Benefits of oil sector hinges on drastic structural reforms – IMF

Sep 21, 2018 News

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If the ordinary man is to benefit significantly from the oil and gas sector, then there needs to be significant structural reforms. This is according to the International Monetary Fund (IMF).
According to the Fund, these reforms are also necessary to improve the business environment, increase resilience to external shocks, promote inclusive growth, and ensure that the oil windfall truly enhances the economy’s physical and human capital.
It was early last year that several Government ministries and agencies among them the Guyana Revenue Authority (GRA), the Ministries of Finance and Natural Resources, and Bank of Guyana, received several recommendations that would go a long way to safeguard billions of dollars in oil revenue to come.
However, very few of the crucial recommendations made by the International Monetary Fund (IMF) have been implemented. In fact, the regulatory body had cause to point out again, that Guyana still needs to modernize revenue administration and strengthen public financial management capacity ahead of oil production.
The IMF said that it is pleased the government will keep the financial management areas as critical near-term priorities. The Fund said that it stands ready to provide technical assistance where needed.
One of the IMF recommendations to the local authorities last year, specifically the Natural Resources Ministry, was to ensure the establishment of a Cost Recovery Committee. It emphasized that this is necessary so that the government can be equipped to begin auditing bills submitted by the oil and gas operator. But this is far from being in place.
Finance Minister, Winston Jordan, noted that there would be a special Accounting Unit established at the Finance Ministry to track oil revenues. He said that this is necessary since the current accounting systems are simply inadequate.
He also noted that the Ministry has intentions to implement the other recommendations of the IMF as it relates to his sector.
Before oil revenue starts flowing into the economy by 2020, several international organizations and even local critics want to be assured that Guyana is equipped with robust accounting systems, which would ensure accurate reporting on the use of those funds.
The International Monetary Fund called on the Government to review the nation’s accounting systems, which is usually referred to as the Integrated Financial Management and Accounting System.
The Fund said that the Accountant General’s Department (AGD) attached to the Ministry of Finance should be tasked with the responsibility of undertaking such an analysis.
The IMF said that while the Department will take into consideration the functionality of IFMAS, it should also determine the gaps and developments needed to be ready for recording and reporting of petroleum revenues.
Critically, the Fund said it will be essential that treasury reforms are coordinated with those of the budget process. In this regard, the international body said that in the future, the Office of Budget is likely to update a budget classification system to cater to the petroleum revenue that would be flowing into the economy.
The IMF noted that the Accountant General also needs to align its chart of accounts with the revised budget classification. At critical parts of the medium-term planning process, the Fund said that key decisions will require the AGD’s inputs, therefore necessitating the Department to adapt from an annual to a medium-term mode of operations in line with budget execution.
“For example, it is important to decide how to show the (medium term) in- and outflows from the Natural Resource Fund in the budget documents as well as in the regular financial reports.
Based on the draft Natural Resource Fund Law, the reporting requirements of Natural Resource Fund are comprehensive and the AGD needs to develop new skills and knowledge to be able to prepare the required reports.
Therefore, the AGD should ensure that the current rules and procedures are updated and start building capacity to meet these demands.”
The IMF has also identified a number of weaknesses, which exist within the tax systems of the Guyana Revenue Authority (GRA). But GRA Commissioner General, Godfrey Statia, has assured that the entity is working to correct these deficiencies.
He noted, however, that sweeping changes will not happen overnight. Statia said that it can take up to three years for GRA to smooth out the kinks in its systems.
Statia said that it was GRA that invited the IMF to visit the authority and to conduct an assessment of its systems. Statia said he told the team that GRA is not interested in sugar-coated words. He wanted the IMF team members to be as outspoken as they could about the challenges facing the Revenue Authority.
In its report of May 2017, the IMF outlined GRA’s main strengths and weaknesses. The strengths included a highly qualified cadre of staff, extensive information available to taxpayers through a variety of channels, withholding and advance payment mechanism in place, independent graduated dispute resolution mechanism and strong external oversight mechanisms.
The weaknesses highlighted were no-segment based management of taxpayers, functional limitations of the IT system, Limited e-transaction system, lack of strategic and structured risk management approach, weak filing and payment compliance, de-centralized audit case selection process, absence of legislative tax rulings system and compliance improvement programme limited in scope and content.
Upon the receipt of the said report, the Commissioner General said that a further request was made that another study be done to advise GRA on the next steps in modernizing the Authority.
Statia said that this assessment was done in September 2017, a draft submitted in October and a final report done in December.
The Commissioner General said, “Suffice it to say that many of the recommendations made by the team were either already work-in-progress, or envisaged to be implemented during 2018 and beyond.
The major recommendations of that assessment for January 2018 include produced monthly statements of total arrears and collectible arrears to inform debt management activities. “
“In 2007, PricewaterhouseCoopers (PWC) also did a diagnostic study for the Authority which was sitting on the shelves, and never implemented. In 2017, upon a visit to Guyana, a PWC partner and a former colleague from the Trinidad Tobago Internal Revenue, was on the team, and I was able to persuade her for PWC to do an update of the diagnostic study part with cost to GRA.”
Statia added, “This was completed in July 2017, and its findings were similar to those outlined in the IMF report. What stood out in their report however is the fact that GRA appears to be consistently under-budgeting revenue collection.
GRA is aware that the tax base is larger than the tax collections but under-budgeting masks the accountability of bringing the taxpayer base closer to reality by increasing taxpayer compliance or reducing tax avoidance or evasion.”
The International Monetary Fund has also called for the authorities to strengthen the powers of Bank of Guyana, as well as its programmes. While there is still more to be done, the IMF has reported that there has been progress as it relates to implementing the 2016 Financial Sector Assessment Programme (FSAP) recommendations, including enhancing the supervisory power of the Bank and establishing an emergency liquidity assistance framework, a national payment system and a deposit insurance scheme.
The Fund also welcomed the establishment of a Financial Stability Unit within the Bank to assess macro-financial vulnerabilities. (By Kiana Wilburg)

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