The Ministry of Finance and the Bank of Guyana today signed a pact which brings closer the operationalisation of the Natural Resource Fund which is to receive oil revenues.
A release from the Ministry of Finance follows:
Ministry of Finance and Bank of Guyana Sign OperationalAgreement for the Operational Management of the Natural Resource Fund
As part of Government’s preparations towards becoming a petroleum producing country and in anticipation of first oil in 2020, work commenced in earnest in 2017 on thedrafting and consultations regarding the development of a Sovereign Wealth Fund(SWF) legislation for Guyana. Different countries who are fortunate enough to havesuch funds, determine the scope and objectives based on national developmentpriorities and the Santiago Principles. The better managed of these funds have benefited from a core of competent professionals, effective and robust institutional mechanismsand transparent management and reporting mechanisms.
In Guyana’s case after several rounds of internal consultations, international expertconsultations, examination of other country experiences and drafting support,particularly from the Commonwealth Secretariat an initial draft legislation wasdeveloped. In an effort to ensure awareness and secure public feedback on the content ofa potential SWF, His Excellency requested the development of a Green Paper to be laidin Parliament. A Green Paper titled Managing Future Petroleum Revenues andEstablishment of a Fiscal Rule and a Sovereign Wealth Fund was developed andpublished in August 2018. This supported wider stakeholder consultations with theprivate sector and civil society as well as international agencies and experts. Based onthe feedback and comments received for our private sector groups and civil society engagements the Natural Resource Fund (NRF) Bill No. 14 of 2018 was tabled inParliament on November 15, 2018 and assented to on January 23rd, 2019 – making theCooperative Republic of Guyana one of the few countries in the world to have developedthis type of legislation ahead of first oil!
Notable features of this landmark legislation – the Natural Resource Fund Act – include(i) a withdrawal rule that permits a flow of funds from the NRF into the national budgetthat is formula based; and, (ii) a design to achieve multiple objectives of – a) reducingthe transfer of the volatility of oil prices and production into the economy, b) meetingthe immediate and urgent development expenditure needs of our country and in turnbenefits to our people, and c) intergenerational savings to ensure that the benefits of theextraction of this resource are shared across both current and future generations,recognising that oil is finite.
In order to ensure those savings are wisely and safely held and invested, the NRF Act of2019 stipulates the mechanisms under which revenues will be deposited and howinvestments are to be conducted, including the eligible investments allowable. The Bankof Guyana has been mandated by the NRF Act to ensure that the NRF is managedprudently. Other countries that have similar funds managed by their Central Banksinclude Norway, Chile and Botswana. The inflows to the NRF will be in United States of America Dollars which will be deposited in US bank accounts held by the Bank ofGuyana. It is important to note that most central banks and SWFs manage reserves byholding them in foreign denominated currencies outside of their jurisdiction. Inpreparation for its role as operational manager of the NRF, the Bank of Guyana hasbegun building additional capacity, supported by the World Bank’s Reserves Advisory and Management Programme (RAMP), with whom an agreement was signed on October1, 2019.
On December 11, 2019, the NRF was one step closer to being operationalised after theMinister of
Finance, Hon. Winston Jordan, and the Governor of the Bank of Guyana, Dr. Gobind
Ganga entered into an Operational Agreement for the operational management of theNRF, in
accordance with sections 11 and 12 of the NRF Act 2019.
This Agreement sets forth the obligations of the Bank of Guyana as the operationalmanager of the NRF, which include: 1) receiving and accounting for all deposits into theNRF; 2) investing the NRF In eligible asset classes; 3) appointing private managers andcustodians; 4) reporting on the performance of the NRF on a monthly, quarterly andannual basis; 5) implementing management systems, procedures and risk managementarrangements in accordance with international standards; and, 6) providing the publicwith information on the NRF as required by law; among others.
The Agreement, which will be published on the Ministry’s website in accordance withsection 42 of the NRF Act, also includes the obligations of the Minister of Finance as theoverall manager of the NRF that will allow for the effective operational management ofthe NRF by the Bank of Guyana. Additionally, the Agreement identifies certain principles for the operational management of the NRF to ensure transparency andaccountability. Other important aspects of the Agreement include the fees to be chargedby the Bank of Guyana, procedures for the appointment of private managers andcustodians, and the liability for losses that may occur.
Signing today is a significant next step in establishing strong institutional arrangementsto support the effective management of our petroleum revenues
