Sovereign Wealth Funds

A sovereign wealth fund(SWF) is a state-owned fund that invests in real and financial assets. Countries that accumulate funds by operating the government, the banking system and from exploitation of natural resources can use that money to buy assets through a sovereign fund. They are created when countries have an economic surplus and have low international debt. Countries use this fund to maintain its social welfare system, for example the worlds biggest SWF, the Government Pension Fund of Norway. For countries that are generating most of its income from exporting non-renewable resources, an SWF is a way to park the revenues. It shields them from the cycles of the market and also paves way for a more stable income in the future. If designed properly, they could acts as a buffer for the country’s economy. Resource revenue can be highly volatile and dependent on the finiteness of the resource and unpredictability of the extraction

An SWF can be used to buy key and strategic assets in foreign industries thereby gaining control. This is concerning in a global context. It becomes an indirect way to exert control over other countries. An accountability framework is key for an SWF to function. Large amounts of money in the wrong hands is not something anybody wants. Especially where governments are unstable.

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