The budget and the Natural Resource Fund Act

In the year since oil production began, Guyana has earned around US$185m and this sum has been parked in the New York Federal Reserve Bank. It had always been the expectation that once oil production began the accruing revenues would be drafted into the annual budgetary process as the monies would increasingly become the vehicle for deciding the level of expenditure that could be sustained by the country. The framework for the receipt and the channelling of these funds was unanimously recognised to be a Sovereign Wealth Fund and in Guyana’s case – what has been styled as the Natural Resource Fund (NRF).

While the US$185m that has been accrued thus far cannot finance much of what is under consideration it forms the kernel of what will be a much larger enterprise in the years to come. The US$185m has been derived from the Liza-1 well which produces at its peak 120,000 barrels of oil per day. This year around US$250m in revenues could flow from this well and next year when Liza-2 comes into play it will be producing 220,000 barrels of oil per day at peak. In 2024, the Payara well is also expected to begin producing at a maximum of 220,000 barrels per day. ExxonMobil is also planning to have more wells developed down the line.

Though one can reasonably expect a swingeing increase in revenues in the coming years, the uncertainties and risks are cavernous as exemplified by the crushing impact on petroleum prices of the short-lived Russian-Saudi oil price war, the global economic decline caused by COVID-19 and the galloping conversion of Western economies to green fuels and electrical vehicles. Even at a micro-level, Guyana was only able to secure four-fifths of its expected revenue in 2020 from the oil operations as a result of the difficulties that ExxonMobil’s subsidiary experienced in managing the associated gas released by the lifting of oil.

The NRF provides the tools to protect the country’s finances from a bad revenue year while enabling windfalls to be salted away for future expenditure in a sustainable manner. It is therefore of great concern that the PPP/C government has made no apparent effort in the over five months it has been in office to activate the NRF Act and to locate oil revenues at the centre of its budgetary planning. While the NRF Act was passed after the defeat of the APNU+AFC government following the December 21, 2018 motion of no confidence, surely the PPP/C had enough time in opposition to plot their changes and sufficient time in office to execute this. The general public could very well conclude that the maintaining of the status quo is to allow the PPP/C government to spend as it likes without