by Julia Daniel
Throughout the course of Papua New Guinea’s Independence until today, Papua New Guinea has had its share of resource revenue. The Bougainville Copper Mine had generated millions if not billions of revenue for the National Government. The Misima Gold Mine, Porgera Gold Mine, Tolokuma Gold Mine, Lihir Gold Mine have all poured their resources in the Government. In additional to that, PNG was blessed with Copra, Coffee and Cocoa which it had exported.
However, the past leaders of Papua New Guinea had failed the country. They all have succumbed to the “Dutch disease” and have not prepared the country for a rainy day.
In February 2012, Peter O’Neill having learnt from all the observations as Finance Minister in the Somare Government, passed a Law for PNG to established its first ever “Sovereign Wealth Fund”
What is a “Sovereign Wealth Fund?”
According to Wikipedia “A sovereign wealth fund (SWF) is a state-owned investment fund investing in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. Sovereign wealth funds invest globally. Most SWFs are funded by revenues from commodity exports or from foreign-exchange reserves held by the central bank.
Some sovereign wealth funds may be held by a central bank, which accumulates the funds in the course of its management of a nation’s banking system; this type of fund is usually of major economic and fiscal importance. Other sovereign wealth funds are simply the state savings that are invested by various entities for the purposes of investment return, and that may not have a significant role in fiscal management.”
The Papua New Guinea Sovereign Wealth Fund (PNG SWF) will consist of a number of Sovereign Funds. The Legal ownership of the sovereign wealth fund is the Independent State of Papua New Guinea.
The objectives of the fund are to support the long-term social and economic development objectives of the State provide a means of saving for the future generations and facilitate the macroeconomic stabilization of the Papua New Guinea budget and the economy.
The Sovereign Wealth funds currently have two parts;
- Stabilization Fund
- Savings Fund
National Research Institute (NRI) after conducting a research into this Law gave its support of the establishment of the PNG SWF and further recommends that the Sovereign Wealth Fund also include an “Infrastructure Development Fund” in addition to the 2 funds.
The Revenue Flows for the PNG SWF will begin in the first quarter of 2017 according the Treasury Minister Hon. Patrick Pruaitch who gave a budget speech in August 2016. “Mr. Speaker, I am pleased to confirm that revenue will start to flow to PNG’s Sovereign Wealth Fund in the first quarter of next year. In 2016, revenues flowing into the Stabilization Fund will be drawn down into the Budget to fund key priority policy areas.
This landmark legislation was passed in July. I thank all members for their bipartisan support of the PNG Sovereign Wealth Fund. Designed as a long-term investment vehicle, the Sovereign Wealth Fund will serve PNG for decades to come, reducing PNG’s vulnerability to external shocks, such as the current fall in commodity prices.
The Sovereign Wealth Fund has been designed to provide the highest standards of accountability and good governance. Funding has been allocated in 2016 for appointment of an experienced and well-qualified Board and a SWF Secretariat. In 2016, the Government will issue the Board with its investment mandate and Government expectations on management of funds.” – Patrick Pruaitch
Papua New Guinea will really start to reap the benefits of the PNG SWF once revenues start to flow into the funds.
The onus now is for the Government to setup a transparent and stable management of the fund without political interference.