Country should create sovereign wealth fund

THE purpose of a sovereign wealth fund for Papua New Guinea is to assist the Government manage the economy, during good times when the economy is experiencing positive growth or during bad times when it is experiencing negative growth.
To serve this purpose, tax revenues and dividends from the extractive resource sector (mineral, petroleum and gas) and proceeds from the sale of state-owned Entities such as Telikom PNG Ltd and PNG Power Ltd will be deposited in the sovereign wealth fund.
The Government will make a withdrawal from the fund in each fiscal year to fund the national budget.
It will fund Government policies and programmes intended to promote economic and social development of PNG.
The withdrawal will be made in accordance with the rules set out in the organic law on the PNG fund.
Any surplus revenues and dividends will be saved and invested by the sovereign wealth fund, in accordance with the investment guidelines set out in the organic law.
These funds will be drawn down in future years to fund the national budget in accordance with the withdrawal rules.
There are three main challenges that must be addressed to successfully operate the fund.
First, the biggest challenge facing PNG now is political commitment needed to establish and operationalise the sovereign wealth fund, since the passage of the organic law by Parliament in 2015.
Political commitment is required to develop subordinate legislations and amendments made to the existing laws to enable the establishment of a fully functional sovereign wealth fund.
Second, the Government needs to abolish and eliminate entirely the corporate structures of Kumul Petroleum Holdings Ltd and Kumul Minerals Holdings Ltd from the Kumul Trust.
These two entities are duplicating the purpose of fund and are trapping cash from reaching the national budget for economic and social development spending by the Government. Third, the Government should immediately introduce and implement the production sharing arrangement.
This arrangement will enable the Government to capture and collect more revenues upfront to fund the national budget and the sovereign wealth fund, as well as take back control over extractive resource ownership.
It is imperative that the Government move quickly to establish and operate the fund, given the poor management experience PNG had with the Mineral Resources Stabilisation Fund and trust funds.
The current difficult economic environment resulting in the negative economic growth and high public debt levels should be used as a motivation to set up the sovereign wealth fund to serve its purpose.

Concerned Citizen,
Pom