NRGI’s criticisms of natural resource fund act are ill-informed

NRGI’s criticisms of natural resource fund act are ill-informed – Finance Minister

Sep 08, 2019 News

Minister of Finance, Winston Jordan

Finance Minister, Winston Jordan, has come out against certain criticisms made by the Natural Resource Governance Institute (NRGI) in its report on Government’s Natural Resource Fund Act.
That Bill was subject to zero scrutiny by the political opposition in the National Assembly, and was passed in January in the opposition’s absence, after the Government was defeated by a vote of No Confidence.
In a recent letter to Kaieteur News, Minister Jordan, while responding to criticisms of the Natural Resource Fund, noted that those criticisms were heavily based on the opinions offered by NRGI on the Green Paper titled ‘Managing Future Petroleum Revenues and Establishment of a Fiscal Rule and a Sovereign Wealth Fund’. That Green Paper is held by the Ministry of Finance.
He said that Government met with NRGI towards the end of October 2018 and discussed “inadequacies” of its draft report.
The Institute had been urged to peruse the draft Natural Resource Fund Bill to obtain more clarity on the relevant issues, according to the Minister, and it did not heed that advice. He concluded that having refused to peruse the draft Bill, NRGI’s report was deficient.
NRGI had advised that Guyana should be clear in law, how the oil money will be used to invest in certain assets. It said that while the draft legislation states what assets are eligible for the government to invest in, “it is not explicit about which assets the Fund may not (be used to) purchase.”
NRGI said that from an oversight and governance perspective, the decision of which assets are eligible and prohibited requires careful consideration of whether the Fund has the systems in place to adopt complex or risky investment practices.
In response to this comment, Jordan stated that Section 31 of the Act clearly identifies eligible asset classes in which funds can be invested, and that funds can’t be invested in asset classes outside of that list.
“… The only commodity that can be invested in is gold, and the amount that can be invested in this commodity is limited to 10 percent of the NRF. Similarly, the only derivatives that can be invested in are those that reduce the risk of losses associated with assets held by the NRF,” Minister Jordan added.
He admitted, however, that a factual criticism made against the NRF Act is that there is no limit on borrowing.
He further provided that Government is currently finalising the draft of a Public Debt Management Bill (PDMB) which is intended to complement the NRF Act and other fiscal legislation, to ensure fiscally sustainable debt management.
But he complained that the current Caretaker status of Government does not permit it to advance legislation.
“This notwithstanding, the record clearly shows that this Government has done very well to avoid excessive borrowing against future oil revenues, thereby avoiding the pre-source curse, that is, spending based on projected revenues before actual revenues from petroleum are realised.”