Guyana does need a sovereign wealth fund

Dear Editor,

I refer to the letter published in your December 5 edition by C Ramson titled ‘A Sovereign Wealth Fund is not what Guyana needs’. The author suggested that a sovereign wealth fund (SWF) is not what is needed in Guyana without giving justifiable reasons for it, and furnishing a proposal that he deemed appropriate. It is clear that the author lacks knowledge of the Dutch disease phenomenon and the role of a SWF, and there is no paucity of literature on the Dutch disease.

We have an unborn oil sector with lots of unveiled potential. In fact, it could be Guyana’s passport to prosperity once used prudently. Further, we have the perfect opportunity to get it right, and secure wealth for this and future generations. The APNU+AFC government must be commended for wanting to establish a sovereign wealth fund. It is indicative that they do not wish to plunder the funds and are being prudent.

‘Dutch disease’ refers to the adverse effects of the natural resource sector on the agricultural and manufacturing sectors. The effects can be detrimental to the entire economy for years to come. It is often asked why resource rich nations continue to do more poorly than nations without resources. And the answer lies with the Dutch disease and proper management of the resource and its proceeds. The African examples are cited more often than others.

Of all the measures which are taken to make a nation immune to the Dutch disease, the establishment of a wealth fund is of top priority. Norway’s success story is the most commonly known. The establishment of a SWF will seek to prevent the overheating of the economy and an exchange rate appreciation while expanding the national revenue base to benefit multiple generations of Guyanese. Saving abroad serves to reduce the excess supply of foreign currency that will be in the economy in the form of domestic currency. This measure is necessary to control excess demand which is likely to place upward pressure on the prices of commodities in the services sector.

The permanent income approach can be utilised to guide fiscal policy. This approach recommends that the expected net present value of all net future revenues from the resource be calculated. Then the constant real amount that would yield the same net present value should be calculated. Fiscal spending of resource revenue should be limited to the calculated constant real amount and the rest should be saved abroad. When the resource has been depleted, the government can then withdraw from its accumulated savings to continue spending the same constant real amount.

Revenues earned from the depletion of natural resources should be reinvested in physical capital and to a greater extent, human capital. Resources should be channelled into infrastructural development, education, and research and development in a sustainable fashion. A comprehensive and sustainable scholarship scheme should be implemented to aid in the development of the human capital. This can be seen as investing the revenue from today’s natural resources in the development of tomorrow’s human capital.

There are too many problem finders and very few problem solvers in the world today. It takes little to nothing to identify a problem but it requires much to solve one. Mr Ramson should adopt a solution oriented approach. If he believes there’s a problem, he should say why, and propose feasible solutions. It would be wise for him to divorce himself from narrow partisan politics at this point and aid, in whatever way he can, in getting Guyana onto the right path to sustainable development.

Yours faithfully,

Elton Bollers

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