Finance Minister responds to article

Oct 04, 2019 Letters

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DEAR EDITOR,

It pleases me to see the steady improvements in reporting that have been made by our journalists in the past few years. I commend them for their efforts to submit well-researched articles for publication. At the same time, I recognise that while many of them try to remain objective in their reporting, oftentimes what is finally published is skewed in one direction or the other.
On October 2, 2019, the article titled “IMF says…Rigid Natural Resource Fund rules could cause more external borrowing” was published by your newspaper, and I would like to use this opportunity to add context to some of the statements in this article that are misleading and are not entirely based on the IMF report on the 2019 Article IV Consultation.
The Natural Resource Fund (NRF) Act, sets out the framework and rules for the management of Guyana’s petroleum revenues. This framework includes rules for deposits, investments, withdrawals, reporting and auditing. It also includes a mechanism for public oversight of the NRF to ensure compliance with this Act. It is important for the public to know that, contrary to what the article claims, there are no borrowing rules in the NRF Act. The mechanism that the NRF does have, as is recognised by the IMF, is a withdrawal rule which determines how much money can be withdrawn from the NRF in a given year, which can then be spent through the national budget, or to aid with a natural disaster.
The article rightly points out, the rules that govern the withdrawal of monies from the NRF are “strict.”I am proud to have advocated for these ‘strict rules’ and all Guyanese should be happy that those ‘strict rules’ were put in place to ensure that the NRF is not treated as a slush fund by any Government. The details of the withdrawal rules can be found in Part VI and Part VII of the NRF Act. The maximum withdrawal is known as the Economically and Fiscally Sustainable Amount, which is bound by the smaller of an Economically Sustainable Amount (ESA) and a Fiscally Sustainable Amount (FSA). A Macroeconomic Committee, comprising qualified representatives of the Government, Bank of Guyana, Private Sector Commission and Leader of the Opposition, as well as a leading international macroeconomic expert, is responsible for providing the Minister with a recommendation on the ESA, taking into account the effects of additional spending on Guyana’s economic competitiveness. In analysing the impact of additional spending on the economic competitiveness of Guyana, the NRF Act mandates this Committee considers key variables such as inflation, the exchange rate, economic growth, the composition of public spending, stability in public spending, and public debt. The NRF Act stipulates that the Committee’s recommendation must be included in the annual budget proposal and annual report of the NRF, allowing the public to scrutinise any deviations from this advice. Further, the FSA is a mathematical formula that is delineated in the First Schedule of the NRF Act and acts as an upper limit on withdrawals from the NRF.
While it is not the place of the NRF Act to place limits on public debt, I can assure you that careful consideration was given to this important factor when preparing the NRF Act. Firstly, in determining the ESA, the Macroeconomic Committee is explicitly required to consider public debt. Secondly, the withdrawal rule was not imported from somewhere else. It is grounded on an assessment of Guyana’s current situation, and the investments that will be needed to transform the economy. We examined the human and physical infrastructure gaps that exist, including those in education, health, roads, bridges, ports and energy, and the projects that would be needed to bridge these gaps. At the same time, we also considered our ability to execute these projects effectively, in addition to the absorptive capacity of the domestic economy. The rule allows for the frontloading of expenditure in the short- to medium-run, with an eventual transition to a Norway-type rule, where only the expected interest earnings from the NRF are available for withdrawal. This transition is expected in 6 to 10 years, but the timing is dependent on oil prices and the pace of oil production.
In the very report cited in the article, it is estimated that the withdrawal rule will allow for more than G$400 billion (approximately US$1.95 billion) to be available for spending from the NRF in the first 5 years of oil production. This is no pocket change when one considers that a bridge across the Demerara or the ECD/EBD Bypass road are each expected to cost under US$200 million. Sufficient monies will be available for many transformative projects, and the NRF Act, with all its strict rules and public oversight, will safeguard against the wasteful spending or misappropriation of oil revenues.
Notwithstanding, I am mindful that not all Governments will be as responsible as mine has been, which is why my Ministry has already made considerable progress in the finalisation of a Public Debt Management Bill that includes strict ceilings on the amount that can be borrowed by Government. This Bill, once enacted, will complement the NRF Act, thereby ensuring that an irresponsible Government does not lead us down a path of unsustainable borrowing while monies accumulate in the NRF.
Unlike the Opposition Leader, who has threatened to repeal the legislation in the very unlikely event of his party winning the upcoming elections, we have provided a credible, durable, transparent and accountable NRF that will withstand scrutiny during its operation and management. #your future is secured under the Coalition’s umbrella

Yours faithfully,
Winston Jordan, MP
Minister of Finance

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