Andrew Bauer
January 21, 2022
The administrative power of Guyana’s government over the Natural Resource Fund is concerning and is one of the most “top heavy” bureaucratic systems anywhere in the world , Natural Resource Fund Expert and Economist Andrew Bauer says.
And while he believes that there are noteworthy elements of the current Act over the repealed one, he believes that the lack of consensus by the PPP/C in the formulation of the Bill is a missed opportunity to correct a wrong incurred by the APNU+AFC government. Thus, both parties have failed the nation, setting the tone for future problems. Bauer visited Guyana in 2018 and spoke on Sovereign Wealth Funds.
“It is the most top heavy bureaucracy for any sovereign wealth fund I have seen anywhere. Perhaps most concerning is that none of those elements of that bureaucracy are independent of the government,” Bauer told the Stabroek News in an interview via phone from his home in the United States.
“Normally, where there is a supervisory council or an oversight body, the way this bill is set, normally that body is not appointed by the government. It is appointed either by civil society or by parliament or other groups that are not the President or Minister of finance. What we find in this bill is that even the supervisory bodies are named by the government, which is concerning,” he added.
Bauer whose career was spent analyzing the Sovereign Wealth Funds of nations across the world, said that the argument that an independent oversight body is this country’s Auditor General’s office cannot hold ground because that too is a state body.
“The only independent oversight of the fund is provided by the Auditor General’s office which is also a government body, who may, only if they wish, employ an external auditor, and even that is not a requirement. So the lack of independent oversight is of concern,” he noted.
On December 30, 2021, President Ali assented to the controversial Natural Resource Fund Bill, paving the way for the extraction of the entire amount to be deposited in the Consolidated Fund for budgetary use. On December 31, 2021, Senior Minister in the Office of the President with responsibility for finance Dr Ashni Singh promulgated an order setting the commencement date for the Act as January 1, 2022.
Government now has access to US$607.6 million to spend this year from the fund. The Bank of Guyana Report on the NRF for the month of December showed that the closing balance of the account was US$607,646,570.
The NRF is to be governed by a Board of Directors comprising not less than three and not more than five directors. One person is to be selected by the private sector and this process has already begun. Parliament will then have to consider the nominee put forward by the Committee on Appointments.
A motion is set to be moved at Monday’s sitting of Parliament calling on the Committee on Appointments to recommend a candidate for the Board.
The NRF legislation has proved controversial and the opposition made a raucous, failed attempt on December 29 to prevent its consideration and passage. It is unclear if opposition members of Parliament on the Committee on Appointments will take part in the deliberations. Even if they did, the PPP/C has a majority on the committee and will be able to decide the candidate.
President Irfaan Ali can appoint up to three members of the NRF in his own deliberate judgement and this has sparked consternation. The President has not said how he will determine who his nominee is. The view has also been expressed that the nominees from the private sector and parliament will be persons that the government is comfortable with.
The members of the board have to be selected from among persons who have wide experience and ability in legal, financial, business, or administrative matters.
‘Big problem’
When he had given a presentation in Georgetown 2018 and before the APNU+AFC had laid their NRF Bill, Bauer had emphasised that the success of any Fund was hinged on consensus.
He reiterated this position during the interview with Stabroek News and lamented that the current government could have used the opportunity to correct a wrong but it didn’t.
“The previous government had the same approach in the lack of consultation on the draft Bill. I think both political parties made the same mistake and that was to not build consensus on these fiscal rules and management of the fund before passing the Bill,” he contended while positing that it would pose a problem in the future.
“The reason it is a big problem is because fiscal rules are meant to last for a long time. They are meant to last for possibly decades. And if you don’t have consensus from the parties on these important rules before you pass the Bill, then as soon as the other party comes into power, they are going to change all the rules or they are just going to ignore the rule. You don’t want that. So the process by which the previous and this government passed their Bill is concerning,” he added.
And aside from oversight, the economist and public finance expert said that from his analysis it is incomprehensible how the percentage of savings versus spending ratio was arrived at as it is not explained anywhere.
In that way, he said that analysts are unable to say if it is a bad or sound decision.
“The other concern would be around to think about is how much oil money is saved versus spent. If you look at the last part of the Bill, in the schedule, there is a formula for how much has to be saved versus spent. Parliament could choose to save more in any given year but the government is allowed to spend all of the first $500 million in oil revenues and then spend 75 per cent of the next $500 million. In other words, if they collect a billion in oil revenue in a given year they only have to save $125 million that is a small percentage of savings. Is that a good or bad thing? It is not clear,” he explained
“It could be that clearly, Guyana needs investments in education, infrastructure, health care, technology… all the things you need to develop a country and transform an economy from low income to middle income to high income. So there is a need for public spending. Too much saving also I think would have been a bad thing. But the question is: Is this the right amount of savings versus spending? In other words, does this heat up the economy to a degree where you don’t get more schools and hospitals and roads and electricity but you just get more expensive schools and more expensive roads and more expensive hospitals and more expensive electricity or in other words – inflation? I am not sure that the ratio of spending to saving in that Bill is set at the right amount, but I am also not sure it is the wrong amount. I think it is just something that needs a little more [explanation],” he added.
But the SWF expert was in high praise for other elements of the Bill saying that aside from consensus it is one of the most comprehensive and compared to the one APNU+AFC created, simpler to comprehend.
“There are some really interesting innovations in there [for example] on investments guidelines requiring that the equities portfolio of the SWF be only invested on a specific set of equities that are in a given index or MSCI Morgan Stanley Capital International). Those sorts of things are really innovative…,” he pointed out.
“It also requires a great degree of transparency; information that must be made available to the public is listed in the Bill; so there are some really strong elements of the Bill. Also, the fiscal rules [deposit and withdrawal rules]… there are a great improvement over the previous version drafted by the previous government,” he added.
