Home Editorial Understanding the Withdrawal Rules, the NRF and the rationale
In one of the Vice President’s recent press conferences, he responded to a series of misinformation peddled by a think tank organisation named the Institute for Energy Economics and Financial Analysis (IEEFA). In one of the articles done by the IEEFA, the author argued that the Government had drawn down 100% of the funds from the Natural Resource Fund (NRF). However, the IEEFA failed to acknowledge the full withdrawal rules and/or formula of the fund, and the rationale for the formula.
With respect to the first drawdown, Sanzillo ignored the withdrawal rules and the rationale for the withdrawal rules in the NRF Act, where there is a sliding scale from 100% to 3%. To this end, all withdrawals from the Fund have to be deposited into the Consolidated Fund, in accordance with the Act, thus subjecting the monies from the Fund to full parliamentary scrutiny and approval through the budget process. According to the withdrawal rules (first Schedule), the ceiling on annual withdrawals is as follows:
1. 100% of the first US$500 million
2. 75% of the second US$500 million
3. 50% of the third US$500 million
4. 25% of the fourth US$500 million
5. 5% of the fifth US$500 million
6. 3% of any amounts in excess of US$2.5 billion.
Rationale for the Withdrawal Formula
With this simplified formula, one can observe that the withdrawal rules of the Fund are NOT designed to withdraw all of the monies from the fund each fiscal year, especially as the balance of the Fund starts to grow. The upfront drawdown from the Fund is necessary to accelerate and advance Guyana’s massive development agenda in infrastructure (new roads and bridges, drainage & irrigation, social infrastructure, health care, education, national security, and ICT etc.), all of which are aimed at modernising, transforming the economy, and to structurally diversify the economy away from oil and gas; and, more so, a heavy emphasis on improving national competitiveness.
This is in keeping with a sustainable development model framework, thus preventing the economy from being exposed to any significant risks of bankruptcy and external shocks, and averting the paradoxical Dutch disease, or resource curse.
There is another important positive impact as a direct result of this withdrawal formula, and that is: the reduction in the national debt, in the first five years at least – thereby freeing up more liquidity in the banking sector to extend more credit to the Private Sector. As such, this augurs well for the long-term macroeconomic stability framework of the economy as the country seeks to accelerate development to a modern economy. In other words, what might take 50 years to achieve without oil, Guyana can now achieve in 25 years, or half that time.
Importantly to note is that the investments of today are also for the benefit of the future generations and the present generation. The new four-lane road networks that will be built, the modern education system, cheaper energy, etc., will be enjoyed by the present and future generations.
The Government and country cannot only save for the future generations, but also needs to invest in the facilities, infrastructure, education system etc today for the future generation to enjoy. This is more so against the backdrop of Guyana’s development being stymied for various reasons, including political, for the past 15-20 years. For example, the new bridge across the Demerara river was identified as part of the 1996 development strategy, and should have been built 15 years ago; the Amaila project should have been built 10 years ago; the Brazil-Lethem road, Corentyne bridge connecting Guyana and Suriname, and a deep water port, to name a few, are examples of important development projects, a strategic national investment that was all part of the 1996 development strategy, and should have already been implemented.
But because of several periods of political instability during those years, a total of 17 years of disruption and political attempts to destabilise the country, those projects could not have been implemented.
Then there was the minority Government during the period 2011-2015 (which triggered snap elections in 2015) because, under this dispensation, the political Opposition at that time would have vetoed almost everything, including national budgets in the National Assembly. And so the country could not have moved forward as a result of this deadlock.