In a volatile post-pandemic world, many governments in the Global South are looking to start – or restart – sovereign wealth funds, either to aid strategic economic development or for fiscal stabilization. This month has witnessed further developments in a year that is marked by a fevered dash to establish funds.
Today, legislation was tabled in the Philippines’ Congress to establish the Maharlika Wealth Fund (MWF), a sovereign fund that would draw resources from the Government Service Insurance System, Social Security System, Land Bank of the Philippines, and Development Bank of the Philippines.
Speaker Martin Romualdez said the MWF would “improve investment opportunities, promote productivity-enhancing investments and ensure that the Philippines becomes an investment destination.” The fund would support President Ferdinand R. Marcos Jr’s Agenda for Prosperity and the eight-point socioeconomic roadmap, indicating that it would play a strategic role in the national economy similar to that of Singapore’s Temasek and Indonesia’s INA.
Following his landslide election victory in May, Marcos has reiterated his commitment toward infrastructure developments, and continuing President Duterte’s ‘Build Build Build’ program. His campaign also promised to promote renewables to bring down the cost of electricity rates and to save the country’s environment and natural resources.
Elsewhere in Southeast Asia, Papua New Guinea made its first deposit in its new sovereign wealth fund, which was approved by parliament last year, although the framework of the fund is not yet ready according to local reports. The government of Prime Minister James Marape is planning to invest via the fund 7% of all dividends paid to the government by state-owned enterprises. The first deposit comes from a slice of a PGK80 million (US$23 million) dividend payment from Kumul Consolidated Holdings, totalling PGK5.6 million (US$1.6 million). While a very small step in the SWF world, PNG is at last moving ahead with a fund that has had a very long gestation period – although the trickle of income and lack of clarity on governance means it could fail to thrive.
Over in Africa, oil and gas rich Algeria is reviving its sovereign fund, the Fond de Regulation des Recettes (Revenue Regulation Fund, FRR). Established in 2000 from the surplus revenues from Algeria’s energy resources, the stabilization fund grew to US$73 billion by 2019. However, the impact of the Covid-19 pandemic on the national economy and state coffers meant it was almost fully depleted by 2022. The government claims the FRR is set to reach DZD2,300 billion (US$16.6 billion) by end-2022, due to the surge in global oil prices.
The 2023 Budget is based on a “conservative” projected benchmark price per barrel of oil of US$60/b, compared to the current Brent price of US$83/b. However, the government is still intent on dipping into the FRR rather than turning to borrowing, potentially leaving little to show of the bonanza created in the wake of the Russian invasion of Ukraine. The fund could dry up as quickly as it was quenched by the surge in oil revenue. Over the long-term, it is even more challenged by the prospect of declining hydrocarbons output. The FRR stands as testament to the political risks that the new funds in the Philippines and PNG face in a period of extreme volatility.
