By: Staff Writer
May 20, 2022
A regional economist is urging governments in the region to build a Sovereign Wealth Fund (SWF) when they have their first best chance coming out of the COVID-19 pandemic.
Marla Dukharan, speaking at a webinar on Thursday, said: “So it is very important that governments find a mechanism like a SWF, for example, to set aside a little bit at a time every year in your budget, so that you have something accumulated when crisis the next crisis hits, you have something to leverage to insulate your society from the fallout.”
Saving for rainy days is something Caribbean governments typically do not do because there is little fiscal headroom to set anything aside due to the fact that very few have any natural resources that generate significant windfall.
She noted, however that employing a growth strategy for the medium term may be hampered by the need to provide adequate social protection to the most vulnerable.
She also said that it is “important” for governments to set aside something regardless of the social pressures and she doubled down on the need for a SWF. “I mean, you can call it something else. But I think it’s very important to set aside money so that when there is a crisis, you have something to draw on.
“I just want to give you a little example that I find quite powerful. So in Trinidad, I think we were the first country in the region to have a SWF and it’s usually something that countries who are resource rich would be the ones to establish.”
She also said that countries in the region do not have to have natural resources like Trinidad and Tobago in order to start a SWF but the will to do so must be present.
SWF’s are not a brand new mechanism and a country does not need to have any significant natural resources in order to create one. Singapore is a shining example of a government owned SWF with their GIC (Singaporean sovereign wealth fund) and the Temasek Holdings, which manages about SGD$405bn of assets around the world.
Temasek is exposed to significantly higher risk than GIC but has also delivered higher returns over time as expected.
Temasek is an active shareholder and investor, with four key structural trends guiding its long term portfolio construction – Digitisation, Sustainable Living, Future of Consumption, and Longer Lifespans. Temasek’s portfolio covers a broad spectrum of sectors. Its key focus investment areas include Consumer, Media & Technology, Life Sciences & Agri-Food, and Non-bank Financial Services.
GIC on the other hand is a private company wholly owned by the Government of Singapore and manages the government’s financial assets. It does not own the assets it manages and is paid a fee as the fund manager looking after Singapore’s foreign reserves that are assigned to its care.
The Government, which is represented by the Ministry of Finance in its dealings with GIC, neither directs nor interferes in the company’s investment decisions. It holds the Board accountable for the overall portfolio performance. Although we are Government-owned and manage Singapore’s reserves, our relationship with the Government is that of a fund manager to a client. We operate, invest and measure our performance in the same way as any global fund management company.
Singapore does not have oil, natural gas, or mineral deposits and is very similar to island nations in the Caribbean and uses its sun, sand and sea for the most part.
Ms Dukharan also noted with the Trinidad and Tobago SWF that: “Successive governments in my country had only deposited less than just under $3bn US dollars, over a long period of time, a couple of decades, if you will, into this fund. But do you know that this fund was able to grow because the fund manager did a very good job, this fund was able to grow in total to close to $10bn.
“There will draw downs over time. So it means that it never really got a balance of $10bn but when you add up what was drawdown plus the balance that we have today of just under 6 billion, you know But we were able to grow this to like to close to $10bn. So the point I’m making to you is, even if it’s small amounts over time it grows and compounds and that is also something I think is a critical reform that I feel many small countries should consider in this region whether you are resource rich or not.”