TANA-NOMICS: Sovereign Wealth Funds
A couple weeks ago, while enjoying my morning constitutional, I was reading an article about the prospects for growth in Guyana, not of Amazon Warrior fans because let’s face it I think they’re fed-up of “almost” winning CPL. No it was about the fact that Guyana is projected to have the highest economic growth in the world in 2020. The article went on to say that in 2019 Guyana established a Sovereign Wealth Fund (SWF), which started the Agouti in my head running on the wheel and wondering how much people actually know about our own SWF?
First, a bit of history. From your profile pics, most of you Loggers look like you would have no tangible memory of the oil boom of the 1970’s and 1980’s…yeah neither do I…but I did some research on the Interwebs. In those days oil prices went from single digits to over $30 a barrel due to conflict in the middle-east and there was a significant increase in Government revenues.
What did we do with that money? Well, some of it went to finance the start-up of the oil industry, but we also threw money about the place like we win a one Soca Monarch because Machel and Bunji decided to take a year off and instead of saving, we decided to “Palance” we self and buy big ride, rims, mine outside woman, even upsize we aloo pie and all. When oil prices fell back to its normal range guess who was spending way too much and had to cut back. Unemployment went from 10% in 1987 to 22% in 1989.
So when oil prices started to rise again in the late 1990’s the Government established an “ITCZ” level rainy-day Fund and started contributing to it in the year 2000 but it was only in 2007 that it became a legal entity when Parliament approved the Heritage and Stabilization Fund (HSF).
The HSF has two distinct purposes: Heritage and Stabilization. I know…mind = blown! The idea of the heritage portion is to transform exhaustible natural resources into financial assets that could last way beyond when the energy resources are depleted. The stabilization part is to set aside funds to cushion the impact of a fall in energy prices so that the government doesn’t have to drastically cut back on spending and negatively impact economic activity.
The HSF has very specific rules regarding how much is to be deposited, how much can be withdrawn and under what circumstances. I was going to go into detail on the rules but it was more confusing than why soca artistes can't seem to get someone who knows how to photoshop their bumsee properly so that we don't notice. Just know that the Government can’t just use the HSF like it’s an ATM or like it is its child fadda.
There is also a floor of US$1 billion, at which point no further withdrawals are allowed. So at least we’re guaranteed a US$770 per citizen, which could probably get you a trip to Miami (airfare and hotel on South Beach) on Expedia or a Carnival all-inclusive fete at the rate prices going these days.
There are also rules on how the funds can be invested. The Fund must be invested in foreign assets with a medium to long term focus. The Fund cannot be used to directly finance capital expenditure or as collateral for government borrowing. It also cannot be used to help Republic Bank understand that they need to print people names on their bank card. They always have me and my wife playing the "whose card is this?" game. The Fund also has to be invested in assets not directly related to oil and gas. Like duh!
As an aside, at the end of June 2019 the HSF stood at US$6.2 billion or about US$4,800 per citizen. Compare this to Norway, whose fund was started in 1990 and is the largest SWF in the world with over US$1 trillion (with a T) in assets or about US$195,000 per citizen.
Funny story...during a speech in 2007, the then Governor of the CBTT stated that an IMF study projected that, given the expected trend in oil prices over the next two decades and using conservative assumptions including a reduction in the non-energy deficit, the HSF could reach up to US$40 billion by the year 2020…yeah, well that speech didn’t age well.
Finally, I’ll end by saying I’m not a fan of the curry chicken vs chicken curry debate. Somehow Trinis feel we have the monopoly on how things are said. By Trini logic, peanut butter between two slices of bread is a peanut butter sandwich but a piece of shark inside a fry bake is somehow bake and shark. Anyway, soon Guyana will be rich enough to chicken yuh curry AND shark yuh bake. Smoke that in yuh pipe and put it.
TANA