Natural Resource Funds - Millennium...
Transcript of Natural Resource Funds - Millennium...
Natural Resource Funds
BotswanaPula Fund
Botswana
Gaborone
A JOINT CENTER OF COLUMBIA LAW SCHOOL AND THE EARTH INST ITUTE AT COLUMBIA UNIVERSITY
VALE COLUMBIA CENTERON SUSTAINABLE INTERNATIONAL INVESTMENT
BOTSWANA
Natural Resource Funds
Santiago Compliance
Index
44 / 100 52 / 100 56 / 100
Resource Governance Index Natural Resource
Fund Score
Truman Sovereign Wealth Fund Scoreboard
2 August 2013
Market Value
Pula Fund $6.9 billion
Synopsis
Fund Highlights• ThePulaFundwasestablishedundertheBankofBotswanaActof1975andreestablishedundertheBankofBotswanaActof1996.
• Thefundconsistsoftwoaccounts,theGovernment InvestmentAccountthatbelongstotheGovernmentofBotswanaandaforeignexchangereserveaccountthatbelongstotheBankofBotswana.
• ThePulaFund’spolicyobjectiveisunclear,howeverit hasbeenusedtostabilizerevenuesandservesasafuturegenerationssavingsfund.
• Botswanaseekstoensurethatcurrentspendingisonly financedwithnon-resourcerevenues.Resourcerevenuesaretheneitherusedtofinanceinvestment(including humancapital)orsavedinthePulaFund.
• Whilegeneralbudgetprinciplesguideflowsintoandoutofthefund,noexplicitoperationalrulesfordepositsandwithdrawalsexist.
• Thereislimitedpublicinformationonfundassetsand weakoversightoffundactivities.
Good Governance Fundamentals
ClearDepositRules no
ClearWithdrawalRules no
ClearInvestmentRules yes
Transparent no
PubliclyAvailableAudits yes
EffectiveOversight no
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Natural Resource Funds
The Pula Fund in its first incarnation is established under the Bank of Botswana Act of 1975.
Bank of Botswana Act 1996 establishes the Bank of Botswana and the Pula Fund in their current forms, replacing the Bank of Botswana Act 1975.
Expenditure rule is introduced that sets maximum government expenditure at 40% of GDP.
1993 1996 2006
TIMELINE
3 August 2013
Timeline and Fund Objectives
Fund Inception• ThePulaFundwasoriginallyestablishedin1993under theBank of Botswana Act in 1975.
• ThePulaFundwasreestablishedundertheBankof BotswanaAct1996.1
Fund Objectives• AlthoughthePulaFundhasbeendescribedasafuture generationssavingsfund,itsobjectiveaccordingtotheoriginalBankofBotswanaAct1975andthesubsequentBankofBotswanaAct1996remainsunclear.Onoccasion,thefundhasbeenusedforrevenuestabilization.2
• ThePulaFundpreservesaportionofthecountry’s foreignreservesfromdiamondandmineralexportsas along-terminvestment.
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OPERATIONS
ObjectivesareClear
RuleforHowMuch CanbeWithdrawnin
AnyGivenYear
RuleforWhich RevenuesMustbe DepositedandWhen
Exceptionsto RulesareClarified
INVESTMENT
Useof ResourceRevenues
asCollateral
Domestic Investmentis
ExplicitlyProhibited
Investment RiskLimitations
Publicationof SpecificInvestments
MANAGEMENT
Penaltiesfor MisconductbyFundManagers&Staff
Ethical&Conflict ofInterestsStandardsforManagers&Staff
TheDetailed Responsibilities ofFundManagers
&Staff
TheRoleof Government
AgenciesinFund Management
TRANSPARENCY AND OVERSIGHT
PublicDisclosure ofIndependent ExternalAudits*
PublicDisclosure ofInternal
AuditResults
Formalized Oversight Mechanism
PublicDisclosure ofRegularlyCompiled
FundReports**
6/16
Eachboxrepresentsa regulatorystandardessentialforpromotingconsistent useofandsafeguardingresourcerevenues.Whiteboxeshighlightregulatorygapsinfundgovernance.
PresenceofRegulation
AbsenceofRegulation
Good Governance Standards and Gaps in Regulation
GoodGovernanceStandardsMet
*AuditresultsarepublishedintheannualBankofBotswana reportsdespitetheabsenceofregulations.
**TherearenoregularlycompiledreportsbeyondtheinformationincludedintheoverallBankofBotswanaannualreports.
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Operational Laws, Rules and Policies
Fund StructureThePulaFundconsistsoftwoparts: 1.TheGovernmentInvestmentAccount,whichbelongs
tothegovernmentofBotswana.
