Oil, Government Take & Spending: Navigating Guyana’s Development Challenge ̶ 12

Introduction

Today’s column starts with a wrap-up of the discussion on intergenerational equity. Afterwards, I turn to address the budget rule for spending petroleum revenues or Government Take, known as the “permanent income hypothesis budget rule”.

Last week’s column had argued that, essentially, the term intergenerational equity seeks to convey the notion of “fairness across and not within generations”. Given this 1) the expected increasing cost to retrieve petroleum discoveries as well as their ultimately finite nature; 2) the environmental damage historically associated with petroleum; and, 3) Guyana’s Green State Development Vision, together combine to make this particular development challenge, especially acute. Environmental economics acknowledges two different ways of looking at the requirement to ensure future generations can supply their needs. These two ways are termed “weak” and “strong” sustainability. These are discussed below.

Weak Sustainability

Weak sustainability posits that, Guyana’s natural resources (or natural capital) should be available not only to the generation, which “discovers” these, but all future generations as well. Fairness requires future generations are compensated through providing for them, at the minimum, alternative sources of wealth creation derived from the use of natural resource discoveries. In this regard, environmental economics acknowledges both man-made capital (human capital) and natural capital (natural resources). Weak sustainability therefore, requires that human capital is substituted to its equivalent for natural capital, if this capital is depleted in any given generation…..

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