November 01, 2024
Finance

BoN’s role in Sovereign Wealth Fund temporary

May 16, 2022
BoN’s role in Sovereign Wealth Fund temporary

The Bank of Namibia’s (BoN) role in administering the Welwitschia Sovereign Wealth Fund is only temporary, The Brief has established.

Economic Advisor to the Minister of Finance, Helvi Fillipus exclusively revealed during The Brief Interview that the current arrangement was a stop-gap measure while the ministry pushes ahead with drafting the Sovereign Wealth Fund law, which aims to provide a clear framework that outlines the responsibilities of various stakeholders.

“The fund, at the moment, we have set it up under the Bank of Namibia Act and that’s just an interim solution. We do have a draft bill, and I am currently undertaking stakeholder consultations for input and in that bill, we are going to be putting up fund rules,” Fillipus said.

The advisor was, however, quick to point out that the current on-going rule drafting will ensure the fund is safeguarded from any unwarranted withdrawals.

“The law that we are putting in place is to safeguard the assets that we are putting into the fund, so that they can only be utilised for only those two objectives and you would see when bringing out the draft law that even for fiscal stabilisation, it has to be under specific conditions. You cannot just say the government is running a budget deficit and you would want to withdraw from the fund. It has to be for certain types of shocks, it cannot just because I want to spend and go to the fund to get money. There will be strict mechanisms around the operations of the fund,” Economic Advisor said.

“So you have investment rules, at what point money flows in the Fund and we have withdrawal rules, when can you withdraw. The rules are different for each account and are clearly stipulated and clearly outline that the government cannot use the fund as collateral to borrow and the fund itself cannot borrow, no company can borrow from the fund.”

Quizzed on the sustainability of the Welwitschia Fund, Fillipus said, “We have already considered the sustainability component because, while you still want to safeguard your resilience as a country, you don’t want to compromise your current operations, so we have built that into the framework by putting up the threshold such that were can only put money into the fund. We can only put money in the fund when the country can afford to do so. We have built that in the framework by putting a threshold we want the government to be able to save only when revenues are stable. We have set a threshold that only when our revenues exceed 30.5% of GDP then these rules of saying a certain percentage of non-renewable royalties, a certain percent of SACU only kick in when we have reached a certain level of stability.”

Fillipus was adamant that the Fund will deliver on its mandate and its existence benefit the country, contributing to the country’s ability to attract investment.

“Absolutely, we do believe in the model and have done the groundwork, done benchmarking with Chile, Botswana and the Sovereign Wealth Fund in Norway. We have looked at the benefits and microeconomic implementation of those funds has had on those economies and do believe the model that we have chosen and the structure that we are putting in place is something that will be beneficial to the Namibian economy,” she said.

 

“From a social perspective, it should give the country some confidence that we do have some savings that have been put aside that will then be able to cushion the country and carry us during difficult times. That is a very significant part. The fund will be invested in foreign assets and that will count as part of our foreign reserves as a country and serve as a key indicator that most investors look at, in terms of giving them confidence to want to invest in the country. It will serve a pillar helping boost our chances as a country to attract much needed investment.”

Asked if the founding of the fund is too late, she said, “Its never too late to save and I think today is always the best time. Of course, it would been better had we started the fund a few years earlier. The current economic challenges display why its important for a country to have fiscal buffers of a Sovereign Wealth Fund. Had we have had this fund set up a few years ago, we would have been able to take from it supplement our COVID expenditure when the SACU revenues started declining and commodity prices started going down.”

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Last modified on Thursday, 19 May 2022 23:25
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