Oil income and budget

Sep 29, 2023 Editorial

Kaieteur News – Vice President Jagdeo has to know that his words on most issues have a hollower and hollower ring about them. They ring hollow when he speaks of the government being ‘cautious’ in using oil revenue to support the national budget. Cautiousness with oil money is always a good step, but this flies in the face of what the PPPC Government did in 2022 and 2023.

In 2022, the government withdrew US$607 million from the New York based Natural Resources Fund (NRF). In 2023, the PPPC Government gave itself authorization to withdraw more, as much asUS$1 billion. When questioned about the withdrawals and use of NRF millions, the Minister with Responsibility for Finance in the Office of the President, Dr. Ashni Singh, solemnly spoke of “national development priorities”. This is the government’s broad-brush stroke that smugly dismisses such questions. Notwithstanding the cap that is placed on its head, withdrawals from the NRF supplement and support, as well as contribute and carry, Guyana’s budget in some manner. By any standards, the hundreds of millions of American dollars (billions in Guyana dollars) taken out of Guyana’s oil income were very close to the time that the NRF came into existence. They were also clearly on the heavy and aggressive side.

Thus, for Vice President Jagdeo to take this position now that the government is going to be cautious with the NRF millions is yet another indication of government’s cleverness and trickiness that characterize almost everything that has to do with this oil wealth, and even more so when money is involved. Why was it not cautious when caution was clearly called for, and would have been the better choice for Guyana? The Vice President noted the projected dip in oil earnings, as stated by the Bank of Guyana in its mid-year report. This was based on declining global prices for oil. It was a forecast based on sound market realities at the time that the mid-year report was being compiled. But circumstances have changed, and Vice President Jagdeo was right in saying that the price of this globally demanded commodity is subject to considerable movement in both directions.

Currently, oil is over US$90 a barrel, and the predictions of market watchers are that it is just a matter of time before the US$100 a barrel barrier is breached. The Wall Street analysts and experts are now bracing for a ‘volatile cycle’ in oil prices. We think that they have that right as the effects of OPEC+ steep productions cuts are being felt more and more. In addition, investment in new oil production opportunities has slowed. Further, the persistent increased in interest rates by the US Fed to fight inflation has made the cost of borrowing higher. When taken together, these factors point to oil prices increasing in the near future, and breaking that much watched US$100 a barrel threshold.

Higher oil prices represent mixed news for Guyana. Higher oil prices mean more will be deposited in the NRF as this country’s earnings for royalty and profits. It could also mean tougher cost-of-living conditions, as prices spiral for everything. If managed prudently, higher earnings could be a store of funds that insulates this country in tougher times. If used aggressively, as has been the case before, the NRF monies (with possibly more to come) become an irresistible lure for the PPPC Government, and utilized for different economic (budgetary) activities, under the tent of “national development priorities.” At US$100 a barrel or more, the PPPC Government could be swimming in NRF deposits, and the Vice President most likely speaking a different language that does not have the word ‘cautious’ in it.

What is clear behind the smokescreen of Jagdeo is that the government is already conditioning Guyanese to lower their expectations of any generosity for them from future budgets, as oil prices could be headed in a downward trend. We fully agree that when such is the situation, then the government has to be restrained in its spending. When the outlook is in the opposite direction, however, then it is reasonable to expect that government and leaders would loosen the purse strings and help Guyanese, who need as much assistance as they can get.

budget, Editorial, hollower, oil, words

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Oil income and budget

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