Hybrid Fund would be best route for Guyana’s oil wealth savings

Hybrid Fund would be best route for Guyana’s oil wealth savings – Ramson Jr.

Jun 01, 2018 News

By Kiana Wilburg

The Georgetown Chamber of Commerce and Industry (GCCI) remains one of the few private institutions which provide a platform for concerned citizens to engage in fruitful discussions about the oil wealth to come.
Its most recent efforts in this regard, saw Attorney-at-Law and Oil and Gas consultant, Charles Ramson Jr., delivering a presentation on the Sovereign Wealth Fund, and his views on what Guyana needs to do to prepare for it. The event took place on Wednesday at the Roraima Duke Lodge.
Ramson, who did his thesis on this subject at the University of Aberdeen (UK), explained that Sovereign Wealth Funds represent money that a country will set aside and invest to reach a certain goal. The objective of the moneys saved is what determines the type or model of Fund that the country will use.
In this regard, Ramson explained that there are four main types or models of the Sovereign Wealth Fund. He listed these to be the Stabilization Fund, the Savings and Intergenerational Fund, the Pension Fund and the Parking Fund.

Oil and Gas Consultant and Attorney-at-Law, Charles Ramson Jr.

Stabilization Funds are set up to insulate a nation’s budget and economy from commodity price volatility and external shocks. Examples of this Fund can be found in Chile, Timor-Leste, Iran and Russia.
Savings Funds are intended to share wealth across generations by transforming nonrenewable assets into diversified financial assets. Russia’s National Wealth Fund is a prime example of this.
In the case of Pension Funds, these are used to support social welfare programmes and public service pensions. Australia, Ireland, and New Zealand are particularly fond of this model.
With respect to the Parking Fund, this model temporarily holds revenues abroad until good investment opportunities arise.
Furthermore, many resource-rich economies have multiple objectives for their Funds. Australia for example has a combination of the Savings and Pension Funds.
In Guyana’s case, Ramson suggests that Guyana should have a hybrid that consists of Parking and Stabilization.
The consultant said, “In the short term, we should focus on a Parking Fund and then a Stabilization Fund. I’d probably put the Stabilization Fund and the Parking Fund as equally important…For us to manage our budgets, fiscal positions, and debt positions in a sustainable way, I would say the Stabilization Fund is essential to this.”
Natural Resources Minister, Raphael Trotman told Kaieteur News in previous interviews that Guyana’s Sovereign Wealth Fund, which will be renamed the Natural Resource Fund, will have several features. One of these will be budget stabilization.
“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.”
In this regard, 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 so as 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,” Minister Trotman had explained.
Additionally, the World Bank is expected to provide Guyana with two experts who will provide guidance on the fiscal arrangements, rules and best practices that should govern the use of the Sovereign Wealth Fund. Finance Minister Winston Jordan has pledged that draft legislation for the Fund will be with the National Assembly before year end.