Tag: Sovereign Wealth Fund

Introduction

We continue and conclude today on what is known as Sovereign Wealth Funds, essentially special purpose state-owned investment funds to achieve financial objectives using investment strategies, tools and instruments. We noted last week that there is no single model of SWF’s and that each is determined by the objectives which the relevant government seeks to achieve. As would be obvious from last week’s column I find the Singapore model particularly attractive and one which Guyana will do well to consider as a model, modified of course by Guyana’s national objectives and its state of development.

A reason for my preference for Singapore’s two SWF’s is that they had their origin in an era when that country’s economy was not significantly dissimilar to that of Guyana. Importantly too, while Singapore is somewhere about No. 40 in the world measured by size of the economy, and it is clearly not blessed with natural resources, it ranks way above many of the world’s richest countries that have chosen to invest in sovereign wealth funds. In fact, when its two funds are added together, it has the third largest SWF in the world.

Unlike most of the countries with SWF’s, Singapore, recognising the open nature of that country’s economy subject to the vagaries of international trade, began its fund as an instrument of savings to provide a cushion for a rainy day, should the economy fall into a period of prolonged difficulties. Interestingly enough, while most former colonies complain about the social, infrastructural and economic deficit of colonial rule, Singapore saw the very small sum of foreign reserves at Independence as an inheritance from British colonial rule. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 49)”

Introduction

Column 40 noted that in practice, any Sovereign Wealth Fund for Guyana has to take a whole host of factors into account, including the country’s recurring deficits which are financed by loans; the deficit in its infrastructure; future revenue gains and losses; commodity prices including that of oil; and citizens’ rising expectations. In this Column attention moves away from the 2016 Petroleum Agreement to something into the future, something that considers how Guyana will use the oil revenues which will start flowing in 2020.

There are of course so many variables about the petroleum industry that indulging in projections is something of a fool’s game. One of the biggest uncertainties of course is the price of oil into the short, medium and long terms, which cannot be separated from the even bigger question of fossil fuel versus renewables; the cost of production by the monopoly producer; the effect of transfer pricing if any; the economic policies of the government of the day which will themselves be driven by popular expectations and political imperatives; the attitude of future governments into the next several decades to the crippling stability clause which Minister Raphael Trotman has embedded into the 2016 Agreement and the consequences of any attempt by a new Government to force a better deal; the effect of the Dutch Disease which is already rearing its ugly head with the loss of hundreds of jobs in the lower East Bank, Demerara; and of course a less likely unfavourable outcome of the border controversy with Venezuela. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 48)”

Introduction

In the course of his presentation of Budget Speech 2018 delivered on November 27, 2017, the Minister of Finance announced that the Government of Guyana would be partnering with the Islamic Development Bank (IsDB/the Bank), through the Malaysia Agricultural Research and Development Institute (MARDI), to update the expertise and technology in rice production through a Reverse Linkage Project to the tune of US$863,000. The Bank did not feature in the exchanges in the Budget debate so it was with more than a little surprise that the local media, citing a speech by the Minister to the annual meeting of the Bank, reported that the Bank would be lending roughly US$900 million to Guyana, its newest member.

It would have been, after all, the largest single loan ever taken by this country, and on a per capita basis, the largest loan ever extended to a member country by the Islamic Development Bank. The Ministry of Finance later walked back on that statement, clarifying that it was rather a “resource envelope of US900M that is potentially available from which the Government of the Cooperative Republic of Guyana can borrow.” The ministry’s clarification said that during the period 27-29 November 2017, the IsDB mounted a mission to Guyana to develop a medium term work plan for the period 2018- 2022, setting out a pipeline of projects that the Bank can support over the next five years.

As Guyana moves to First Oil – and let us face it, into general and regional elections – the temptation to spend will be almost irresistible, posing a risk to the much anticipated Sovereign Wealth Fund (SWF). That risk is real and cannot be discounted. So far, the discussion on the SWF has largely been theoretical and centred on possible models. In practice, the SWF has to take a whole host of factors into account, including the country’s recurring deficits which are financed by loans; the deficit in its infrastructure; future revenue gains and losses; commodity prices including that of oil; and citizens’ expectations which continue to rise. Continue reading “Every Man, Woman and Child in Guyana Must Become Oil-Minded (Part 40)”