November 01, 2024
Finance

Gvt plans Sovereign Wealth Fund law

May 12, 2022
Gvt plans Sovereign Wealth Fund law

Finance minister Ipumbu Shiimi on Thursday said the government is pulling all stops, including drafting relevant legislation, to ensure that the country’s Sovereign Wealth Fund is put to good use.

Speaking at the official launch of Namibia’s much-awaited Sovereign Wealth Fund, dubbed the Welwitschia Fund, Shiimi said his Ministry is in the process of drafting the Sovereign Wealth Fund law, which aims to provide a clear framework that outlines the responsibilities of various stakeholders.

“One of the critical success factors for any sovereign wealth fund lies in its governance framework. Accordingly, we have resolved to develop a Sovereign Wealth Fund law, which I intend to table before parliament in the near future, once all the requisite consultations and approvals are completed. The Task Team is seized with developing this Draft Bill and will undertake stakeholder engagements to seek inputs from relevant parties and the public on the proposed provisions to be contained in the law,” he said.

Shiimi said the Fund, which was kick-started with an initial capital injection of N$262 million and is being administered by the Bank of Namibia, will be underpinned by two primary objectives that will be achieved through two separate and dedicated sub-accounts of the Fund, namely the Intergenerational Account and the Stabilisation Account.

“The first objective, which will be served by the Intergenerational Account, is saving for future generations. In this regard, the key rationale for establishing the Fund is to promote intergenerational prosperity for all Namibians by ensuring that the distribution of benefits flowing from exploiting the country’s natural resource endowments are shared across generations,” he said.

“In other words, we would like to put aside a portion of the revenue we collect from the present exploitation of mineral resources for future generations of Namibians to also enjoy the fruits of the resource endowment of their country. The diamonds we are mining today, are non-renewable resources, and at some point they will be depleted from our shores. What are we then to bequeath to the next generations of Namibians as a representation that they are citizens of a country that was once blessed with such mineral resources?”

Shiimi said the Stabilisation Account will provide fiscal and official reserve stabilization.

“This is borne out of the need to enhance national resilience by insulating the socio-economic structure against cyclical shocks as well as contributing to the macroeconomic stability objectives. It is important for a country to have fiscal buffers to stave off vulnerabilities arising from business cycles and shocks. This is one of the key lessons demonstrated by the ongoing COVID-19 pandemic, that it is imperative to put some savings aside to cushion the economy in the event of unpredictable catastrophes. Having fiscal buffers in place can help to lessen the impact of such unpredictable events on the day-to-day livelihoods of Namibians,” he said.

“We are establishing the Welwitschia Fund to have an automatic mechanism for us to preserve a portion of SACU receipts in good times, so we can withdraw from that Fund to sustain Government operations when SACU revenues are low, and the fiscal position needs a boost. The Welwitschia Fund will therefore serve as an automatic shock absorber and enable us to maintain rather stable expenditure patterns over time.”

Bank of Namibia Governor Governor Johannes !Gawaxab said  the withdrawal rules of both the stabilization and intergenerational accounts are stringent, allowing the Fund to achieve its long-term targets.

“The withdrawals from the Welwitschia Fund will be rare, far out in the future, and only likely to happen under exceptional circumstances caused by exogenous factors emanating from beyond our borders. In those circumstances when withdrawal is unavoidable, such withdrawals will be small in relation to existing balances of the fund. These provisions will ensure the objectives of fiscal stability and intergenerational wealth transfer are not undermined,” he said.

President Hage Geingob said a non-obligatory provision has been made for 2.5% of the Namibian Welwitschia Fund’s portfolio to be invested locally, subject to the recommendations of the Investment Committee.

“The persistent infrastructure financing gap in developing countries has motivated some governments to encourage their Sovereign Wealth Fund to invest part of the revenues domestically to accelerate the countries along their development path. The decision to invest domestically should be targeted towards projects with high social and financial returns and should be considered following a proper assessment of the domestic market’s absorption capacity. Moreover, efforts should be made to ensure that the SWF’s mandate does not duplicate that of other government institutions with investment mandates,” he said.

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Last modified on Sunday, 15 May 2022 22:29
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