Dear Editor,
If the amount is correct, it is a tad late in looking to park Natural Resource Fund dollars in comforting investments (“NRF for safe investments, as below US$500M sources say…”, SN June 5, 2023). It was over one and a half billion US dollars at one time, so if that below US$500M number is accurate, then there is some tardiness at work by the people responsible for these things, I would say.
The first thing to be noted is that according to the SN article, as it extracted specifics from the Bank of Guyana, the NRF stood at over US$1.67 billion as of April 2023. Then, there is the parliamentary authorization to transfer/withdraw just over US$1B this year, so the statement of “below US$500M” is close enough to make some sense from a numbers point of view As is public knowledge, quite a bit of the NRF has already been withdrawn for domestic governance purposes, but I still detect some sluggishness in this talk about safe investments only now, when over 66% of the Fund has been removed. It is on the aggressive side.
In terms of very safe investments, there is none safer than the overnight fed funds rate. It is the shortest of short-term instruments, and carries the full faith and backing of the US government. I think that this is a good practice, and falls within the narrow investment options that are available to the NRF trustees. Let there not be any quibbling about this, those functioning as stewards in any capacity at any-general management, investments, compliance, and so on-are trustees. It would be helpful to know what is the second suite of financial instruments that the NRF is authorized to invest in, while keeping a close eye on capital preservation, and income generation. I note what the central bank labels as “profit”, and given the tight and sensible limitations placed on investment options, Guyana is going to have to be content with yields along those lines.
On another point, central bank officials stated that “We will look at the [treasury] bills when we know they are coming down… then you can go long term and lock in to that [amount]. That is not expected to happen until next year though…,”. It is unclear if “coming down” refers to price or yield. If price is what is anticipated to go down, then the yields will be higher; on the other hand, if it is the other way around, then the rate of return is lower. Whatever was or is anticipated, I have a concern that is fueled by recent developments.
The Saudis and their OPEC+ partners just announced a mixed bag of production cuts and modifications, with the net result of lower supply in efforts to boost prices. The Saudis then went further, and gave the world notice that the cuts, or new productions levels will extend to the end of 2024. In the light of this news, and its many implications, the pause by the US Fed in rate hikes could go in the opposite direction due to pressures brought by higher prices on everything, starting with gas. Instead of slowing down inflation, the Fed may be compelled to cut rates to bolster demand. That is the type of “coming down” I believe that the Guyana central bank will have face, and decide how it reacts. There is confidence and appreciation for placing the NRF balance in overnight fed funds, while there is anxiousness that this replenishing fund went so low. Still, it could be a beneficiary of rising oil prices, thanks to that princely fellow from Arabia and his Russian sidekick.
Sincerely,
GHK Lall
