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Constitution should protect oil revenue savings from claws of mixed political priorities – Former Colombian Energy Minister
Former Minister of Energy and Finance of Colombia, Dr. Mauricio Cárdenas
Kaieteur News – Dr. Mauricio Cárdenas, a distinguished former Minister of Energy and Finance of Colombia made a compelling argument for embedding oil revenue savings into a nation’s Constitution, during the Guyana Energy Conference and Expo 2024 held last week.
“There’s always a huge controversy,” Dr. Cárdenas said, over the question of “how much to spend and how much to save” from oil revenues. He believes such decisions should transcend the interests of individual governments or political parties, advocating for a constitutional mandate to ensure a consistent savings strategy regardless of party changes. Cárdenas shared Colombia’s approach from a decade ago, where the country decided “we will save 20% of the royalties,” advocating for a constitutional safeguard that could adapt over longer periods but would fundamentally secure a portion of oil revenues for future generations.
This discussion gains relevance against the backdrop of the government of Guyana’s recent decision to significantly increase its spending of oil revenues. In 2023, Guyana’s Natural Resource Fund (NRF) received US$1.617 billion in oil revenue. The government’s approval of a recent bill allows for the withdrawal of nearly 98% of these revenues, earmarking a mere 2% for savings. The revised formula for withdrawals starkly contrasts with the previous, more conservative formula and signals a shift towards greater immediate spending, leaving substantially less for long-term savings.
Dr. Cárdenas’s view suggests that embedding savings guidelines within a country’s constitution could reduce the risks associated with fluctuating political priorities and economic pressures. By safeguarding a portion of oil revenues, countries can ensure growth and stability, potentially avoiding the pitfalls of short-termism and fostering a more equitable distribution of wealth across generations.
During a press conference, Vice President Dr. Bharrat Jagdeo had explained the rationale behind the revision. He said spending the revenues now “gives us a greater return than saving at this point in time for intergenerational equity, which will come later.”
Jagdeo justified the formula change by talking about the country’s development needs and the potential for higher returns through investment in the short term. “So, we believe that when you look at the sums given the size of the budget, it’s not unreasonable now to utilise a bit more from the NRF,” he said.
The decision to revise the withdrawal limits comes as part of the government’s broader fiscal strategy, which also includes an increase in domestic and external debt ceilings to finance 40% of the 2024 National Budget. The budget, standing at GY$1.146 trillion, includes a series of major infrastructural projects, including the Gas-to-Energy project.
As Guyana navigates the complexities of managing oil wealth, the debate over spending versus saving becomes increasingly pertinent, and Guyana can benefit from the advice of the former Colombia minister. Dr. Cárdenas served as Colombia’s Energy Minister in 2011 and 2012—a period when Colombia’s oil production reached its zenith of a million barrels per day and positioned the country as the third largest economy in Latin America and the Caribbean. He is current Professor of Professional Practice in Global Leadership at Columbia University’s School of International and Public Affairs.
- Constitution, Dr. Mauricio Cárdenas, Former Minister of Energy and Finance of Colombia, political, revenue
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