Will the Natural Resource Fund be a curse?

Dec 31, 2021 Letters

Dear Editor,

Kaieteur News – Yet again, I feel compelled to pen a letter to you given recent developments, particularly with respect to our natural resource wealth management, in this instance.

For anyone who has been following the developments with regard to the Natural Resources Fund Act, from its first iteration by the previous government, to this one laid and passed by the current government, there are a few changes that could be concerning and that raise questions which could affect our development as a nation. My hope is that these could be addressed by the authorities in meaningful ways.

The removal of the macroeconomic committee

My understanding of the macroeconomic committee (MC) in the previous version of the Act is that it served as a check on the spending power allowable by the Fund. As we all know, inflation triggered by the supply chain disruptions has already translated into a higher cost of living for us in Guyana. Inflation reported by the Bureau of Statistics has been higher this year than probably in more than a decade. Undoubtedly, part of this inflationary effect is also attributable to ramp up government spending. Without a MC, what mechanisms have been put in place in this version of the Act to manage the economic effects of ramped up public spending and the onset of Dutch Disease? At risk also is the competitiveness of our private sector.

The replacement of the withdrawal rule

I must admit, the new rule is indeed much simpler than the previous one – it is straightforward and can be followed quite easily. However, in its simplicity is an allowance for significant public spending in 2022. If the government so desires, it could withdraw US$500 million or GY$100 billion for public spending. That’s nearly one quarter of 2021 budget! While yes, this could mean investments in much needed assets towards the improvement of public services, what we should not forget is that investment expenditure also generate recurrent costs. Has analysis been done to show how non-NRF revenues are anticipated to grow over the next 5-10 years that will demonstrate an absorptive capacity of the state to meaningfully service the growing recurrent obligations? What I’m saying, Editor, is that we need to make sure that our regular budget, outside of oil revenues, is able to absorb the costs associated with new roads, schools and hospitals that could be built with oil revenues. If we don’t, then we risk going down an unsustainable path which would end up with services being even more poorly maintained than they are now.

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