Macroeconomic stability key for the success of SWF’s
Positive relationship
Lower levels of public spending, high fiscal sustainability, lower volatility in public spending, lower negative impacts of commodity terms of trade and smoother commodity price volatility.
Rule of law, protection of property rights, competent governance and low corruption is key to the success of Sovereign Wealth Funds (SWF’s), studies have found.
According to Simonis Storm (SS), studies proved that countries with Sovereign Wealth Fund (SWFs) had lower levels of public spending, high fiscal sustainability, lower volatility in public spending, lower negative impacts of commodity terms of trade and smoother commodity price volatility.
Namibia launched its SWF (Welwitschia Fund) this month at a time when the country is still reeling from the effects of Covid-19, high inequality, poverty, and unemployment and a tight fiscal position.
A portion of the revenue collected from the present exploitation of mineral resources will be put aside for future generations of Namibians to also enjoy the fruits of the resource endowment of their country.
At the launch, President Hage Geingob, Bank of Namibia (BoN) governor Johannes !Gawaxab and finance minister Iipumbu Shiimi emphasised on the importance of sound governance. Simonis commended the government for this initiative as they view SWFs in general as a good stabiliser tool.
“Our concerns remain on the active daily governing of the fund, where potential risks of misappropriation and fraud cannot be ignored. SWFs have failed in other countries like Papua New Guinea due to short-term political pressures which aimed to satisfy short-term needs above long-term benefits.”
“If our economy does not see a material rebound so that higher tax revenues improve the fiscal position and debt continues to mount, it could be that political pressure might attempt to change the withdrawal rules on the Welwitschia Fund.
“While these risks remain fairly low in our view, it remains risks we should be aware of. What the Namibian experience will look like remains to be seen, but clear global and regional examples of what not to do and what works are there for us to learn from and adopt,” SS said.
According to Simonis Storm (SS), studies proved that countries with Sovereign Wealth Fund (SWFs) had lower levels of public spending, high fiscal sustainability, lower volatility in public spending, lower negative impacts of commodity terms of trade and smoother commodity price volatility.
Namibia launched its SWF (Welwitschia Fund) this month at a time when the country is still reeling from the effects of Covid-19, high inequality, poverty, and unemployment and a tight fiscal position.
A portion of the revenue collected from the present exploitation of mineral resources will be put aside for future generations of Namibians to also enjoy the fruits of the resource endowment of their country.
At the launch, President Hage Geingob, Bank of Namibia (BoN) governor Johannes !Gawaxab and finance minister Iipumbu Shiimi emphasised on the importance of sound governance. Simonis commended the government for this initiative as they view SWFs in general as a good stabiliser tool.
“Our concerns remain on the active daily governing of the fund, where potential risks of misappropriation and fraud cannot be ignored. SWFs have failed in other countries like Papua New Guinea due to short-term political pressures which aimed to satisfy short-term needs above long-term benefits.”
“If our economy does not see a material rebound so that higher tax revenues improve the fiscal position and debt continues to mount, it could be that political pressure might attempt to change the withdrawal rules on the Welwitschia Fund.
“While these risks remain fairly low in our view, it remains risks we should be aware of. What the Namibian experience will look like remains to be seen, but clear global and regional examples of what not to do and what works are there for us to learn from and adopt,” SS said.
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