Govt. revising oil law to withdraw 98% of 2023 oil deposits to support trillion-dollar budget

Jan 28, 2024 ExxonMobil, News, Oil & Gas

Kaieteur News – The government is laying the groundwork to spend a substantial portion, 98% of the oil revenues received in 2023. The stage is being set for this through the proposed revision to the First Schedule of the Natural Resource Fund (NRF) Act, which dictates the formula for calculating the ceiling on annual withdrawals from the fund. The government tabled the proposal in the Fiscal Enactments (Amendment) Bill 2024 last Friday.

In 2023, Guyana’s NRF received US$1.617 billion. Under the current NRF formula, the maximum allowable withdrawal amount was calculated to be approximately US$1.154 billion. However, with the proposed new formula, this withdrawal ceiling rises significantly to US$1.586 billion. This adjustment allows the government to utilize 98% of the 2023 oil revenues. US$31 million would be left for savings, representing only 2% of the revenues from 2023.

The government’s proposed revision seeks to increase the withdrawal limits significantly. The new formula stipulates 100% withdrawal of the first US$1 billion received last year, 95% of the second US$1 billion, 90% of the third US$1 billion, 85% of the fourth US$1 billion, 50% of the fifth US$1 billion, and 10% of amounts over US$5 billion. This revision is a clear indication of the government’s intent to swell its withdrawals from Guyana’s NRF, leaving little for savings.

The existing first schedule of the NRF Act also has a withdrawal framework governed by tiers. Vice President Dr. Bharrat Jagdeo defended the decision to change it recently, saying that it is too conservative. For any fiscal year, it allows 100% withdrawal of the first US$500 million received in the preceding year, 75% of the second US$500 million, 50% of the third US$500 million, 25% of the fourth US$500 million, 5% of the fifth US$500 million, and 3% of amounts exceeding US$2.5 billion. This formula, while designed to balance spending with savings, has been deemed insufficient by the government.

Looking ahead, projections from the Ministry of Finance indicate that the NRF will receive US$2.46 billion in 2024, US$2.51 billion in 2025, US$2.99 billion in 2026, and US$3.31 billion in 2027. Using the new proposed formula, the maximum allowable withdrawals and the resultant savings for each year were calculated, showing a consistent trend of increased spending capacity. From 2023 to 2027, the total maximum allowable withdrawals amount to US$12.31 billion, with total savings being less than US$600 million.

The 2024 National Budget of Guyana stands at GY$1.146 trillion. In addition to revising the NRF withdrawal ceiling, the government has approached the National Assembly for an increase in the domestic and external debt ceilings. It plans to take on additional debt to meet 40% of budget needs, according to Jagdeo.