The Government of Guyana intends to establish a Natural Resource Fund (NRF) that will serve two purposes: a savings for the future generation as well as budget stabilization. But regional leaders are saying that having a multi-purpose Fund may turn out to be a mistake.
Specifically making this point recently was Trinidad’s former Prime Minister, Kamla Persad-Bissessar. The official said that when the TT Government established the Heritage and Stabilization, there was no clear demarcation of the funds for budget purposes and the money for future generations.
The former Education Minister expressed, “So what ended up happening? The funds put aside for the next generation was being raided. So you need clear demarcation of the funds…laws must state that it can only be touched for this purpose…If not then you can end up just like us, raiding your Fund to supplement the annual treasury and that is not how it works.”
While the politician holds this view, local authorities are holding out that there is good reason for having one Fund. This is clearly outlined in its Green Paper on the establishment of the NRF. (SEE LINK FOR FULL DOCUMENT: https://finance.gov.gy/wp-
According to the document, the Government said it has carefully considered whether separate funds are required to meet the objectives of inter-generational savings and stabilization/investing in development priorities.
Overall, the view of the Government is that a single fund will be the most effective, efficient and transparent mechanism for achieving the said objectives.
The Government said that this conclusion was reached after carefully considering the theory behind a single fund serving both stabilization and savings objectives; whether a single fund will achieve, with the proposed fiscal rule (the Economically and Fiscally Sustainable Amount) the fund’s objectives; whether countries that have successfully managed their natural resource revenues have followed the single, or multiple, Sovereign Wealth Fund models; examples of countries that established multiple Sovereign Wealth Funds but have not managed their natural resource revenues effectively; and the additional administrative costs of establishing two funds.
In addition to this, the Government contends that establishing a Fund is relatively complex and there can be substantial administrative costs.
It said, “If two completely separate funds are established then this implies that there are two governance structures, two investment policies/investment mandates, two sets of accounts and two external audits. There would also need to be detailed rules for transferring money between the two funds and the National Budget. In addition, it would be unwise to spread the limited expertise and experience in fund management in Guyana across two separate funds. The costs of managing two funds would be much higher than those of managing a single fund.”Overall, the Government considers that it is most efficient to have a single fund (the Natural Resource Fund). It stressed that both economic theory and case studies of Botswana, Norway and Timor-Leste demonstrate that a single fund can effectively achieve multiple objectives.
