Strengthening of Guyana’s Fiscal Framework in Anticipation of an Oil Boom
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This paper examines the effectiveness of Guyana’s fiscal framework as the country prepares to usher in an era of oil wealth. The paper draws on a large body of literature to determine the key elements of an effective fiscal framework for resource-dependent economies. In summary, the literature argues for resource-dependent countries to have: appropriate levels of stabilization savings, a strong institutional framework, effective spending policies, and effective use of taxation to reduce revenue volatility. It then examines how Guyana’s fiscal framework stacks up against those requirements and what lessons the country can learn from other hydrocarbon-dependent economies. Although Guyana has commenced preparations, a great deal of work remains to be done in all the above mentioned areas. The paper argues that Guyana should place stronger emphasis on strengthening fiscal institutions with regard to expenditure policies, budget implementation, and governance in the short to medium term as fiscal policy is more likely to focus on public investment and social spending. These improvements could potentially increase the productivity of public investment, reduce wastage of public funds, and increase transparency in the decision-making process.