Sovereign Wealth Fund will have effective budget stabilizing feature – Trotman
While the intention to create a Sovereign Wealth Fund has earned the APNU+AFC administration much praise, there remains concern by some that the nation is yet to know what will be the specific features of the Fund.
Hoping to bring some clarity to the matter recently was Natural Resources Minister, Raphael Trotman. He told Kaieteur News that the Fund will have several features, one of which will be for budget stabilization.
“One must first understand that the Sovereign Wealth Fund is just a generic name. Most funds of this kind have several features which ours will have as well. However, the main characteristic of this Fund is to save money for the future generation which would be garnered from our oil wealth.”
Minister Trotman said that there is already a draft for the Fund in place. He said that it is in the possession of the Finance Minister, Winston Jordan. The Executive Member of the Alliance for Change (AFC) said that government is going to continue with efforts to refine the Bill before bringing it for public discussion.
“It will, of course, have a feature for saving money and one for investing money. It will also have another crucial aspect which will be a budget stabilizer. In this regard, let us take the gold sector for example. Let’s say we have the Fund and the government puts together a budget expecting that it will get $5 from the gold sector but it only collects $3.”
In this regard, the Minister posited that Government would be able to enter the Fund to make up for that shortfall. He said that this would be done so as to ensure that budget targets, once announced, are met.
“So you can now take from the Fund to ensure you have levels of growth in the economy and you can meet the programmes and targets budgeted for. Additionally, there is another aspect of the Fund that will be dedicated to environmental protection. So some moneys from the fund will be put aside to protect the environment and then we are looking at infrastructural and social welfare projects,” expressed Minister Trotman.
LOOKING TO NORWAY
Minister Trotman shared that he has observed some naysayers emphasizing that Guyana should look to Norway for help with fashioning Guyana’s upcoming Fund. After all, Norway is touted as having the largest Sovereign Wealth Fund in the world. In fact, Norway’s Fund has a total worth of $847.6bn. The fund comes mostly from the Scandinavian country’s oil revenues and, after accounting for management costs and inflation, generated an annual return of 3.8 per cent between 1988 and 2014.
But Trotman insists that the studies show that Guyana and Norway are worlds apart and as such, Guyana’s Fund will see more spending being done.
“Guyana is different from say Norway. Norway is a developed country. And so a lot of people say you have to look at Norway because they have the best fund in the world but countries like Guyana that suffer certain deficiencies are behind in terms of roads, airports, bridges, schools and so forth. So you will expect a little more of your money would be spent on those areas of infrastructure, education and health so that you can bring your people up to a better standard of living at a faster rate.”
The Natural Resources Minister contended that some countries save a larger percentage of their oil revenue earnings. He stressed however that “the studies have shown that that the Norway model is not necessarily the best for one, countries like Guyana.”
Trotman said, “When you are coming from behind you need to inject more money. So for example the road to Brazil, hydro power projects, bridging the Demerara River, deep water port etc, those are projects that the Fund can pay for. It can also ensure that our university is brought up to world class standards and students are given grants for a higher education.”
The Natural Resources Minister also stated that the Fund will have a feature to address the elimination of poverty.
In this regard, he stated, “This government strongly believes that no child should be made suffer from malnutrition or is unable to go to school because of a lack of uniforms. So the fund will also look at those things.”
The AFC Executive Member assured that the Fund will also have a feature to ensure every administrative region benefits equally as well.
During his 2017 budget presentation, Trotman told the House that it is important that the extractive industries that fuel the nation’s growth today also provide for the children tomorrow. In an effort to ensure that the benefits accrued from the natural resources sector reach every Guyanese for generations to come, he said that the Government is committed to the establishment of the Fund and will develop a framework for it this year. He had promised to do so since last year on several occasions.
Nevertheless, he commented that the Sovereign Wealth Fund will enable the Government to protect the economy from the volatile nature of natural resource revenues, help grow and modernize the sustainable non-extractive sectors of the economy, and further enhance the capacity of the citizenry.
“We have already indicated that we will consider three sub-funds within the Sovereign Wealth Fund. The three sub-funds are: 1) Stabilization Fund, 2) Infrastructure and Social Development Fund and 3) Citizens Participation Fund. We have already begun seeking advice and guidance on developing such a Fund from the School of Public Policy- University of Calgary and the Commonwealth Secretariat, both of which are equipped with strong expertise on extractive resource governance,” the Natural Resources Minister had said.
Trotman noted that the creation of a long overdue sovereign wealth fund will demonstrate to Guyanese and the world at large, that hydrocarbon development, and by extension all other extractive industries, can be catalysts for a green economy.