Guyana should not be too excited about saving a huge amount of its oil revenues in a Sovereign Wealth Fund (SWF) because there are risks such as the loss of future value of monies, Distinguished Economics Professor Clive Thomas said.
“A dollar now is worth more than a dollar in the future so we are trading real benefit when we put money in a sovereign wealth fund,” he told Demerara Waves Online News.
He made known his position just days after Finance Minister, Winston Jordan laid government’s Green Paper on the Sovereign Wealth Fund in the National Debate ahead of the tabling of legislation expected during the last quarter of this year.
Thomas noted that wealth funds provide for the location of the funds overseas to avoid inflationary pressure, but at the same time persons in their home-country could not gain much needed access. “I would be very cautious about how much income I put into a sovereign wealth fund but because Guyana is accepting it so uncritically without any public discussion, as if it is something that we must do, I’m fearfully that we might over commit,” he said.
Called in Guyana the Natural Resource Fund (NRF), the Finance Ministry said the wealth fund would guard against an “overheating economy” by balancing the release of cash with the country’s ability to spend it without fueling inflation.
“A NRF would ensure earnings from petroleum only enter the economy at a rate at which the economy can absorb these additional resources. Excessive domestic spending can also result in overheating the economy where excess
aggregate demand is unable to be met by the economy’s productive capacity; inevitably inflation rises,” the Finance Ministry added. The NRF also highlights the need to focus on spending funds on developing high quality infrastructure.
Government says all revenues from petroleum will be deposited into NRF – a US dollar bank account held by the Bank of Guyana from which a withdrawal will be made into the Consolidated Fund to form part of the income streams for the annual budget. The Ministry of Finance says it will request withdrawals as part of its annual budget proposal. “Withdrawals cannot exceed the amount approved by Parliament.”