Measures taken to protect NRF from foreign currency risk – BoG

…NRF Board reports US$17M interest profit for 2022

Since 2020, Guyana’s revenue from oil and gas has been held in the New York Federal Reserve, where it benefits from favourable interest rates. And according to the Natural Resource Fund (NRF) Board, measures are taken to protect the money from foreign currency risk.
This is contained in the NRF Board’s inaugural report since they were appointed in August of last year. While they noted that there is credit, market, interest rate and foreign currency risks that come with managing a fund, the bank of Guyana assured that these risks are managed.
In the case of interest rate risk, which is defined as the risk of future cash flows fluctuating, the bank explained that it manages this risk by continuing to monitor market conditions and yields. Meanwhile, foreign currency risk is present due to the holdings of foreign currency assets.
“The bank manages the risk of adverse exchange rate movements through constant monitoring of market conditions and trends. Further mitigation measures are also taken to ensure that foreign currency assets are maintained in stable currencies. The principal currency in which foreign assets are denominated is the United States dollar.”
When it comes to reporting on the fund’s performance, it was revealed that the fund recorded a $3.6 billion (US$17 million) profit for 2022, due solely to the interest earned on the deposits. This is a stark increase compared to 2021’s figures of US$0.12 million.
“This resulted in a return of 1.581 per cent for the year, compared with 0.026 per cent for 2021, with 0.021 per cent being earned in the first quarter, 0.177 per cent in the second quarter, 0.513 per cent in the third quarter and 0.863 per cent in the fourth quarter. The fund earned an annualised return of 0.540 per cent since its inception,” the report states.
In the first quarter of 2023, Guyana received in excess of US$300 million in payments for profit oil and royalty, increasing the balance of its Natural Resource Fund to well over US$1.4 billion by the end of March 2023.
Based on the gazetted inflows of money for the first quarter, the Natural Resource Fund received US$377.1 million in oil and gas payments. This included a payment of US$157.6 million made in January for two profit oil lifts that occurred last year from the Liza Unity and Liza Destiny floating production, storage and offloading (FPSO) vessels.
Meanwhile, payments dating from last year’s transactions also included a royalty payment of US$57.5 million for the 2022 fourth quarter oil production. Meanwhile, Guyana received payments for two lifts that occurred this year from both FPSOs.
There was also a payment of US$82.2 billion for a lift of profit oil that occurred on January 17, 2023, from the Liza Destiny FPSO. There was also a payment of US$79.6 million for a lift from the Liza Unity that occurred on February 3, 2023.
There have also been withdrawals. In May, the Government made its second withdrawal from the NRF for 2023, intended to fund programmes under this year’s $781.9 billion budget. Minister of Finance, Dr Ashni Singh had announced the withdrawal of US$200 million ($41.6 billion) from the fund. He had assured that, in accordance with the law, this sum would be transferred to the Consolidated Fund.
Previously, the first withdrawal for this year was made in February. In December 2022, the Government had made its third overall withdrawal — US$207.6 million (G$43 billion) in oil funds — from the fund, which went towards financing Guyana’s national development plans. This had brought the accumulated withdrawals from the NRF for the year 2022 to US$607.6 million, equivalent to G$126 billion, in line with approved amount in the 2022 budget.”
In January of this year, the Bank of Guyana signed an agreement to officially hand over control of the NRF to the Board of Directors appointed by the President. According to Section 5 (6) (d) of the Act, the Board is required to enter into an operational agreement with the bank, so that management of the fund can change hands. This agreement was signed two days after the reading of the 2023 budget.
The NRF Board consists of five members, while the Public Accountability and Oversight Committee (PAOC) is comprised of nine members, and the Investment Committee, seven members. When it comes to the NRF Board, it is Chaired by Retired Major General Joe Singh.
Other members of the Board are Guyana’s Permanent Representative to the United Nations, Carolyn Rodrigues-Birkett; Private Sector Executive Ramesh Dookhoo; former People’s National Congress (PNC) parliamentarian Dunstan Barrow; and former Chancellor of the University of Guyana, Professor Compton Bourne.
In June of this year, Vice President Bharrat Jagdeo had made it clear that even more must be done to further strengthen the management system under which the fund operates, especially since the oil money Guyana accumulates will only increase. (G3)