IDB gives Guyana another loan to fix weak systems monitoring Govt.’s oil spending

Aug 14, 2022 News

By Kiana Wilburg

Kaieteur News – The Inter-American Development Bank (IDB) has provided Guyana with another loan, this time, to the tune of US$1M to improve the nation’s procurement framework as well as to strengthen the abilities of those professionals managing the purchase of goods and services.

The bank said the objectives of this loan are critical since the country needs to do all it can to ensure spending of oil revenues in the years to come, is done in an efficient manner. The bank warned that at the moment, the current systems are insufficient to achieve this goal.

The financial institution was also keen to note that there has been over a decade of robust economic performance, and now, Guyana is poised to emerge as a significant oil producer. Unfortunately, local authorities have not been able to ensure there is deepened, inclusive growth. According to the IDB, per capita income remains among the lowest in the English-speaking Caribbean, at US$7,520 Purchasing Power Parity (PPP) in 2015, and the Human Development Index score stands at 0.64 percent compared with 0.75 percent for Latin America and the Caribbean. In short, the IDB said Guyana’s institutional framework has not been able to translate economic returns into improved outcomes.

Another worrying observation of the bank is that there has also been no major improvement in fiscal planning. It said the main area of declining performance is in the oversight of aggregate fiscal risk from other public sector entities and the timeliness of in-year budget execution reports. It said this type of performance should not be ignored as it can have serious implications for increased spending backed by oil revenues.

The bank stressed that “improvement in the efficiency and quality of public spending is essential for oil-related revenues to contribute to productivity and economic development.” The bank also reasoned that strengthening public expenditure management, mainly budget planning, and preparation, will allow for better expenditure control and effective means for achieving a resource allocation that reflects expenditure policy.

The IDB said, “Oil-related revenues are expected to become the largest source of income for the government in the medium term, equalling the government’s current budget by 2024. This development will contribute to easing public finance pressures but must be accompanied by improved planning and a strengthened fiscal framework. The government has taken a series of steps to improve the oil and gas governance; however, these steps are insufficient, given the size of the expected revenue windfall.”

The financial institution said the legal and regulatory framework pre-dates oil discoveries indicating these are not adequate to monitor oil production activities which are expected to strain current systems in place.

It further noted that the oil and gas legal and regulatory framework are made up of multiple institutions with varying levels of authority creating overlaps and legal gaps. To make matters worse, the IDB said the fiscal framework is incomplete, lacking a medium-term expenditure framework with specific development plans.

Furthermore, although the Natural Resource Fund (NRF) restricts transfers of oil revenues to the annual budget, there is currently no constraint on spending in the budget process limiting the NRF’s capacity to maintain stability.

Taking the foregoing weaknesses into account, the IDB said it is critical that Guyana acts with a deep sense of urgency in arming itself with the necessary systems to properly expend the nation’s oil wealth.

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