Polish Economist Ludwik Kotecki believes that strong fiscal rules will play a vital role in the management of oil revenue by helping Guyana avoid commodity price shocks, pro-cyclical government expenditures and the Dutch Disease; all elements of the dreaded resource curse.
Kotecki told a number of Guyana government officials, Members of Parliament and other stakeholders, during a recent presentation on Stablization/Sovereign Wealth Funds in Georgetown, that fiscal rules build and preserve fiscal space, and can have strong positive effects in small countries like Guyana. “Where fiscal policy is often a powerful tool for macroeconomic stabilization, in some cases the only one, fiscal rules become vitally important,” he said.
Fiscal rules, he said, should not be too complicated or rigid but instead be, “simple, transparent, flexible and country-specific. It should also be stable (credible), consistent and with a broad institutional and economic coverage,” he stated.
Simplicity helps the rules to be understood by decision-makers and the public and makes it easy to monitor and follow. The Polish Economist also pointed out that there should be elements of enforcement, flexibility and transparency.
He was also careful highlight that poorly designed fiscal rules can result in pitfalls which include the reduction of transparency “by encouraging creative accounting or off-budget operations.”
The World Bank and Government of Guyana staged a high-level workshop on Stabilization/Sovereign Wealth Funds on May 21 in the South American country’s capital city, as part of a number of initiatives being taken to enhance knowledge and understanding of what is required to successfully manage the expected windfall from oil production.
Guyana’s Finance Minister, Winston Jordan, delivered opening remarks followed by World Bank Country Director, Latin America and the Caribbean Region, Tashseen Sayed Khan.
Presentations were also made by Norwegian Economist and expert, Vidar Ovesen. Mr. Ovesen’s area of expertise is revenue management of natural resources while Mr. Kotecki is an expert on fiscal rules.