The purpose of the Pula Fund, the government’s long-term investment portfolio, has been questioned, as the current financial assets accrued by government are inadequate to fulfill the intergenerational savings objective that Sovereign Wealth Funds in mineral economies are often designed to achieve.
This is according to 2013 first quarter Econsult Review, questioning the objective of accumulating financial surpluses, and whether the fiscal strategy being followed by the Government is likely to achieve these objectives.
“It seems unsatisfactory that after forty years of mineral led growth, virtually none of the fiscal revenues derived from mining has been saved in the form of financial assets,” stated the report.
The report was compiled by Dr Keith Jefferis and Thabelo Nemaorani of Econsult. “What is needed, at the very least, is some public debate on what the purpose of the Pula Fund and government’s savings should be. Are they simply for budget and balance of payments stabilisation purposes, or are they intended to accumulate financial assets to be bequeathed to the future?” according to the report.
A revelation from the report has shown that the relevant fund for fiscal purposes is the GIA, and not the Pula Fund.
“The Pula Fund does not belong to the government, Government only has a claim on part of the Pula Fund, and the extent of that claim is determined by the size of the GIA,” revealed the report.
For much of the 1980s and 1990s, the government ran budget surpluses year after year, and accumulated financial assets that amounted to a high proportion of GDP. The government’s share of the Pula Fund peaked at 89 percent of GDP in 1998 as a long-term savings fund, in other words, a fully-fledged sovereign Wealth Fund
However, the situation has changed, according to NDP 10; the objective is now to balance the budget over the economic cycle. The impact of the change has been witnessed in the sharp decline in the value of government’s accumulated savings. In 1998 this peaked at 89 percent of GDP in 1998, but by 2011 it had fallen to only 20 percent of GDP.
According to the report, the change is even more striking on a net basis once net debt is deducted from the value of government’s share of the Pula fund, the value of government’s accumulated net savings is close to zero only 2.6 percent of GDP in 2011.
As evidenced in the report, the financial assets are said to be arguably too small to provide an effective stabilisation function and, furthermore, government’s accumulated financial assets are effectively funded by borrowing rather than by savings.
The economic guru’s acknowledged that some of the revenues have been invested well, in human capital and economic and social infrastructure.
“It would seem prudent to have at least retained a significant portion of this income in the form of financial assets, for a rainy day if not for coming generations,” stated the report.
The economic experts have questioned if rules are needed about what proportion of mineral revenues is saved in financial assets rather than spent as there are no such rules at present.
“If stabilisation is the intention, then there is a need for budget surpluses in the coming years to rebuild financial balances, If the objective is saving for the future, then even larger and more prolonged surpluses will be necessary,” stated the report.