Gov’t eyes withdrawing more oil money, to increase borrowing

In keeping with the PPP/C Government’s transparent and accountable management of the economy, and consistent with an undertaking given in Budget 2024 which was presented in the National Assembly on January 15, Senior Finance Minister. Dr. Ashni Singh on January 26, tabled the Fiscal Enactments (Amendment) Bill 2024 in the Assembly. This Bill includes proposals to amend the First Schedule of the NRF Act 2021 to reflect an updated withdrawal rule, as well as updated ceilings on domestic and external debt.

In Budget 2024 which is currently being considered by the National Assembly, Dr. Singh underscored the need to maintain a “flexible approach to financing the accelerated transformation agenda, which includes a ramped-up PSIP and accelerated delivery of social services and social safety nets to improve the lives of all Guyanese”. He added that “these circumstances require an optimal and dynamic financing mix, taking into consideration the volume of financing mobilised with the cost of that financing”.

Once approved by the National Assembly, the revised rule will take effect from this fiscal year and will replace the conservative rule that currently exists in the Act. Similarly, the update debt ceilings will take immediate effect and will provide Government with the flexibility needed to adapt the financing mix depending on the evolving global and domestic economic situation, particularly given global uncertainties regarding interest rates.

In the case of the NRF rule, while allowing for greater financial resources to be available to support intensified public investment and accelerated delivery of social services, the amended rule, as with the existing, will ensure that as production and revenue ramp up further, an increasing share of the inflows into the NRF will be saved relative to the share transferred to the Consolidated Fund to finance these national development priorities.

The Bill proposes that the First Schedule of the NRF Act 2021 be amended to reflect revised calculations for the ceiling on annual withdrawals. Under the revised proposals, a sliding scale is proposed for withdrawals from the first US$5 billion of deposits paid into the Fund in the immediately preceding fiscal year. Beyond the first US$5 billion, 90 percent of deposits in the immediately preceding fiscal year will be saved, benefitting generations and generations of Guyanese for years to come.

The Inter-American Development Bank (IDB) in its publication titled “Economic Institutions for a Resilient Caribbean” included a detailed assessment of Guyana’s NRF Act 2019 (pages 268-274). Amongst the observations made by the IDB were:

• “The objectives and design of the NRF raise several issues. The fund on its own cannot achieve the objectives that have been set for it. The rigid withdrawal rules may do little to foster stabilization or saving but may entail fiscal costs” (p. 270)

• “The formula for the maximum permissible withdrawal is among the most complex operational rules for a resource fund in the world. Its design departs from good practices”. (p. 271)

• “State-of-the-art advice based on international experience and good fiscal management principles emphasizes simplicity, flexibility, transparency, and close integration with the budget and public asset-liability management. The rule’s complexity may also conspire against fiscal transparency and public understanding.” (p. 271).

The current NRF Act 2021 which was piloted by this PPP/C Government contains several enhanced clauses, including the establishment of a Board of Directors which is responsible for reviewing and approving the policies of the Fund and monitoring its performance, thereby separating the management of the Fund from the Minister responsible for Finance. The NRF Act 2021 not only requires the Government to seek Parliamentary approval for withdrawals from the Fund, but it also sets out new, simplified calculations needed for ensuring that the Fund achieves its purposes. Another key improvement is that the Minister could face up to ten years imprisonment if he fails to disclose the receipt of any petroleum revenue received by Government in the Official Gazette within three months of receipt of such monies. These positive actions of the PPP/C government in management of the NRF are also recognised and commended by the IMF in its Article IV December 2023 report, which states:

“The governance of the NRF was strengthened through the appointment of three critical entities in 2022: the NRF Board of Directors, the Public Accountability and Oversight Committee, and the Investment Committee. Furthermore, to ensure full transparency and accountability, notifications of receipts of petroleum revenues have been published in the Official Gazette…”

PPP transparency and accountability ensures that the public and relevant regulatory bodies are always duly informed and aware of all receipts into the Fund, unlike the previous APNU/AFC administration that unscrupulously hid the US$18 million signing bonus.

Similarly, this PPP/C Government has ensured transparent debt management by ensuring Parliamentary approval of revised debt ceilings as required by the evolving circumstances of the economy, including the country’s enhanced debt carrying capacity, while at the same time maintaining debt sustainability and macroeconomic stability. This contrasts against APNU/AFC’s incurrence of an illegal overdraft which they then concealed by failing to include the overdraft in their reported debt figures, thereby avoiding the necessity to report what would have been a breach of the debt ceiling at the time.

Senior Minister Ashni Singh reiterated that “the PPP/C Government will maintain its transparent and accountable management of the oil and gas sector and of the economy as a whole, including by maintaining strict fiscal discipline, strategic vision, and economic stewardship that will ensure that the funds will be used for financing investments that will reap high dividends for current and future generations”.