‘Invest up to a certain point, then save your money’ – Chilean expert on spending oil revenues

By Devina Samaroo

Chilean Sovereign Wealth Fund (SWF) specialist, Eric Parrado says the Guyana Government needs to find an ideal balance in spending and saving its oil revenues.

Parrado, who established and managed the Chilean Government’s SWF for their copper resource, told reporters during a rap session at the Theatre Guild Friday afternoon that the Government should “invest” the oil revenues “up to a certain point then save your money.”

He explained that Government needs to decide what will be the spending priorities, whether it will be infrastructure, energy, education, or health. He also noted that in those priority areas, the Government needs to decide what will be the cap on spending per sector.

“When economists talk about capacity absorption, it’s to increase expenditure up to a certain point so that economic activity is not in trouble. Of course, this is a difficult task to find the right balance between spending and saving but you need to have that discussion within Guyana,” Parrado explained.

The Chilean economic expert suggested that Guyana use the revenues it will put in the SWF to promote the diversification of the economy.

Parrado acknowledged that oil revenues are projected to start flowing in 2020 and expressed that the Government only has a window of two years to put the necessary frameworks, including legislation, in place to govern the sector and the money it will generate.

“It is important that in these two years, you pass a couple of bills and a couple of laws regarding fiscal policy management relating to fiscal rule and relating to Sovereign Wealth Fund,” he stated.

Parrado noted that even more critical for such policies to exist as soon as possible is the fact that the next national elections will likely coincide with the first days of receiving oil revenues.

In January 2018, Minister of Natural Resources Raphael Trotman said the legislation for the SWF – which has been renamed the Natural Resources Fund – will be tabled in the National Assembly before the end of April.

The SWF – or Natural Resources Fund – is meant to set aside oil revenues for future generations and for development initiatives.

The Bill has been scrutinised by the Commonwealth Secretariat, the International Monetary Fund, the World Bank and the Inter-American Development Bank (IDB) – all agencies which would have advised on the best practice for the legislation.