Part 117
Introduction
The International Monetary Fund and the Inter-American Bank have both expressed concerns about the structure and operations of the Natural Resource Fund, one of the PPP/C’s flagship projects directly associated with the oil and gas economy. This column would like to add a couple of problems it too has identified: the absence of any appropriate investment strategy and the rather more basic issue whether the balance shown in the Fund is accurate and legally correct.
Let us recall that the APNU+AFC Coalition had passed and began the implementation of a its own Natural Resource Fund Act in 2019 but this was strongly criticised by the then Opposition PPP/C as being too complex and involving too many people. It was no surprise then that the repeal and replacement of that Act was one of the first major pieces of legislation by the successor PPP/C Government in the first year of Irfaan Ali’s term of office. Just as a reminder, the most famous event concerning this Fund during the Granger Administration was the so-called signing bonus which the APNU+AFC Coalition had for a considerable time sought to hide from the people of Guyana. I describe this as a “so-called signing bonus”, because its real purpose was to pay legal fees.
IMF and IDB
Institutions like the IMF, the World Bank and the IDB, recognising that they have to maintain an ongoing relationship with countries, are always careful in their criticisms of host governments. Yet even this disguised language in the recent comments and recommendations emanating from the IMF and the Inter-American Development Bank (IDB) suggest that the replaced Act may actually have been superior to the current Act. Indeed, the IMF is encouraging the government to carry out an in-depth analysis, by an independent consultant, of existing absorptive institutional capacity constraints on scaling up of public spending. Whether the government will heed such advice is uncertain, if not unlikely, but any improvement in the process may not be welcome since it will impose curbs on runaway spending.
Clearly not impressed with the existing arrangements, the IMF is also advising the government to establish a “precautionary stabilisation fund” in the medium to long term as a hedge against shocks. What this seems to suggest is that the IMF is actually recommending a stabilisation fund within the Natural Resource Fund!
The IMF Report further notes, using the shorthand term fiscal policy, that government tax and spending policies have a direct impact on economic conditions and that in ensuring that Guyana’s oil wealth is managed effectively and equitably, the Government is advised not to ignore long-term fiscal and debt sustainability. The context of course is not only that petroleum is an exhaustible nature but also that it is famous for large and unpredictable swings in prices. It is not in the DNA of the PPP/C to prefer management to spending and one fears what is likely to happen in the final year and months of an election cycle. We are not quite there yet and already for 2023, the PPP/C has gone back to the National Assembly on five occasions supplementary funding.
Turning to its specific recommendation of a “precautionary stabilisation fund”, the IMF noted that it would help smooth the fiscal adjustment while allowing the government to make an informed assessment on the gravity and permanence of the shock.
The IDB country strategy took a slightly different approach pointing out the possible imbalance from an overvaluation of the real exchange rate. The issue of the exchange rate of course is a two-edged sword. If the foreign exchange earned is all remitted and injected into the economy, the impact on the exchange rate could have serious implications for the rest of the economy, including the Dutch disease, with direct consequences for the export products of the country.
The Fund
The Bank of Guyana publishes quarterly financial summaries of the NRF, the most recent being for Quarter 2, and Quarter 3 ended at 30 September. The summary shows that the Fund had an opening balance at 1 January 2023 of G$298 billion and at the end of September the balance had increased to G$391 billion. The return on the Fund however has been negligible with only G$12.5 billion earned in nine months.
What is disturbing about the Fund is that the entire portfolio is held in cash and cash equivalents, although the latter term is not defined in the Summary. The 2022 financial statements of the Fund, audited by the Office of the Auditor General, show the entire balance comprising balances with foreign banks. Since the financial statements are not accompanied by a directors report or a governance statement, it is therefore not possible to determine what decisions the Investment Committee has so far made on an appropriate portfolio that can maximise investment income while securing that investment.
And it is here where I have my biggest problem. We know as a fact that the oil companies are issued with certificates of taxes paid by the Minister of Natural Resources to the Guyana Revenue Authority for the taxes computed as payable by the oil companies. To see where that money comes from to pay the tax, one must turn to Article 15.4 (b) of the 2016 Petroleum Agreement. The Agreement provides that those taxes are paid from the Government’s share of profit oil. The problem is that the whole business of the payment of taxes and the issue of certificates has been withheld from the public.
I find it difficult to believe that the Guyana Revenue Authority would issue a receipt for moneys it does not collect. Forget for a moment, that those oil companies claim credits in their home countries for taxes represented by the Certificates but which they did not pay. This column considers this whole question a complete cover-up involving key agencies of the state and one can only speculate whether the reason for this cover up is to prevent the Guyanese public from knowing the annual amount of taxes paid by the government on behalf of these avaricious oil companies.
When it comes to withholding information from the public, the PPP/C is not an iota different from that of its predecessor.
It is our opinion therefore that the NRF balance is overstated by tens of billions of Guyana dollars.
