Economist, Richard Rambarran is commending the Guyana government for resisting the temptation of borrowing heavily against the Natural Resource Fund (NRF), which holds oil production revenues. He said this is helping to keep the “presource curse” at bay.
Rambarran made these remarks during an interview last Thursday on local radio programme, Guyana’s Oil and You.
There, he articulated that Guyana, though a young oil producer, is already demonstrating that it is an example to follow in oil fund management.
In the face of growing excitement over prospects for the oil fund, Rambarran said the government has remained level-headed, thereby, containing wasteful spending and preventing the economy from being derailed by the “presourse curse” which entails borrowing excessively against expected income.
He said there are countries that operate for decades without the implementation of a Sovereign Wealth Fund (SWF); hence when the price volatility hits, countries feel the economic squeeze and are left to fill major budget craters with debt.
“These countries obviously have to get the money from somewhere. So, they borrow, rack up debt or they then print more money to finance current expenditure and that can push you into an inflationary situation. So, the NRF and its early implementation in Guyana means we are already on the right path,” Rambarran noted.
The Economist, who was also recently appointed to serve on the NRF’s Investment Committee, was keen to note the simplified withdrawal rules governing the account. This, he asserted, puts Guyanese in a position to hold the country’s leaders accountable for excesses as he reminded that in some territories, these rules are not clearly delineated or understood.
With the Fund’s withdrawal rules which allow a portion of the oil money to be transferred to the consolidated fund on an annual basis to support the nation’s development, Rambarran argued that the country is in a better position to manage budget deficits.
He argued that the NRF, therefore, serves as a useful instrument to aid the country’s transformation. Rambarran added that its early implementation will mean the country is able to mitigate any of the impacts that would have otherwise been had in its absence.
Managing debt risks has historically been a high-priority matter for the current administration. Bank of Guyana noted for example in its 2022 half-year report that the total stock of outstanding public debt increased marginally by 3.9% to US$3.2 billion reflecting an expansion in domestic debt as external debt declined.
This outcome is consistent with the government’s policy of utilising more domestic financing to mitigate exchange rate risk, as well as stimulate domestic financial market development.