Latest update November 5th, 2024 1:00 AM
There was misinformed interpretation of aspects of this Green Paper
DEAR EDITOR,
The Ministry of Finance notes with concern your article “Guyana’s proposed Natural Resource Fund…Govt. ignores IMF’s advice to have rules which prevent reckless spending”, KN, August 29th, 2018.
We take this opportunity to correct what amounts to a misinformed interpretation of aspects of the Green Paper “Managing Future Petroleum Revenues and Establishment of a Fiscal Rule and a Sovereign Wealth Fund” in which a proposed framework for the management of Guyana’s petroleum revenues is outlined in considerable detail.
Indeed, one important piece of the framework is the withdrawal rule (referred to as the fiscal rule in the Green Paper) which needs to be robust to ensure that the three objectives of the sovereign wealth fund (SWF) – stabilisation, savings and domestic spending – are achieved, while safeguarding against the resource curse.
The proposed fiscal rule that will govern withdrawals from Guyana’s SWF is described in paragraphs 50 to 57 and Annex Two of the Green Paper.
The proposed fiscal rule benefitted from the input of the Commonwealth Secretariat and the International Monetary Fund (IMF) during several missions, including one as recent as March, 2018.
As a matter of fact, the Ministry of Finance actively sought out the advice and support of the IMF on petroleum revenue management since the preceding year. As a result, the draft legislation has been revised to incorporate feedback received from both entities contrary to what your article claims.
In addition, the fiscal rule has been subject to rigorous sensitivity analysis to ensure its robustness to price shocks, a variety of production scenarios, as well as shocks to Guyana’s non-oil GDP. The fiscal rule has been found to be robust to these shocks, which would allow for the objectives of the SWF to be achieved in even the worst case scenarios.
Given the engagements to date, the Fiscal Affairs Department (FAD) team of the IMF, have noted that: the proposed fiscal rule provides relatively prudent front-loading of budget transfers of oil revenue, while maintaining long term fiscal sustainability; the rule provides an incentive to continuously diversify the non-oil economy and increase non-oil revenue; the rule also provides for significant accumulation over the long term of financial savings in scenarios of either high production or high prices.
The Ministry of Finance recognises that various components of the SWF outlined in the Green Paper, including the fiscal rule, may be difficult to understand at first glance. This is why the Ministry has undertaken to provide further explanations of critical aspects of the SWF and will continue to engage with the public on the SWF.
We welcome feedback and comments.
Moreover, we acknowledge that journalists have an important role to play in explaining the importance of the SWF to the wider public. As such, we encourage them, should they not be clear on any issue, to contact us prior to the publication of related articles so that they do not promote distortions about national issues.
Public Relations
Ministry of Finance
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