Stricter mechanisms needed to guide use of Natural Resource Fund- IMF

Feb 06, 2018 News

-Wants two sets of auditors to have oversight responsibility

Natural Resources Minister, Raphael Trotman

The International Monetary Fund (IMF) has made some recommendations to the government to guide the administration’s use of Guyana’s intended Sovereign Wealth Fund which has been named the Natural Resource Fund. The international body thinks that some of the measures Guyana has outlined for reporting and auditing purposes, can be more efficient if strengthened.
The recommendations are contained in a report titled, “A reform agenda for Petroleum Taxation and Revenue Management.”
IMF officials reviewed the draft Bill which the Guyana Government prepared as a guide for the establishment of the Natural Resource Fund.
The Natural Resource Fund Act establishes the NRF to “effectively, efficiently and wisely manage natural resource wealth for the benefit of current and future generations of the people of Guyana.” The worthy objectives are to prevent revenue volatility from leading to volatility in public expenditure, prevent a loss of economic competitiveness, fairly transferring natural resource wealth across generations, and use natural resource wealth to finance infrastructure, social development and regional distribution programmes.
In its recent report, the IMF noted that there is a reporting requirement of an annual report with the audited financial accounts submitted to parliament.
In addition, quarterly reports and financial statements will be submitted to parliament within the year. IMF said that all these reports are required to be posted on the Ministry of Finance website.
IMF noted that Section 37 of the draft legislation covers only quarterly reports. The IMF pointed out, however, that annual financial statements are not mentioned. Furthermore, IMF said that while one could assume that a fourth quarter report would be an annual report, it is not clear in the Bill. Also, in general, the Fund said that quarterly reports would be less comprehensive.
Additionally, the financial organisation stated that Section 40 of the draft Bill requires the Ministry of Finance to submit an annual report which is very detailed. The Fund notes however that it is not clear who is responsible to prepare it.
IMF said that all reporting to the Parliament should be prepared by Treasury officials with inputs from Bank of Guyana.
The international organisation also stated that the NRF is a part of central government and as such, it is essentially an extra budgetary fund that should be consolidated in central government reports. It said that even if there is a separate report, it needs to be submitted together with budgetary central government reports to the Parliament.
As it relates to accountability and oversight, the Fund said that there are provisions for both internal and external audit of the Natural Resource Fund. It noted, however, that it may be preferable for the Government of Guyana to have both the Bank of Guyana and the Ministry of Finance internal auditors have oversight responsibility.
Regarding the external audit, the Fund said that the Ministry of Finance would be a logical body to select an external auditor.
STABILISING EFFECT
While the intention to create a Natural Resource Fund has earned the APNU+AFC Administration much praise, there remains concerns by some that the nation is yet to know what will be the specific features of the Fund.
Natural Resources Minister, Raphael Trotman had told Kaieteur News that the Fund will have several features, one of which will be for budget stabilization.
The Minister said, “One must first understand that the (Natural Resource) Fund is just a generic name. Most funds of this kind have several features which ours will have as well. However, the main characteristic of this Fund is to save money for the future generation which would be garnered from our oil wealth.”
Minister Trotman said that there is already a draft for the Fund in place. He said that it is in the possession of the Finance Minister, Winston Jordan. The Leader of the Alliance for Change (AFC) said that government is going to continue with efforts to refine the Bill before bringing it for public discussion.
“…But back to the various features of the Fund; It will of course, have a feature for saving money and one for investing money. It will also have another crucial aspect which will be a budget stabilizer. In this regard, let us take the gold sector for example. Let’s say we have the Fund and the government puts together a budget expecting that it will get $5 from the gold sector but it only collects $3.”
The Minister posited that Government would be able to enter the Fund to make up for that shortfall. He said that this would be done to ensure that budget targets, once announced, are met.
“So you can now take from the Fund to ensure you have levels of growth in the economy and you can meet the programmes and targets budgeted for. Additionally, there is another aspect of the Fund that will be dedicated to environmental protection. So some moneys from the fund will be put aside to protect the environment and then we are looking at infrastructural and social welfare projects,” expressed Minister Trotman.
FRAMEWORK
During his 2017 budget presentation, Trotman had told the House that it is important that the extractive industries that fuel the nation’s growth today also provide for the children tomorrow. In an effort to ensure that the benefits accrued from the natural resources sector reach every Guyanese for generations to come, he said that the Government is committed to the establishment of the Fund and will develop a framework for it.
He commented that the Fund will enable the Government to protect the economy from the volatile nature of natural resource revenues, help grow and modernise the sustainable non-extractive sectors of the economy, and further enhance the capacity of the citizenry.
“We have already indicated that we will consider three sub-funds within the Fund. The three sub-funds are: 1) Stabilisation Fund, 2) Infrastructure and Social Development Fund and 3) Citizens Participation Fund. We have already begun seeking advice and guidance on developing such a Fund from the School of Public Policy- University of Calgary and the Commonwealth Secretariat, both of which are equipped with strong expertise on extractive resource governance,” the Natural Resources Minister had said.
Trotman noted that the creation of a long overdue Fund will demonstrate to Guyanese and the world at large, that hydrocarbon development, and by extension all other extractive industries, can be catalysts for a green economy.