Minister of Finance Dr Ashni Singh yesterday issued a clarion call for clear statements on climate change and stressed the need for pension fund reform as he declared open a gathering of finance officials from eastern and southern Africa.
The event at Buddy’s Hotel on the East Bank is one of the fora on the fringes of the Commonwealth Finance Ministers Meeting which gets underway tomorrow at the Guyana International Conference Centre, Turkeyen.
Singh said the climate change imperative along with others such as pension fund reforms and best practices in debt management were all topical and pertinent not only to developing countries but developed as well.
The forum was the Macro-Economic and Financial Management Institute of Eastern and Southern Africa (MEFMI) meeting for Ministers of Finance and of Planning, Secretaries of Finance and Central Bank Governors.
The participants included MEFMI Executive Director Dr Ellias Ngalande, Chairman and Minister of Finance of Zambia, Dr C Fundanga, Minister of Finance of Zimbabwe and Host Country of the MEFMI Secretariat, Senator Mumbengegwi and Governor of the Bank of Guyana Lawrence Williams.
On pension fund reform and its role in the development of domestic financial markets, Singh said “every day that we delay considering whether pension reform is required we increase the risk of creating a contingent liability which future generations would be required to pay.” Noting that Guyana’s National Insurance Scheme celebrated its 38th anniversary recently, he said that while its achievements were recognised, a number of the challenges it faces were also discussed, “including changing demographics of the national population, and changing demographics of the participating population, the latter primarily as a result of the changing structure of the economy (contracting public sector, expanding private sector, with growth dominated by SME sector and family-owned and operated businesses and self-employed persons, who typically do not participate in formal pension systems).”
The minister opined that pension funds have a very important role to play in mobilising private savings and investment and in managing large investment portfolios in an increasingly sophisticated environment. However, there were certain prerequisites including favourable and conducive legislative, regulatory and macroeconomic environment, including financial sector legislation, establishment of a stock market and promotion of activity on the market, the establishment of mechanisms for oversight and the supervision of the pension fund sector – areas which, he said, Guyana had made progress. Despite the country’s progress, Singh said “pension funds in many of our countries are still a far way off from realising their true potential in terms of participation in the financial markets.”
Some of the characteristics observed, he said, include a very conservative or risk-averse investment stance including domination of the investment portfolios by cash deposits, government paper and, in some cases, conservative real estate investments, and very low participation in equity and bond markets. He said this happens at the same time when “many sectors of the real economy lament that access to financing is a significant constraint to expansion” and there is clearly need to improve corporate governance in pension funds, the minister said, particularly more effective performance in the area of investment portfolio management and stronger capacity to take part in increasingly liberalised and increasingly sophisticated markets.
Singh said policymakers need to identify and remove any remaining systemic impediments that discourage pension fund participation in financial markets; identify and implement the actions needed to promote effective corporate governance and management of pension funds; build capacity in pension funds and in all of the institutions involved in the financial system; identify priority actions to improve efficiency in intermediation and, also, to deepen activity in equity and bond markets; and to reflect on how some of the peculiar challenges associated with being a small economy could be overcome.
The minister said the evidence from more developed economies suggests that pension funds can participate effectively as institutional investors in a market environment and could help to promote private sector investment and expansion, and to contribute to real growth in the economy. On the issue of best practices in debt management, he said that Guyana could relate to this issue having had to confront it. Guyana, along with five MEFMI member countries were among those that benefited from debt relief last year following agreements reached at the historic Gleneagles G8 Summit in Scotland in 2005, he noted. He said Guyana appreciated the “strong solidarity that existed between our countries in advocating first the HIPC initiative and, subsequently, the MDRI.”
In giving a background to the process Guyana and the other debt-burdened countries took in getting developed countries to understand the need for debt relief, Singh said it would not have been possible without sustained effort, collectively and individually, and without strong solidarity. He also commended the MEFMI for keeping the issue of best practices in debt management on the agenda in the post-MDRI period. Singh said that with the MDRI having been approved it is now imperative that sound systems are in place to ensure that debt, including domestic debt, is managed in a manner consistent with long-term fiscal sustainability.
Singh said that the imminent three-day Commonwealth Finance Ministers meeting would deliberate on global economic developments and on this issue the ministers would advocate the cause of developing countries playing a greater role in decision-making in the international financial institutions.
Additionally, he said, they would discuss the spectre of climate change and how it can affect and is affecting lives; how it threatens the very existence of countries or the existence of productive coastal lands with grave implications for water availability, food supply and food security, human health, extreme weather events, sea level rises, and the decimation of biodiversity. As regard the effects of climate change on the real economy Singh said “the implications for the reorientation of our development agendas to take account of climate change, the costs associated with adaptation and mitigation measures have all very decisively shifted climate change out of the realms of a scientific matter, and have made it a matter of economic and political concern.” And, in anticipation of these discussions at the ministerial meeting he urged the forum to prepare a statement on the issue including the need for appropriate global commitments in recognition of the efforts required and in the light of the contributions being made to the global response.