2.ThePulaFund’sforeignreserves,whichbelongtotheBankofBotswana.
Fund Deposit Rules3
Government of Botswana Deposits• Indetermininghowmuchmineralrevenuetosaveandspend,BotswanasetsaSustainableBudgetIndex,theratioofnon-investmentspendingtonon-mineralrevenues. Forexample,in2012thegovernmentsettheSustainableBudgetIndexat0.8,whichmeansthatnomorethan 80percentofnon-mineralrevenuescanbespenton recurrentgovernmentexpendituresoutsidethehealth andeducationsectors.4
• Oncethegovernmentdeterminesthemaximumamount itcanspendonnon-investmentexpenditures,itmust splitremainingrevenues(allmineralrevenuesand remainingnon-mineralrevenues)betweenspendingonhealth,educationandpublicinvestments(e.g.roads; electricity)andsavinginthePulaFund.
• Thetotalamountofspendingisconstrainedbyan expenditurerulethatprohibitsthegovernmentfromspendingmorethan40percentofGDPinanygivenyear.5
• Anyfiscalsavings,eitherintendedorrequiredbythe expenditurerule,aretransferredtothegovernment’s portionofthePulaFundknownastheGovernment InvestmentAccount.
Bank of Botswana Deposits• Foreignexchangereservesthatareinexcessofthe amountrequiredfordailyforeigntransactions(keptin theLiquidityPortfolioandcurrentlysetatsixmonthsofcover)aretransferredtotheBankofBotswana’sportion ofthePulaFund.
The Pula Fund is not governed by strict
deposit or withdrawal rules. Instead, deposits are determined by the
size of foreign exchange inflows
and the size of fiscal surplus. Withdrawals
cover fiscal deficits.
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Foreignexchangereserves(US$)
Liquidityportfolio(BankofBotswana)
Pula Fund
Surplusforeignexchangereserves
(US$)(belongs to Bank
of Botswana)
GovernmentInvestmentAccount(BotswanaPula)
(belongs to government of Botswana)
Governmentfiscalbudget
surplus/deficit
MineralexportearningsincludingDebswanadiamond
exports(US$)
Governmentmineralrevenues(BotswanaPula)
Operational Laws, Rules and Policies
Flow of Funds Taxation,royaltiesanddividendsfrominterestinDebswana*andotherminingcompanies6
Privatecapitalflows
*Debswanaisa50/50jointventureminingcompanybetweenthegovernmentofBotswanaandDeBeers.
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Policy on in-State investments: ThePulaFundmaynotinvestdirectlyinBotswana.13
Investment Laws, Rules and Policies
Investment AuthorityThePulaFundismanagedbytheBankofBotswanaandisjointlyownedbytheBankandthegovernmentofBotswana.7
Investment Objectives8
• Ensurethesafetyoftheforeignexchangereserveand preserveitsvalue.
• Maintainliquiditysothatfundscanbemadeavailablein atimelymannerandatreasonableprices.
• Optimizereturnsthroughprudentinvestmentand acceptablelevelsofrisk.
Investment Strategy9
TheFundmitigatesriskwiththefollowingstrategies:• Reservesareonlyinvestedincurrenciesthatarefreely convertible.Ifinvestinginsovereigndebt,itmustberatedatleastAa2/AAbyMoody’sandStandardandPoor’s (Baa3/BBB-inthecaseofG7membercountries).
• TheBankinvestsmainlyinU.S.dollar,euro,poundsterlingandyenassets.ThecurrencyallocationsforfixedincomeassetsfollowstheallocationstheIMFusesfortheirSpecialDrawingRightscurrencybasket,setat41.9%U.S.dollars, 37.4%euro,11.3%poundsterlingand9.4%yensince2011.10
• Allocationofequityinvestmentsinvariouscountriesisdeterminedbyeachcountry’sweightintheMSCIIndex, astockmarketindexcomprisedofacollectionofstocksfromalldevelopedmarkets.
• TheFundusesexternalfundmanagerstomanagea portionoftheforeignreservesasameansofbenchmarkingperformanceagainstassetsthataremanagedinternallybytheBankofBotswana.
Investment Allocation11
TheBankofBotswanareviewsthePulaFund’sassetmixeverythreetofouryears.Thecurrentguidelineforallocationofassetsasof2012isasfollows:• 40%Equities• 60%Long-TermFixedIncomeAssets
Allocation by Asset Class12
AsofDecember2012
Equities Long-TermFixedIncome
37%
63%
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The National Assembly passed legislation creating the Pula Fund and the national development plans that help guide its operation.
The Auditor General, as requested by the Minister of FInance and Development Planning, reports on the accounts and operations of the Bank of Botswana.
