Govt agrees to protect a portion of the Pula Fund
Mbongeni Mguni | Tuesday September 3, 2024 08:42
“There’s a process ongoing and I’m going to ask that I develop a law where we will look at the Pula Fund and see whether it is in right state as a sovereign wealth fund and if it’s not, then we will ask that we ringfence some of that money and no one can touch it without going back to the law,” Finance minister, Peggy Serame told legislators recently.
The Pula Fund, which houses the country’s savings comprising decades of budget surpluses and diamond revenues, was pegged at P53.1 billion in June. The fund took a beating during the pandemic and has been gradually recovering since, as the economy has regathered momentum.
Set up as a sovereign wealth fund managed by the BoB and global asset managers, the Pula Fund is designed to act as a fiscal buffer and nest egg for future generations who will live in an era without strong diamond revenues.
However, government often dips into its portion of the Pula Fund, known as the Government Investment Account (GIA), to fund various needs such as the 2016 Economic Stimulus Plan and budget shortfalls. The BoB also regularly seeks approval to withdraw from the Pula Fund in order to support the country’s import bill.
The Pula Fund has been in the news lately after reports emerged showing that the GIA had fallen by P14 billion in the nine months to April 2024, as government leaned on the reserves due largely to the ongoing downturn in diamond revenues.
This week, figures from the central bank emerged showing that as at June, the GIA was at P2.8 billion, down from P16.4 billion in June 2023. At that level, government’s reserves are even lower than the peak of the COVID-19 drawdowns in 2020.
Central bank executives have said the ringfencing would mean protecting a portion of the Pula Fund from any withdrawals in order to preserve its value for future generations.
“Given the recent developments in the balance of payments and government spending requirements, there is a risk of depletion of the foreign exchange reserves, thus impacting on maintenance of macroeconomic stability and policy discretion,” BoB executives said in the annual report released last month.
The BoB executives said a ring-fenced Pula Fund was essential for capital preservation and to enable organic growth through reinvestment of returns.
“In turn, the withdrawal rules would allow for a portion of the returns to be used to augment budget financing and this would increasingly become significant and impactful with sustained expansion of the Fund,” they stated.