THE passage of the Natural Resource Fund (NRF) represents one of the strongest proactive steps taken in Guyana ahead of first oil. Yet many are rightly pointing out that questions remain about parts of this vitally-important sovereign wealth fund that have yet to be fully implemented.
For instance, the fund’s oversight board will serve a critical role in maintaining public confidence and will include representatives of the government, opposition, civil society and business groups. To date, several key groups have not submitted any nominees to fill the seats on this important governing committee.
With first oil expected by early 2020, a full governing committee is necessary to ensure that there are not any delays in the functioning of the fund. That could slow down investment in anything from infrastructure to education and economic diversification. It’s important to note that the passage of the fund is itself a strong achievement and has been hailed as progress by international groups including the World Bank, International Monetary Fund, and Inter-American Development Bank. Setting up a sovereign wealth fund like this is a crucial task for managing the wealth from natural resource development and avoiding negative consequences like the Dutch Disease that creates an overdependence on one economic sector to the detriment of others. It also ensures that revenues are saved for the future.
The timeline is important because an intense influx of revenue is likely coming to Guyana when oil production begins in earnest. Analysts at Norwegian-based energy consultancy Rystad and others, have forecasted that Guyana will be receiving revenues in the hundreds of millions of US dollars starting as soon as next year. Most of that will come from our 50-50 profit split with the oil companies, as well as an additional royalty. As more projects come online after the Liza Phase One, revenues are predicted to be well into the billions of US dollars – rising to as much as US$5 billion in pure government revenue per year during the 2020s. Those predictions were made before the series of recent discoveries in other offshore blocks.
Countries like Norway that have carefully saved and invested oil revenues now have sovereign wealth funds upwards of US$1 trillion. Those reserves help guarantee pensions and benefits for citizens, facilitate investments in regional economies, and put aside funds for the wellbeing of future generations even after the oil is exhausted. Many of these funds have laws which only allow the accrued interest to be spent, leaving the principal amount untouched year after year. In countries where investment in infrastructure and development is more critical, strategic near-term domestic investments can be a better development strategy.
Much of that investment strategy in Guyana’s case will be determined in the days ahead by the Ministry of Finance, Central Bank, and – when they’re nominated – by the Public Accountability and Oversight Committee.
As currently drafted, the NRF would comply with 21 of the 24 Santiago Principles. These are international best practices for resource management established by the International Forum of Sovereign Wealth Funds, a global coalition of major sovereign wealth funds from countries like Trinidad and Tobago, Botswana and Kuwait.
These principles are voluntary guidelines intended to help promote good governance, transparency, accountability and prudent investing of sovereign wealth funds and resource revenues more generally. The fund will comply with the three remaining principles once it actually goes into effect, according to public statements from the Ministry of Finance. Now, more than ever, it is important to move towards responsible management of these revenues to ensure that Guyana avoids the well-known pitfalls of economic Dutch Disease and Resource Curse corruption. In doing so, Guyana can truly transform its national well-being.
LINK ORIGINAL: Guyana Chronicle