The Minister of Finance and Development Planning is consulted on strategic asset allocation and receives audited reports from the Bank of Botswana for presentation to the National Assembly.
Independent auditor’s findings are included in the Bank of Botswana’s annual report to the Minister of Finance and Development Planning.
NationalAssembly
AuditorGeneral
ExternalAuditor
Pula Fund(heldattheBankofBotswana)
ExternalFundManagers
BoardofGovernors
InvestmentCommittee
MinisterofFinanceandDevelopmentPlanning
Management and Accountability
The Board of Governors is responsible for approving investment policies and guidelines.
The Investment Committee makes decisions regarding portfolio rebalancing that are then approved by the Board of Governors. It also monitors the performance of external fund managers.
A portion of funds are managed by external fund managers with the rest managed by the Bank of Botswana itself.
Management and internal accountability External accountability
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Oversight and Safeguards
Oversight Mechanisms• TheInvestmentCommitteeperformsa
periodic review of investment methodology.
• Fundfinancesaresubjecttoaregular and comprehensive internal audit.
• Fundfinancestobesubjecttoaregular and independent external auditthatmeets internationalstandards.
Common Oversight Mechanisms or Safeguards Not Present in Botswana• Lackofadomestic oversight committeeto“police”FundactivityandensureadherencetotheregulationsthatgoverntheFund’sactivity.
• Lackofformal government approvalofFunddepositsandwithdrawals.
• Fundsarenotmanagedseparately fromthecountry’sinternational reserves.
• Aninternational oversight institution,suchas theWorldBankortheIMF,doesnotroutinelymonitorFundmanagement.
Pula Fund financial information can be
found in the Bank of Botswana’s audited
annual report.
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Transparency Laws, Rules and Policies
There is public disclosure of the following:
WhenorhowoftenFundreportsarepublishedandmadepubliclyavailable yes
WhichindividualsororganizationsareresponsibleforpublishingFundreports yes
SizeoftheFund(s) yes
Depositandwithdrawalamounts yes no
Returnsoninvestments yes
Detailedassetallocation–geographiclocation no
Detailedassetallocation–assetclass yes no
Detailedassetallocation–specificassets no
Naturalresourcepricesandotherfiscalassumptionsusedtocalculate depositandwithdrawalamountsallowedunderfiscalrules
no
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Bank of Botswana
Act 1975
http://www.elaws.gov.bw/docs/statutes/ Botswana%20Statute%20Law%201975.pdf
Bank of Botswana
Act 1996
http://www.bankofbotswana.bw/assets/uploaded/ Bank%20of%20Botswana%20Act.pdf
National Development Plan 2007
http://www.finance.gov.bw/index.php? option=com_content1&parent_id=334&id=338
Annex: ListofApplicableLaws
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1. http://www.imf.org/external/np/pp/eng/2012/082412a.pdfp.35.
2. http://www.imf.org/external/np/pp/eng/2012/082412a.pdfp.35.
3. http://www.imf.org/external/np/pp/eng/2012/082412a.pdfp.35.
4. BankofBotswanaAnnualReport2012p.100.Availableat:http://www.bankofbotswana.bw/assets/uploaded/bob-ar-2012-main.pdf
5. http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2010/11/16/000158349_20101116090208/Rendered/PDF/WPS5480.pdfp.8.
6. BuildingtheDomesticRevenueBase:NaturalResourceTaxationandTaxMoraleinMozambique,TanzaniaandZambia.NORADWorkshopReportApril2012.BeatGislerp.15.Availableat: http://www.norad.no/en/thematic-areas/ macroeconomics-and-public-administration/tax-for-development/currents-issues/presentations-tax-seminar-in-lusaka-april-2012
7. http://www.imf.org/external/np/pp/eng/2012/082412a.pdfp.35.
8. http://www.bankofbotswana.bw/index.php/content/ 2009103012004-reserve-management-guidelines
9. IMFGuidelinesforForeignExchangeReserveManagement:CountryCaseStudiesp.47-48.Availableat:http://www.imf.org/external/pubs/ft/ferm/guidelines/2005/part2.pdf
10.http://www.imf.org/external/np/tre/sdr/sdrbasket.htm
11. IMFGuidelinesforForeignExchangeReserveManagement:CountryCaseStudiesp.47.Availableat:http://www.imf.org/external/pubs/ft/ferm/guidelines/2005/part2.pdf
12. BankofBotswanaAnnualReport2012p.44.Availableat:http://www.bankofbotswana.bw/assets/uploaded/bob-ar-2012-main.pdf
13. http://www.imf.org/external/pubs/ft/gfsr/2007/02/pdf/ annex12.pdfp.49.
Endnotes