the legislation had limited the President’s selection to one member”, Goolsarran asserted.
Goolsarran added that it is unclear what mechanism will be used to select the persons for membership to the Board.
“We would have preferred if such mechanism was embedded in the law, mandating the Public Accounts Committee to identify suitably qualified and trained persons after due consultations with the representative bodies and submit their names to the Assembly for approval, with the President making the appointment. We also believe that the President should not be responsible for selecting the chairperson, to allow Board members to elect their own chair. An imposed chairpersonship can create tensions within the Board. There is also no provision for limits to renewal of board members’ appointments. It would have been preferable if only one renewal is permitted to allow other persons desirous of serving on the Board to be considered”, he asserted.
In last week’s Sunday Stabroek, economist Tarron Khemraj also criticised the PPP/C government’s version of the NRF.
Expressing his doubts about the legislation, he said “The first one pertains to the issue of independence of the Board. The degree of perceived independence from or control by a politician is not significantly different from the APNU+AFC’s version of the Act. The latter gave substantial power to the Minister of Finance, while the PPP/C’s version hands significant power to the President and subsidiary power to the Minister of Finance. While the President gets to determine the majority of members who will serve on the Board, the Minister of Finance has significant authority over the Investment Commit-tee”.
Goolsarran in today’s column also criticised the canning by the PPP/C government of the proposed Macroeconomic Commit-tee.
“It is unfortunate that the new legislation has dispensed with the requirement for establishment of a Macroeconomic Commit-tee to advise on the maximum Economically Sustainable Amount (ESA) that can be withdrawn from the Fund, taking into account past spending from the Fund; potential impact of future spending on Guyana’s competitiveness Fund; economic growth especially in agriculture and manufacturing; and assessment of macroeconomic variables such as inflation, exchange rate, balance of payments and public debt. These factors will vary from time to time, which means that ESA will also change from time to time. Despite this, the First Schedule specifies that in the first year, the ceiling for withdrawal is the full balance on the Fund at the coming into operations of the Act. The balance on the Fund as of 1 January 2022, the date of commencement of the Act, was US$607,646,570”, Goolsarran stated.
He pointed out that for subsequent years, the ceiling is: 100 percent of the first US$500 million paid into the Fund in the preceding fiscal year, 75 percent of the second US$500 million, 50 percent of the third US$500 million; 25 percent of the fourth US$500 million; five percent of the fifth US$500 million; and three percent of any excess of the first US$2,500 million. Assuming that in 2022, amounts totalling US$2 billion are deposited into the Fund, withdrawals next year could be as much as US$1.250 billion, leaving a balance of US$750 million or 28.76 percent for future generations in the first two years of the receipt oil revenues. This does not include withdrawals for emergency financing for which there is no ceiling, he pointed out.
“While there is provision for the Minister to cause to be reviewed periodically the implementation of the First Schedule, such a review will take place ‘not less than once every five years’, as provided for under Section 17(3). It therefore means that the first review will not be undertaken until after January 2027, by which time the damage would have been already done!”, Goolsarran said.
Khemraj also took aim last week at the abandonment in the PPP/C legislation of a macroeconomic committee which had been in the APNU+AFC version and which was intended to guide on the amount of money that could be withdrawn from the NRF without disrupting the economy.
“Perhaps nothing so expresses this insecurity as the abandonment of the macroeconomic committee, which could have played a crucial role in not only suggesting the best amount of annual withdrawal, but also providing detailed insight into the potential risks of drawing down large amounts of US dollars and depositing them into the Consolidated Fund. The Act (see 20.1) also requires that the Minister of Finance provides three-year projections of oil revenues as he prepares budget proposals. The committee could have helped in this regard and prevented the need for ad hoc number plucking”, Khemraj asserted.
Moreover, he noted that the macroeconomic committee was meant to provide a data-driven approach for the management of the Fund.
“Investment management of large funds, whether active or passive, often rely on this kind of approach to decision making. We cannot invest without data and information. Converting data into useful information would have been a very helpful input for not only the government, but also the Board, the PAOC and civil society”, Khemraj contended.
