Golden Sibanda Senior Business Reporter
Zimbabwe should set up its sovereign wealth fund when it achieves budget surplus to avoid worsening budget deficits, Norway’s former deputy minister of finance Mr Vidar Ovesen said. Norway manages the world’s largest SWFs and has contributed about US$60 billion to the country’s fiscus from the more than US$850 billion revenue derived from petroleum since its set up in 1990. Mr Ovesen made the remarks during a seminar in Harare yesterday to educate law makers on the country’s new economic plan: the Zimbabwe Agenda for Sustainable Socio-Economic Transformation.
Speaking after reading Zimbabwe’s Sovereign Wealth Fund Bill, Mr Ovesen said the SWF should be set up after budget surplus and should not happen if it increases the country’s budget deficit. According to section 13 and section 14 of the draft SWF Bill, a portion not exceeding 25 percent of royalties payable in accordance with Chapter VII of the Finance Act in respect of minerals such as gold, diamonds, coal, methane gas, nickel, chrome and platinum will be pooled into the SWF.
Mr Ovesen said what matters is the net financial position (savings less debt), adding that a country could end up borrowing at expensive interest rates attracting debt that outweighs savings made.
“Normally a sovereign wealth fund requires a budget surplus to put aside resources for investment in the medium to long-term . . . for the best situation, but it is not like that in Zimbabwe,” he said.
According to global best practice, SWFs are meant to enable short to medium term economic stabilisation, provide long term savings and mitigating real appreciation of currency.
SWF revenue may be used to stabilise economies for mineral producing nations when prices fall. They ensure future generations benefit from mineral revenue and prevent the resource curse.
“But with growth in mineral production the situation will change and the country may have budget surplus in future and it is important to have the legal framework before you come to that situation.”
Mr Ovesen also made observations on a number of potential pitfalls the country needs to avoid to ensure the success of its SWF, especially as the fund will be used for development initiatives. The observations are based on aspects of Zimbabwe’s SWF, which he says needs to be clarified.
According to one clause of the SWF Bill, the objective of the fund is to support the development objectives of the Government, including its long-term economic and social plans.
The Norwegian ex-deputy minister said there was need to ensure high level of transparency where investments such as in infrastructure have the approval of Cabinet and Parliament.
Mr Ovesen said Zimbabwe needs to separate the responsibilities and duties of policy makers of the fund and its operational management to enable delegation and checks and balances. This is because clauses of the Bill give power to the responsible minister to determine the functions of the SWF board, how funds may be invested as well as how the funds may be segregated.
Mr Ovesen, said since the Bill says a portion of the royalties from minerals would be directed to the SWF, it was critical that all such revenues are spent as part of the national budget process.
Further, the Norwegian ex-deputy minister said it was equally important to ensure transparency in managing the SWF through explicit provisions on reporting and disclosure of information. He said transparency would build confidence around management of revenues.