EXECUTIVE SUMMARY

TOM Sanzillo, Director of Financial Analysis for the Institute for Energy Economics and Financial Analysis (IEEFA), has once again exposed his profound ignorance of Guyana’s economic context and reality altogether, inter alia, his deeply flawed and mediocre analysis, published in a certain section of the local media.

Sanzillo argued that the Guyana Government spent all of the money in the Natural Resource Fund (NRF) in the 2022 Budget, and that the government failed to adhere to achieving some of the goals set out in the International Monetary Fund (IMF)’s 2019 report. These are closing the fiscal deficit, reducing national debt, and saving for future generation.

This is where Sanzillo is either outright ignorant, and has no clue how to perform any proper financial and economic analysis, and, therefore, he is falsely projecting himself as an international financial analyst and/or, he/IEEFA is/are perhaps funded (by a certain Guyanese group or individual (s) in the pursuit of his/her/their covert political agenda), vis-à-vis peddling propaganda aimed at deliberately misleading the Guyanese public with his weak and mediocre analysis.

Firstly, with respect to the first drawdown, Sanzillo ignored the withdrawal rules of the Fund and the rationale for the withdrawal rules altogether in the NRF Act, where there is a sliding scale from 100 per cent to three per cent.

Secondly, Sanzillo made the argument that despite the drawdown from the NRF, Guyana’s public debt is climbing, and, he further implied that the public debt levels will reach unsustainable levels. Yet, in his ramblings and so-called analysis, Sanzillo failed to demonstrate that he performed any thorough public debt sustainability analysis to support his wild and careless assertions.

Having examined the growth of the above indicators for the past eleven years (2012-2022F), though the figures for the fiscal year 2022 are the forecasted figures according to the National Budget 2022, the average annual growth in total public debt is 15 per cent, external debt one per cent, GDP 20 per cent, and revenue 18 per cent.

Clearly, the level of growth in revenue and GDP are greater than the average annual growth rates for total public debt and external debt.

With this in mind, given the low debt-to-GDP ratio, Guyana’s total public debt is well below the minimum sustainable benchmark. For example, the benchmark for the debt-to-GDP ratio is 60 per cent, which is considered fiscally sustainable, and this ratio for 2022 is less than 30 per cent.

Thirdly, Sanzillo contended that the fiscal deficit should be closed, according to some IMF report, and he religiously used this report to argue that the fiscal deficit is an adverse macroeconomic condition for Guyana. According to the IMF standard, moderate levels of fiscal deficit relative to GDP are in the region of three per cent-10 per cent of GDP. Evidently, Guyana’s fiscal deficit position for the period 2012 – 2022(F) is well within this range. The fiscal deficit is forecasted at 3.7 per cent of GDP for 2022. The highest fiscal deficit during this period were in the fiscal years 2020 and 2021, of 6.04 per cent and 6.74 per cent respectively, and still below the 10 per cent benchmark was due to the impact of the COVID-19 pandemic. As such, Budgets 2020 and 2021 allocated substantial resources to help cushion the impact, and revamp the economy. Therefore, in this situation, this level of fiscal deficit was very necessary, and well justified, in the circumstance, while remaining, nonetheless, below 10 per cent of GDP.

Finally, the findings of the analysis contained herein quite evidently debunked the contentions put forward by Tom Sanzillo of the IEEFA. Clearly, Sanzillo does not appreciate the need to perform robust evidenced-based analyses to inform his conclusions. The analysis, therein, (by Tom Sanzillo) is, therefore, highly misleading and inaccurate.

Furthermore, Guyana’s national debt and fiscal deficit positions are at their strongest levels, and considered sound, from a macroeconomic stability standpoint.

In terms of saving oil revenues in the NRF for future generations, it is imperative, given Guyana’s economic development needs, that is, the need to accelerate development, that a significant portion of the resource is invested at the very outset. Consequently, as production levels are ramped up, and development cost recovered, the NRF balance will grow substantially, and towards the end of the decade, there will be sufficient sums available to save for future generations. At this point, the country needs to invest in infrastructure development, among many other developmental needs, for future generations as well and those investments needed to be made today.

DISCUSSION AND ANALYSIS
With respect to the first drawdown, Sanzillo ignored the withdrawal rules and the rationale for the withdrawal rules in the NRF Act, where there is a sliding scale from 100 per cent to three per cent. To this end, all withdrawals from the Fund have to be deposited into the Consolidated Fund, in accordance with the Act, thus subjecting the monies from the Fund to full parliamentary scrutiny and approval through the budget process. According to the withdrawal rules (First Schedule), the ceiling on annual withdrawals are as follows:
1. 100 per cent of the first US$500 million
2. 75 per cent of the second US$500 million
3. 50 per cent of the third US$500 million
4. 25 per cent of the fourth US$500 million
5. 5 per cent of the fifth US$500 million
6. 3 per cent of any amounts in excess of US$2.5 billion

RATIONALE FOR WITHDRAWAL FORMULA
With this simplified formula, one can observe that the withdrawal rules of the Fund are NOT designed to withdraw all of the monies from the Fund each fiscal year, especially as the balance of the Fund starts to grow. The upfront drawdown from the Fund is necessary to accelerate and advance Guyana’s massive development agenda in infrastructure (new roads and bridges, drainage and irrigation, social infrastructure, healthcare, education, national security, and ICT etc.), all of which are aimed at modernising, transforming the economy, and to structurally diversify the economy away from oil and gas, and, more so, a heavy emphasis on improving national competitiveness. This is in keeping with a sustainable development model framework, thus preventing the economy from being exposed to any significant risks of bankruptcy and external shocks, and averting the paradoxical Dutch Disease, or resource curse.

There is another important positive impact as a direct result of this withdrawal formula, and that is the reduction in the national debt in the first five years at least, thereby freeing up more liquidity in the banking sector to extend more credit to the private sector. As such, this augurs well for the long-term macroeconomic stability framework of the economy, as the country seeks to accelerate development to a modern economy. In other words, what might take Guyana 50 years to achieve without oil, can now be achieved in 25 years, or half that time.

Important to note is that the investments of today are also for the benefit of future generations as well as the present generation. The new four-lane road networks that will be built, the modern education system, cheaper energy etc., will be enjoyed by the present and future generation.

The government, and as a country, cannot only save for the future generation, but also needs to invest in the facilities, infrastructure, education system etc., today, for the future generation to enjoy.

This is more so against the backdrop of Guyana’s development being stymied for various reasons, including political in nature for the past 15-20 years. For example, the new bridge across the Demerara River was identified as part of the 1996 Development Strategy, and should have been built since 15 years ago; the Amaila Project should have been built 10 years ago; the Brazil Lethem Road, Corentyne Bridge connecting Guyana and Suriname and a deep-water port, to name a few, are examples of important development projects; strategic national investments that were all part of the 1996 Development Strategy, and should have already been implemented. But because of several periods of political instability during these periods, a total of 17 years of disruption and political attempts to de-stabilise the country, these projects could not have been implemented. Then, there was the minority government during the period 2011-2015 (which triggered snap elections in 2015) because, under this dispensation, the Political Opposition at that time would have vetoed almost everything, including national budgets in the National Assembly. And so, the country could not have moved forward as a result of this deadlock. (To be continued)