As part of Government’s preparations towards becoming a petroleum producing country and in anticipation of first oil in 2020, work commenced in earnest in 2017 on the drafting and consultations regarding the development of a Sovereign Wealth Fund (SWF) legislation for Guyana. Different countries who are fortunate enough to have such funds, determine the scope and objectives based on national development priorities and the Santiago Principles. The better managed of these funds have benefited from a core of competent professionals, effective and robust institutional mechanisms and transparent management and reporting mechanisms.
In Guyana’s case after several rounds of internal consultations, international expert consultations, examination of other country experiences and drafting support, particularly from the Commonwealth Secretariat an initial draft legislation was developed. In an effort to ensure awareness and secure public feedback on the content of a potential SWF, His Excellency requested the development of a Green Paper to be laid in Parliament. A Green Paper titled Managing Future Petroleum Revenues and Establishment of a Fiscal Rule and a Sovereign Wealth Fund was developed and published in August 2018. This supported wider stakeholder consultations with the private sector and civil society as well as international agencies and experts. Based on the feedback and comments received for our private sector groups and civil society engagements the Natural Resource Fund (NRF) Bill No. 14 of 2018 was tabled in Parliament on November 15, 2018 and assented to on January 23rd, 2019 – making the Cooperative Republic of Guyana one of the few countries in the world to have developed this type of legislation ahead of first oil!
Notable features of this landmark legislation – the Natural Resource Fund Act – include (i) a withdrawal rule that permits a flow of funds from the NRF into the national budget that is formula based; and, (ii) a design to achieve multiple objectives of – a) reducing the transfer of the volatility of oil prices and production into the economy, b) meeting the immediate and urgent development expenditure needs of our country and in turn benefits to our people, and c) intergenerational savings to ensure that the benefits of the extraction of this resource are shared across both current and future generations, recognising that oil is finite.
In order to ensure those savings are wisely and safely held and invested, the NRF Act of 2019 stipulates the mechanisms under which revenues will be deposited and how investments are to be conducted, including the eligible investments allowable. The Bank of Guyana has been mandated by the NRF Act to ensure that the NRF is managed prudently. Other countries that have similar funds managed by their Central Banks include Norway, Chile and Botswana. The inflows to the NRF will be in United States of America Dollars which will be deposited in US bank accounts held by the Bank of Guyana. It is important to note that most central banks and SWFs manage reserves by holding them in foreign denominated currencies outside of their jurisdiction. In preparation for its role as operational manager of the NRF, the Bank of Guyana has begun building additional capacity, supported by the World Bank’s Reserves Advisory and Management Programme (RAMP), with whom an agreement was signed on October 1, 2019.
On December 11, 2019, the NRF was one step closer to being operationalised after the Minister of Finance, Hon. Winston Jordan, and the Governor of the Bank of Guyana, Dr. Gobind Ganga entered into an Operational Agreement for the operational management of the NRF, in accordance with sections 11 and 12 of the NRF Act 2019.
This Agreement sets forth the obligations of the Bank of Guyana as the operational manager of the NRF, which include: 1) receiving and accounting for all deposits into the NRF; 2) investing the NRF In eligible asset classes; 3) appointing private managers and custodians; 4) reporting on the performance of the NRF on a monthly, quarterly and annual basis; 5) implementing management systems, procedures and risk management arrangements in accordance with international standards; and, 6) providing the public with information on the NRF as required by law; among others.
The Agreement, which will be published on the Ministry’s website in accordance with section 42 of the NRF Act, also includes the obligations of the Minister of Finance as the overall manager of the NRF that will allow for the effective operational management of the NRF by the Bank of Guyana. Additionally, the Agreement identifies certain principles for the operational management of the NRF to ensure transparency and accountability. Other important aspects of the Agreement include the fees to be charged by the Bank of Guyana, procedures for the appointment of private managers and custodians, and the liability for losses that may occur.
Signing today is a significant next step in establishing strong institutional arrangements to support the effective management of our petroleum revenues.