Rules set to protect SWF

By Gedion Timothy
AS the Government moves to establish a Sovereign Wealth Fund, governance arrangement in the management and sustainability of funds should be in place, an official says.
THE head of the PNG Extractive Industries Transparency Initiative secretariat Lucas Alkan said work had been progressing slowly since 2012 because of the laws and legislative requirements which needed to be in place.
The EITI is a global standard that sets the yardstick for implementing countries to be measured against in their efforts to improve transparency and accountability in the management of revenues derived from oil, gas and minerals.
He said the Organic Law on the Sovereign Wealth Fund was approved by Parliament in July last year. The Department of Treasury and Bank of PNG are currently working on the final stage of its implementation.
“Mechanisms such as deposit and withdrawal rules, oversight by Parliament on expenditure decisions through the budget process, the annual reporting through quarterly reporting process as stipulated in the Organic Law on SWF Act needed to be explicitly clear,” Alkan said.
“These seem too general and appear inadequate in a developing country like PNG with weak institutional arrangements.”
Alkan said experiences in countries such as Russia, Venezuela, Libya, Brunei and Guinea which had established SWF showed that such funds
had been mismanaged and failed to meet the objectives.
Alkan said the SWF objectives seemed very clear – macroeconomic economic stabilisation and savings for future generations.
“However, one question is whether we should earmark for specific expenditures from funds to come into the national budget from the stabilisation component of the fund,” Alkan said.
He said there should be clear fiscal rules relating to withdrawals and deposits.
“A lack of these rules could leave the fund open to discretionary withdrawals and could allow temptation for Government to spend unnecessarily during times of high commodity prices,” he said.
“Likewise, a lack of deposit rule leaves it open for government to divert funds elsewhere or lead to irregular deposits as happened in other countries.
“Even if there are fiscal rules established by law, these laws could be manipulated through amendments like what happened in some African and Caribbean countries.”