Govt. will not have full access to US$300M earnings from first oil for development - Finance Minister

Govt. will not have full access to US$300M earnings from first oil for development – Finance Minister

Nov 01, 2018 News

Finance Minister, Winston Jordan

Minister of Finance Winston Jordan said yesterday that due to fiscal rules, which will be established when Guyana enacts the Natural Resource Fund (NRF) legislation; the full projected earnings from oil revenue will not be available to the Government.
When Guyana starts producing commercial oil for the first time in 2020, it is projected that the country will receive approximately US$300M derived from the 50/50 split of profits and the 2% royalty.
“When this money comes, it goes into the Natural Resource Fund or Sovereign Wealth Fund, so it is not available to the Government yet. Some of it will become available based on the legislation when it’s passed, and when that legislation is operationalised, then there are rules for withdrawal from the fund,” Jordan stated. He added, ‘At no time will US$300m be available to the Government to spend.”
According to the Finance Minister, the funds will essentially be offline, so that it doesn’t create disturbances to the economy.
The NRF has three objectives: intergenerational saving, stabilization and economic development.
“The part to do with economic development will be withdrawn and put into the Consolidated Fund,” Jordan stated.
The Finance Minister explained that foreign currency earnings will go to the Bank of Guyana, which will provide the equivalent in Guyana dollars to be deposited into the Consolidated Fund.
It is not known at this stage how much of the US$300M Government intends to set aside for economic development. Nonetheless, the Minister foresees improvements in the social and economic status of Guyana.
“I foresee progressive improvements in the human, cultural and other developmental aspects of the country. I know we have been through lean periods and for many of us….those who lived through the ’80s understood what it means by structural adjustments and to have incomes overnight turn into pennies because of the significant devaluations that we have had,” Jordan noted.
The Finance Minister warned that everything must be placed in context, pointing out that production has to be increased through diversification of the economy.
Ahead of the legislation, Government published a Green Paper on the NRF, which states that the Ministry of Finance will manage requested withdrawal from the fund in the annual budget proposal.
The Ministry will also be responsible for calculating the fiscally sustainable amount, drafting the investment mandate, and entering into the operational agreement with the Bank of Guyana.
Additionally, the Green Paper highlights that the Ministry of Finance will appoint a five-member Macroeconomic Committee, which will determine the economically sustainable amount for the fund.
Further, the intention is to have the Minister also appoint a seven-member Sovereign Investment Committee, which would be responsible for advising the Minister about the fund’s investment mandate.
Apart from funds being transferred to the national budget, the Green Paper notes that NRF investments are to be made in overseas markets.
The vision for this, according to the Green Paper, is that this will serve to ensure that the country has a long-term stable source of income, which will allow for the fund to meet its stabilisation and intergenerational savings objectives.

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