Yesterday the government went to Parliament to seek amendments to the Heritage and Stabilization Fund (HSF) Act to allow for withdrawals outside of the prescribed period. Yeah, I listened to part of that debate and let me tell you, I rather watch a bar of Blue Band butter defrost.
By now you should know that the HSF mandates quarterly deposits based on a prescribed formula and only allows withdrawals as a result of an energy revenue shortfalls after the end of the fiscal year (ends in Sept) when those shortfalls are fully known.
What the government was seeking to do was to amend the rules whereby the country could have access to the Fund through the stabilization rules under very specific crisis scenarios. The crisis conditions outlined were natural disasters, pandemics and a huge energy revenue shortfall.
Firstly, let me just say I agree with this. To me, it makes no sense having an emergency fund and have to wait until October to fund the response to a crisis happening in March. I am pleased that they still made it only accessible under very specific scenarios and not just because we want to keep building box drains.
I also agree with some people’s view that the fund should be split into two funds, Heritage and Stabilization, as they have two very different objectives and should have different asset allocations (finance gibberish for what we invest in) and rules.
Apart from the member of the opposition with the “flavor saver” beard taking us on a tour around the mulberry bush, I agreed with him that the floor of the HSF, below which there can be no further withdrawal, should be higher than the current US$1 billion. More heritage is always better in my book.
His assertion was that his peeps would have made it US$3.5 billion. However, that is neither here nor there because it already happened and we have problems to deal with now. So the government is withdrawing US$1.1 billion from the HSF.
One economist took issue with the notion of withdrawing from the HSF with her main point being that it should not be the port-of-first-call. The worry is that this withdrawal could be a slippery slope that leads to the depletion of the Fund especially given our weak governance. I totally agree with that, IF we had the financial flexibility to use other sources.
This economist (I not naming names) suggested that the government could borrow from the IADB, CAF or even the local banks (which have a total of US$3 billion in the local banking system). Calm down, those funds aren’t free and clear or just being hoarded. Don’t rush to the banks with pitchforks and torches.
The economist lady said that the IMF has US$50 billion of funding available (and I confirmed it) to help low income and emerging market member states respond to Covid and it won’t attract any nasty conditionalities. Not nasty like Ian Alleyne wiping his “snatty” nose with his bare hands nasty, or his child bedroom door nasty but still, nobody likes IMF conditionalities.
The problem is, given our debt-to-GDP ratio and the precipitous decline in energy prices, we are already on the cusp of a credit rating downgrade. Any additional debt could push us over the edge. A rating downgrade would result in less access to capital in the future and higher interest rates when we do get to borrow.
So my view is this HSF move is a necessary step to help stabilize the country. I don’t think the framers envisaged a global pandemic when they formed the fund. However, we need to deal with the realities of what we’re facing today.
I do agree with the economist that we need to strengthen our governance structures to ensure that future generations could have this same bacchanal of whether or not to dip into the piggy bank, rather than just have a ball of lint where the HSF used to be.