How to Make Sovereign Wealth Funds Work for Citizens Looking at SWF - - PowerPoint PPT Presentation
The $3.5 Trillion Question: How to Make Sovereign Wealth Funds Work for Citizens Looking at SWF governance Some have helped Others have been countries escape the mismanaged, not met resource curse. objectives or become slush funds.
Some in :
Identified 54 NRFs ($3.5 trillion in assets as of end-2013)
Surveyed 22 NRFs in 18 national and subnational jurisdictions,
based on institutional structure, investments, transparency, accountability and fiscal rules
Each NRF profile includes a rating of good governance standards.
$3.5 trillion in AUM
Huge proliferation of funds; a “must- have” for oil and mineral producers and prospective producers
Some rules more common than others: more focus on management structure and
transparency or external oversight
Funds becoming more transparent; yet
release audits or publish specific investments (most do not)
NRFs adopting more rules, but major problems with compliance
Saving for future generations Stabilization Sterilizing capital inflows Earmarking for specific expenditures Ring-fencing resource revenues What matters: clarity, consistent operational rules, adapted to the needs of the economy
Deposit Rules Withdrawal Rules National Resource Funds Foreign investment Domestic Expenditure Investment Rules
Lack of a withdrawal rule
withdrawals
spends lavishly when oil prices are high.
when oil prices have declined
Alberta
Lack of a deposit rule
and 2013 only two deposits made of less that $4 billion combined.
Chile
Even when fiscal rules are established by law, room for manipulation remains (e.g., Ghana, Trinidad and Tobago, Timor-Leste) . Chile has independent committees to make forecasts and fiscal assessments.
Azerbaijan
Need for explicit rules that limit risk Allocation between cash, fixed income
investments, equities and alternative assets
Prohibition of certain high-risk financial
instruments or volatile currencies
Limit use of resource revenues as collateral? Domestic asset allocation by the fund or
spending only through the budget?
No domestic investment: ADIA, Botswana,
Chile, Kazakhstan, Norway
Bypass the budget: Angola, Azerbaijan, Iran,
Russia
Easy access to comprehensible legislation or
governance rules size of funds returns on investments specific assets investment strategy names of fund managers Public disclosure of internal and external audits
Independent oversight promotes
compliance with the rules.
Managers of NRFs should be
accountable to:
the legislature comptroller, auditor-general or
supervisory body
the judiciary civil society and the press even the IMF or other policy
institutes
Examples: External independent auditor in Alaska (USA) and Chile Judiciary in Timor-Leste Supervisory Council in Norway
Chile Colombia Mexico Venezuela More funds
Strengthening SWF governance
Full report, fund profiles, policy briefs and interactive map:
www.resourcegovernance.org/n rf
Training, capacity building and technical assistance with our government, parliamentarian and CSO partners (e.g., Canada, Ghana, Libya, Niger, Timor- Leste, Uganda) Building international consensus on what constitutes good SWF governance
Can funds function well in poor institutional environments? And are they necessary in strong institutional environments?
Should oil revenues be treated differently from non-oil revenues? If so, how much oil revenue should Mexico save
Should the fund be allowed to invest in domestic assets?
Rules vs. discretion: How much flexibility should fund managers have to buy and sell financial assets?
Is building national consensus around the rules an essential component of good fund governance?
How can countries ensure compliance with the rules?