Sovereign Wealth Funds in the Pacific Island Countries: Macro-Fiscal Linkages
IMF Working Papers, December 1, 2007
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- Sovereign Wealth Funds in the Pacific Island Countries: Macro-Fiscal Linkages
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Bibliographic details
- Authors: Paulo A Medas, Eric Le Borgne
- Published: December 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451868609.001
Summary
- This paper looks at the role Sovereign Wealth Funds have played in the Pacific Island Countries in achieving key macro-fiscal policy objectives, namely, protecting the budget from high revenue volatility and strengthening fiscal prospects.
- Evidence shows that the funds' effectiveness has been hampered by lack of integration with the budget, institutional weaknesses, and inadequate controls.
- These factors, together with weak asset management, have sometimes led to substantial financial losses and undermined fiscal policy.
- Funds, if well designed, could be used as a tool to support a sound fiscal framework, but should not be seen as a substitute for fiscal reforms.
Key findings
- Sovereign Wealth Funds have been used with the objective of protecting the budget from high revenue volatility.
- Funds have also aimed at strengthening fiscal prospects in Pacific Island Countries.
- Effectiveness has been hampered by:
- lack of integration with the budget,
- institutional weaknesses,
- inadequate controls.
- Weak asset management has, in some instances, led to substantial financial losses and undermined fiscal policy.
Policy implications and recommendations
- Well designed sovereign wealth funds could be used as a tool to support a sound fiscal framework.
- Sovereign wealth funds should not be seen as a substitute for fiscal reforms.
- Address institutional weaknesses, improve integration with the budget, strengthen controls, and enhance asset management to improve fund effectiveness.