GUYANA: Without independent oversight, oil fund more susceptible to mismanagement – US Analyst

US Analyst, Arthur Deakin

Similarly, he said, the Macroeconomic Committee, which is supposed to be responsible for analyzing the future implications of public spending on the country’s economic competitiveness is supposed to advise the maximum amount that should be withdrawn from the fund each year. This Committee, Deakin wrote, in addition to the Public Oversight and Accountability Committee, is also missing.

He further explained, “The NRF Act also fell short in depoliticizing the management of the fund. As it stands, the Ministry of Finance has too much control over the governance and spending of the resources. The members of the ever-so-important Investment Committee are all appointed directly by the ministry. The Minister of Finance, in conjunction with Parliament, also has a final say on how the monies are spent.”

Without a more independent oversight structure, Deakin warned that the fund will be more susceptible to “political cronyism and mismanagement”.
He mentioned that industry experts have also pointed out that the fund lacks a medium-term expenditure framework and a clearer fiscal rule, which would allow for better planning and prioritization of its incoming resources. At the moment, the fiscal rule which will be used to determine how much money is spent each year from the fund, has been heavily criticized for being too complex for laymen to properly supervise.

The analyst went on to note that the current rule also fails to curb debt-financed spending used to address short-term needs. Additionally, he said, the Act did not create a broader fiscal framework that defined rules for public debt, balanced budgets and revenues.

Taking the foregoing factors into consideration, Deakin stressed that Guyana’s oil funds are more susceptible to abuse by its politicians if the necessary systems are not in place.

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Comments

  • brandli62  On 02/09/2021 at 5:03 am

    It’s good to have independent financial analysts with a background in the oil- and gas sector, such as Mr. Deakin, looking into details of Guyana’s Natural Resource Fund (NRF). It seems that the general concept of the NRF is fine, but changes have to be implemented regarding oversight, accountability, investment strategy, and fund withdrawal regulations. One can consider these short comings growing pains of an financial instrument that had to date not been used in Guyana. Mr. Deakin makes an important point that oversight needs to be decoupled from political influence. It will also be essential that the NRF only make those funds available to the government that were generated out of the investments made with the oil revenue. This might be frustrating at the beginning as the government would not have access to the full 200 million USD presently in the fund. Assuming an optimistic 5% annual return on investment, this would amount to only 10 million USD for 2020. Over time, as the assets in the fund will grow rapidly the returns released will grow massively. A slow release of funds to supplement the national budget will also prevent the economy from overheating and it will force the government to spend the oil revenues wisely.

    Let’s have look at the Norwegian Oil Fund. As of the end of 2020, it had assets of USD 1214 billion. Stay with 5% return on investment, that would amount to 60 billion USD available for spending by the national government. Norways national budget for 2019 was at 33 billion USD. Hence, lots of money to spend for useful projects.

    The message is clear to me. The development of its NRF to match the Norwegian Oil Fund is the most critical aspect for Guyana’s future as an oil producing nation, particularly for time after the oil boom is over. If you want to see a negative example, have a look at Nauru and how the squandered their natural resources with one generation.

  • kamtanblog  On 02/09/2021 at 5:21 am

    Simple Simon suggests
    The BOG (bank of Guyana) central bank must remain independent…free from political control.
    They are responsible for the management/administering/decision making
    process of BOG.
    BOE is independent of government and its head
    Carney ( Canadian) is responsible for managing
    the UK economy….fixing interest rates inflation et al. The £ (pound Sterling) is a floating currency and like water will find its own level in the money markets.
    Head of BOE answers to MOF ( minister of finance)….who in turn answers to parliament.
    Politics separated from economic policy/decisions.

    The writer above has a valid point on how
    cronyism can cloud public understanding of
    finances. Interesting article.

    K

  • Malcolm Cliffe  On 02/09/2021 at 1:35 pm

    Bitcoin is a good choice for investing some of the reserves. It is not controlled by any political force or banker. The returns are fantastic. Google to see who are the BIG investors and you will be surprised.

    • kamtanblog  On 02/09/2021 at 1:54 pm

      Bitcoin is fantasy money !
      Here today …gone tommorrow.
      Too many different digital money out there.
      It could be a scam ?
      It’s gambling …speculation !
      Most trust the USD$ that’s why it’s the worlds
      reserve currency. Digital money can compliment the USD$ …not replace it !
      Using digital money with WTO rules
      for international trade is an option.
      Most do not trust digital currencies
      but with time it could be used.
      Guyana’s oil money should remain in
      USD$ as oil is traded in USD$.
      If/when that changes maybe digital
      currencies will become more acceptable!

      Am no money guru and don’t have crystal ball
      but for the time being “better the devil u know”

      Norway’s idea seems best at present

      Google FMI

      Kamtan uk-ex-EU

  • Malcolm Cliffe  On 02/09/2021 at 3:01 pm

    Market Insider said:

    Bitcoin could surge to $100,000 in the next year, according to renowned crypto bull Mike Novogratz.
    The Galaxy Digital founder told Bloomberg TV on Monday he sees bitcoin’s price accelerating faster than he once expected because more institutions and companies are getting behind the cryptocurrency.
    Bitcoin jumped to an all-time high above $48,000 Tuesday morning following news that Tesla had bought up $1.5 billion of the coin and may begin to accept bitcoin as payment. Novogratz said “every company in America” will follow in Tesla’s footsteps and soon allow customers to make purchases using cryptocurrencies.
    He also said other companies may consider moving excess reserves into bitcoin as a hedge against inflation. While the famously volatile coin may ward off more risk-averse CFO’s, Novogratz said Elon Musk is leading the way for more corporations to back bitcoin.

    “Now you got the biggest, the wealthiest man in the world and one of the biggest stories doing it,” said Novogratz. “You’ve got to think other CFOs and CEOs are saying, what should we be doing?”

    Market Insider quote.

    • Dennis Albert  On 02/11/2021 at 9:14 pm

      Bitcoin is anonymous which encourages corruption and money laundering into Canadian and American real estate. In China, they execute the corrupt politicians.

  • brandli62  On 02/12/2021 at 6:13 am

    It would be wise for the Guyanese government to stay away from any investments in Bitcoin. It’s too volatile and subject to manipulations be opinion leaders such as Elon Musk.

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