Commodity-based Sovereign Wealth Funds: Managing Financial Flows in the Context of the Sovereign Balance Sheet
IMF Working Papers, February 9, 2018
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- Commodity-based Sovereign Wealth Funds: Managing Financial Flows in the Context of the Sovereign Balance Sheet
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Bibliographic details
- Authors: Abdullah Alhassan, Sue Brake, Michael G. Papaioannou, Martin Skancke
- Published: February 9, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484340967.001
Overview and purpose
- Addresses management of commodity-based sovereign wealth funds (SWFs) after the recent fall in commodity prices.
- Provides a framework focused on stabilization and savings funds by:
- examining macrofiscal linkages for SWFs;
- presenting an integrated sovereign asset and liability management (SALM) approach to SWF management;
- applying this framework to two scenarios: (i) assets being accumulated; and (ii) the SWF being drawn on to cover a financing gap due to lower commodity prices.
Key findings and analytical framework
- Emphasizes macrofiscal linkages between commodity revenues, SWF inflows, the sovereign balance sheet, and fiscal outcomes.
- Proposes an integrated sovereign asset and liability management (SALM) approach tailored to commodity-based SWFs to align fund management with sovereign balance sheet objectives.
- Applies the SALM framework to:
- a scenario of asset accumulation; and
- a scenario where the SWF is drawn on to cover a financing gap caused by lower commodity prices.
Policy implications and recommendations
- Focus on roles of stabilization and savings funds within the SALM framework to manage volatility from commodity revenues.
- Highlight the importance of macroeconomic coordination between SWF management and fiscal policy to address financing gaps and opportunity costs.
- Recommend integrated consideration of liquidity, risk management, and the sovereign's net asset position when setting SWF investment strategies and distributions.
Subjects and keywords (policy and technical scope)
- Subjects: Budget planning and preparation, Financial statements, Fiscal policy, Government asset and liability management, Government debt management, Public debt, Public financial management (PFM).
- Keywords: asset, asset accumulation, asset allocation perspective, commodity, financial asset, Financial statements, financing gap, Global, Government asset and liability management, Government debt management, investment management, investment strategy, liquidity, macroeconomic coordination, negative carry, net asset position, opportunity cost, price, risk management, sovereign asset and liability management, sovereign wealth funds, SWF assets, SWF balance sheet, SWF inflow, SWF management, SWF owner country, SWF performance, WP.
Content in this bundle
- 1. Stylized Sovereign Balance Sheet