The International Monetary Fund (IMF) has not only lauded authorities in Guyana for the critical amendments it made to the Natural Resource Fund (NRF) law, but it has also praised the administration for not spending a cent until that process was completed.
The government recently withdrew US$200 million from the fund after approving just over US$600 million in withdrawals in February. The new NRF Act was put in place in December.
In a recent report, the Fund said it welcomes the modifications while adding that they now set clear ceilings on withdrawals from the account for budgetary spending and promote transparency in the management and use of oil resources.
IMF staff also praised the authorities’ thorough review of the 2019 NRF Act before making amendments, as well as its restraint in using any oil revenues before the passage of the amendments.
The IMF’s commentary was noted in its Concluding Statement, a report that describes the preliminary findings of IMF staff at the end of an official staff visit or ‘mission’, in most cases to a member country.
These missions are undertaken as part of consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources, as part of discussions of staff monitored programmes, or as part of other staff monitoring of economic developments.
Upon its assumption of office in August 2020, the Government of Guyana worked assiduously towards replacing its predecessor’s Natural Resource Fund Act 2019 with the new NRF Act 2021 which now allows for more prudent management of the oil revenues.
The new legislation addressed what the current government has described as major shortcomings of the former framework. These include fundamental weaknesses in the governance arrangements, including a high concentration of powers and responsibilities in the hands of the Minister of Finance, and the complete absence of a Board of Directors or similar governing body, as required by the Santiago Principles; lack of transparency, including an opaque and unnecessarily complicated formula for determining the ceiling on withdrawals from the Fund, which was open to manipulation by the Minister of Finance; loose arrangements that allowed for expenditure to be met directly from the Fund, bypassing the appropriation process, and prior parliamentary approval.
The new NRF Act remedied these fundamental deficiencies by scaling back the excessive powers of the Minister of Finance and removing any possibility of ministerial discretion in determining the ceiling on withdrawals; establishing a Board of Directors for the first time, and vesting in that Board the powers that were previously concentrated in the hands of the Minister and removing the possibility of any expenditure from the Fund being met without prior parliamentary approval.
The new legislation states that the purpose of Guyana’s Natural Resource Fund is to ensure there is prudent management of the nation’s oil earnings for the present and future benefit of the people by ensuring that volatility in natural resource revenues does not lead to volatile public spending.
The objective of the Fund is also hinged on ensuring revenues collected do not lead to a loss of economic competitiveness, along with fairly transferring natural resource wealth across generations to ensure all Guyanese benefit from the sector. The Fund is also intended to ensure Guyana’s natural resource wealth is used to finance national development priorities, including any initiative aimed at realising an inclusive green economy.