Moody's has advised this Government that they should make use of the Heritage and Stabilization Fund (HSF) instead to fund the budget deficits since the stabilisation part of the fund was established to provide budget support when revenues from the energy sector fell. The Minister of Finance disagrees with Moody's and prefers to fund fiscal deficits via loans, conscriptions from state enterprise savings (eg NGC), and income from the sale of assets.
Ewart Williams, past governor of the Central Bank, also disagrees with Moody's. He advises that the HSF should only be used to fund budget deficits if the revenue shortfalls from the energy sector were temporary.
In the current situation it appears that the global energy industry is undergoing a fundamental reconfiguration which implies that lower prices for oil and gas will not be temporary, hence the fund should stay intact. I attended a meeting sometime ago at which the use of the HSF was being discussed. My focus was on the heritage part of the fund; to provide a legacy for our progeny. Instead of planning to hand out monthly cheques from the fund to our coming generations as in Alaska, it would be wiser to use the fund to build a globally competitive economy that would allow them to find/create well paying jobs instead of depending in part on a monthly cheque from the Government–given the unsustainable nature of our present economy. Though my colleagues recognised the need to build such an economy they were against touching the fund.
The man/woman in the street appears also to be against touching the fund, even if it means we have to borrow money to fund fiscal deficits. It seems that it is comforting to know that we have some US$5billion-plus of untouched savings even though the economy is unsustainable and at present severely challenged with a Government that seems incapable of remedying the situation.
My view is that there is indeed a structural change in the global energy industry and our revenues have dropped and will stay so for a long time. Hence government spending has to be reduced. Since the Government is the biggest enterprise after the energy sector, an abrupt decrease in its spending could cause economic hardship on-shore. Therefore, the transition should be gradual by either a time bound series of deficits or the use of part of the stabilisation fund over this transient period. Given Moody's reduction of our loan rating/investment rating it would appear that it could be better to use the stabilisation fund instead of loans, together with a postponement of any spending that can be delayed.
It must indeed be noted that though the stabilisation fund was conceived to fund shortfalls in the energy sector, the amount put aside by law was sadly insufficient given, for example, that since 2007 government revenue from the energy sector was some $210 billion and all we saved in the fund was $16 billion.
The saving criteria by law was more about saving what we did not need at the time as opposed to saving with the intent of being able to compensate for energy sector income shortfalls or to provide a legacy fund.
Mary K King
Via email