World Bank calls for independent and well managed oil fund

Oct 14, 2024 News

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(World Bank calls for independent and well managed oil fund to prevent inflation and overvaluation of the local currency)

 

Kaieteur News – The World Bank’s Chief Economist for Latin America and the Caribbean (LAC), William Maloney, has underscored the need for Guyana to ensure that its Natural Resource Fund (NRF) is well-managed and independent.

Monies earned from oil sales and royalties from ExxonMobil Guyana Limited (EMGL) operation in the Stabroek Block is deposited into Guyana’s NRF (oil fund).

During a press conference held on Wednesday, Maloney highlighted the country’s promising future due to its petroleum sector, but cautioned that managing these resources will present significant challenges.

Maloney pointed out that the primary concern will be to prevent overvaluation of the local currency and inflation, issues that could arise if oil revenues are not properly utilized.

“Guyana clearly have a bright future in terms of revenues coming from petroleum and I think the challenge is going to be to use those revenues correctly in such a way that (they) don’t drive overvaluation of the currency and drive inflation in the country,” Maloney said.

He emphasised the importance of ensuring that these funds are used in ways that promote long-term economic stability. The World Bank official added, “That’s gonna mean having a very well-run and independent sovereign wealth fund. I think that’s gonna be a big challenge going forward.”

Moreover, he also noted that the World Bank is working with Guyana to ensure that the country’s oil investments are environmentally sustainable.

Recently, the Government of Guyana (GoG) withdrew $62.3 billion from the oil fund, bringing its total withdrawal to date for the year to $239.176 billion.

Kaieteur News had reported that concerns have been raised about the management of the NRF. Recently the Chairman of the National Assembly’s Public Accounts Committee (PAC), Jermaine Figueira called for transparency when using Guyana’s oil money. He even cited the need for possible amendments to the Act.  Section 16.2 of the Act states that “All withdrawals from the Fund shall be deposited into the Consolidated Fund and shall be used only to finance: (a) national development priorities including any initiative aimed at realizing an inclusive green economy, and (b) essential projects that are directly related to ameliorating the effect of a major natural disaster.”

To date, the government has budgeted approximately US$2.6B in oil money through 2022 to 2024.  Revenues earned from oil are transferred to the Consolidated Fund, blurring tracks of expenditure. Government is yet to identify the “national development priorities” being funded by oil revenue. This is particularly concerning because the legislation features no penalties for misuse of the funds.

Figueira however, pointed to the need for transparency when using resources from the sector. He noted that the NRF Act is clear on how the funds should be spent. “…we require more specifics because the Act is very clear with regards to how those funds should be spent and if you just lump sum it into the consolidated fund, we need to know definitely of those funds that were transferred into the consolidated fund that are they being used for the specific purposes with regards to what the Act speaks to.”

Amendments to the NRF Act

The Parliamentarian said the NRF Act may require amendments to justify transfers to the Consolidated Fund for spending across the board, rather than for specific purposes outlined in the Act. These amendments according to him are crucial to ensure there is absolute conformity with the legal requirements. He said, “Given how it is being transferred and the unknown of how it is being utilized it therefore requires some additional amendments to give greater clarity on the direction of how these funds should be directed and used.”

Figueira is adamant that the public must know how much of the Fund was used for any specific project. According to him, this can be done through the Budget documents in order to certify that the funds are being utilized in accordance with the act. He also shared the view that the oil money should be subjected to a separate audit. Figueira explained, “This is the most important sector and therefore a lot of attention should be directed specifically to these funds. We want to ensure that the country doesn’t suffer from the Dutch disease and therefore, these funds should be dispersed in a manner that is very responsible and therefore special attention should be directed specifically to that sector to manage the fund.”

Dangers

International Financial Analysts worry that the revenue may not be used to develop Guyana and improve the lives of its impoverished citizens because there is little transparency regarding the use of the country’s oil wealth. For instance, Director of Financial Analysis at the Institute for Energy Economics and Financial Analysis (IEEFA), Tom Sanzillo had pointed out that the government has not been prioritising saving the funds generated from the industry like Norway but has instead embarked on a massive infrastructural and energy development scheme which may very well benefit its partner, ExxonMobil more than the citizens in the country. Meanwhile, the government previously said that money from the oil account is transferred directly to the Consolidated Fund which blends the various revenue streams. This means the government is unable to say what specific projects were funded by those earnings.

(World Bank calls for independent and well managed oil fund)

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• Caribbean, environmentally, Guyana, Natural Resource

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