GUYANA is on the verge of generating transformational national wealth from energy production. When oil production starts in early 2020, Guyana will begin to receive around

US$300 million in new government revenue each year from Liza Phase 1. After development cost recovery is complete – by around 2025 – our government will be receiving over US$1 billion in revenue each year for decades to come. It is imperative that we manage this new wealth for the benefit of all citizens and this is where the Santiago Principles become instructive for our government and all interested stakeholders.

By this point, most Guyanese will be familiar with the concept of sovereign wealth funds (SWFs), which are financial tools used to save and invest a country’s wealth for the long term. They are widely regarded by international organizations as a crucial and responsible step for a country like Guyana that is about to receive substantial revenue from natural resources.

Without careful planning to invest revenues sustainably, resource revenues can be wasted or spent too quickly, destabilizing the economy and the currency with little development to show for it and fewer long-term benefits.

The much-talked-about Santiago Principles are a set of generally accepted principles and practices (commonly shortened to GAPP) that lay out basic guidelines for countries to follow when saving resource revenues for the long term. These principles were created by more than two dozen countries that have SWFs to provide a roadmap to show newly resource-rich countries how this can be done responsibly and effectively. As we approach first revenue from oil and consider the Natural Resources Fund, it’s worth listening to this advice.

These principles were first set out in 2008 by a working group established by the International Monetary Fund that included representatives from 26 countries with existing SWFs. These included a variety of nations at different stages of development– from Australia and Norway to Chile, Botswana, and Libya.

They follow a set of guiding objectives that all funds should have clear aims, a strong governance structure in place, and a watchful eye for financial and economic risks.
The 24 specific principles set out the most important parts of a responsible, transparent, and sustainable fund. Below are a few of the most critical:

* Where the SWF’s activities have significant direct domestic macroeconomic implications, those activities should be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.

* There should be clear and publicly disclosed policies, rules, procedures, or arrangements in relation to the SWF’s general approach to funding, withdrawal, and spending operations.

* The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.

* The accountability framework for the SWF’s operations should be clearly defined in the relevant legislation, charter, other constitutive documents, or management agreement.

* The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies) and be based on sound portfolio management principles.
Other important principles cover things like complying with regulations, regular audits, and risk management, among other issues.

The principles and sub-principals leave room for each country to adapt the principles for its own unique situation. The objectives for the SWF of a developed wealthy country like Norway shouldn’t necessarily be the same as Guyana’s.

A less developed country might want to prioritize more near-term spending on things like infrastructure, education, and healthcare, instead of saving all revenues for the long-term. The Santiago Principles leave decisions like that open to each nation, instead focusing on the bedrocks of good governance and good financial management like accountability, transparency, and careful planning.

The kind of wealth that Guyana can expect from oil revenues could be transformative, and good management is essential to ensuring that the benefits are spread evenly and that future generations can share in the wealth. The Santiago Principles are not the end of the story, but they are a strong starting point for establishing responsible wealth management in Guyana.