As ‘first oil’ rapidly approaches, Guyanese are without the comfort of an acceptable Sovereign Wealth Fund to manage our revenues from oil.
I posed the question to President David Granger in 2016, asking that the President address the nation to inform us all of exactly what type of SWF his administration would be setting up; where it would be based; who would administer it; who would have oversight; what laws would govern it, and what type of investments it would be limited to making (S.N. July 5, 2016).
Granger signed Legislation establishing the Natural Resource Fund (NRF) in February of 2019. The NRF is structurally flawed, as it ultimately puts total control in the hands of whoever is Minister of Finance. Among the other problematic issues with the NRF are the controls governing how much money enters the fund, and how much the Government can allocate to the annual budget.
Under the Government’s proposal, a portion of the country’s oil revenue would be saved in the fund, though the Government would still be allowed to borrow. In a review of the NRF by the National Resource Governance Institute (NRGI), Andrew Bauer said: “Guyana could end up in a situation where it is saving money and earning low interest while it borrows at a higher interest rate, and in this way, the country ends up losing money.” (Consider that the US$18 million signing bonus was invested in a Canadian fund at 1% return at the same time that NICIL was borrowing at 4.75%).
NRGI says the proposed rule is unlikely to smooth Government spending, and does not constrain overall expenses. The Government could over-borrow, based on the prospect of large oil revenues, which are a decade away. The NRGI pointed to weaknesses in the NRF rules around how money in the fund can be invested, and stressed the need for rules to prohibit purchases of particularly risky assets, such as commodities and derivatives.
The issue with control of the NRF in the hands of one man can be demonstrated clearly by an examination of how Granger removed safeguards within NICIL (Guyana’s first sovereign wealth fund). NICIL was incorporated as a Private Limited Company under the Companies Act, Chapter 89:01 in July 1990. Primary objectives of the company were that of subscribing for; taking, or otherwise acquiring, holding and managing the Government’s shares, stocks, debentures, or other securities of any company, co-operative society or other corporate body.
Until recently, all decisions made by NICIL were subjected to Cabinet review and approval. This control has been removed, and the Special Projects Unit is now making decisions and entering agreements that are ratified and signed by the Minister of Finance (that man again).
It was this lack of control that saw the assets of GuySuCo being vested into NICIL without the knowledge or approval of the GuySuCo Board or the Minister of Agriculture. These assets were then pledged, along with a sovereign guarantee, for a $30 billion bond. This $30 billion was borrowed for ‘unspecified’ long-term projects. Leader of the Opposition, Bharrat Jagdeo, said: “We don’t know what the projects are as yet, but you would recall that this bond is only for five years. So they’re borrowing on a short- to medium-term (basis) for long-term projects…in five years at a 4.75 per cent interest.”
David Granger has failed to understand that multiple layers of control are needed to safeguard our resources and revenues. His belief in unilateral decision-making has led to enormous costly mistakes at NICIL. With the same unilateral structure in place for the NRF, the same can be expected, with even bigger errors anticipated.
Granger’s National Resource Fund is not a Sovereign Wealth Fund; it is a confidence trick.