NRI report highlights needed improvement in SWF

Sunday, March 20, 2016 (Sunday Chronicle, PNG)

  

IN one of its major reports released on Thursday, the National Research Institute has identified gaps in the Sovereign Wealth Fund legislation of 2014.  

The report titled, ‘Review of the Legislation establishing the Sovereign Wealth Fund in Papua

New Guinea’, by David Osborne, a Visiting Fellow at the Australian National University’s Development Policy Centre and is a Senior Economist with Adam Smith International.

In the report, Osborne cites political will and institutional support as major underpinnings for an effective fund with a clearly organized fiscal policy in PNG that seeks to manage the negative effects that volatility has on the broader economy and government revenues.

“If the drive is not well informed and sustained, the SWF will have only limited impact on reducing external shocks to PNG’s economy.”

“Hypothetically, there is nothing structural in place to stop a government from continuing to increase debt while accumulating money in the Savings Fund, with the result of no improvements to intergenerational equity, in stark contrast to stated SWF objectives.”

“Strong political will is a must for the SWF’s (and PNG’s) future success.”

The report points to aspects of the 2014 organic law that could be improved, like the application of checks and balances on the powers to determine the Investment Mandate, improving the Board’s conflict of interest provisions, and reconsideration of the level of tax receipts captured by the Stabilization Fund formula.

“But ultimately it is the Government’s willingness to set sustainable fiscal policy that is the most critical issue at play.”

“The SWF does offer something of a window into decision making, requiring ongoing reporting of receipts from PNG’s mineral and petroleum assets. This is a welcome element of transparency and an area to watch.”

This analysis has highlighted the main aspects of the SWF and some of the main concerns that need to be considered and addressed, such as the complexity of the withdrawal and deposit rules compared to the previous legislation.

However, making improvements to the SWF structure should not distract from the most important issue that will determine the success or otherwise of PNG’s SWF; that is, the need for ongoing political will, bolstered by community support and demand for significantly improved management of PNG’s resource wealth.