Citizens should support Govt.’s proposal to use more money from oil account rather than taking loans - VP Jagdeo

Citizens should support Govt.’s proposal to use more money from oil account rather than taking loans – VP Jagdeo

Jan 20, 2024 ExxonMobil, News, Oil & Gas

Kaieteur News – Citizens, particularly those who are often critical of the government, should be in full support of the administration’s move to use more money from the Natural Resource Fund (NRF) as it would reduce reliance on external loans. This explanation was provided by Vice President, Dr. Bharrat Jagdeo during a press conference on Thursday at Office of the President.

Vice President, Dr. Bharrat Jagdeo

The Guyanese official made the foregoing remark in response to a question from Kaieteur News. The Vice President was asked to say how the Guyana Government plans to keep the resource curse at bay in light of its plans to increase the debt ceiling for a third time as well as to revise the withdrawal rules for the NRF to access more funds.

The Vice President reasoned that the debt ceiling is not being raised to facilitate random squander mania, but rather, to allow for strategic investments in a number of transformative projects. In this regard, he cited the gas-to-energy project in which the government is financing from a US$660M US Exim Bank loan, pending approval. He said the debt ceiling has to be shifted upwards to accommodate this.

“As I pointed out, that we would see this intense period of build out of a lot of our infrastructure that are urgently needed to support continued growth in the economy but once they are completed, you will see a steep fallout in the budget. The budget would be reduced significantly in the in the outer years because once you finish building the 12 hospitals and the bridges and the power plant, then you don’t need to expand anymore,” the Vice President said. He added that government by that time will consider whether to bring down the debt ceiling.

In the meantime, he assured that even when the debt ceiling is raised; it does not mean that the government will borrow the maximum. He also reassured that this approach will not affect Guyana’s low debt-to-GDP ratio.

With respect to the government’s proposal to revise the withdrawal rules for the NRF to use more oil revenues, Jagdeo said this is another key part of the government’s strategy to maintain low and sustainable debt levels.

He explained that government was very conservative when it set the initial withdrawal rules in the NRF Act which was updated and passed in 2021. He reminded however that it was government’s intention to wait until the NRF hits a US$3B threshold before moving to access more.

According to the 2024 budget, Guyana’s NRF inclusive of interest closed 2023 with US$1.9B. Government said it expects to receive US$2.4B in oil revenues for 2024. Government said it projects to transfer at least US$1B this year based on the current withdrawal rules for the NRF. When the new rules are passed, citizens will know how much more will be assed for budgetary support.

The Vice President said this approach should be supported by the usual critics of government, adding that it reduces reliance on more loans.

Overall, Jagdeo said this two-tiered approach will not plunge Guyana into the clutches of the Dutch Disease.

The Dutch disease refers to a situation where a country’s currency appreciates due to large revenues from natural resource exports, leading to a decline in other sectors like manufacturing and agriculture. Jagdeo noted that this currency appreciation is a hallmark of the Dutch disease, which is in turn a symptom of the broader ‘resource curse’ – the paradox where countries with abundant natural resources often experience less economic growth and development than those with fewer natural resources.

In the context of Guyana, the government’s strategy to spend significantly from the NRF for transformative projects, such as the gas-to-energy initiative, is intended to diversify the economy and avoid over-reliance on the oil sector. This diversification is crucial to evade the Dutch disease, as it prevents the economy from being singularly dependent on oil revenues, which can cause other sectors to stagnate and the local currency to appreciate excessively.