THIS week, the Cabinet of Ministers approved a Sovereign Wealth Fund (SWF) for Saint Lucia, asserting that it is a forward-thinking public investment fund meant not only to assure long-term economic development but also to strengthen climate resilience.
We were told how the wealth fund will operate and where the money will go, such as to assist investments in climate adaptation and mitigation, as well as sustainable economic development.
However, the Pierre administration has yet to specify when this wealth fund will become operational nor has it disclosed how the SWF will be funded, meaning where the initial money would come from to expand the SWF through investments or other financial instruments.
Here’s what we know so far:
That the board established to manage the Fund will devise investment guidelines that bind the performance of the investment manager, and these guidelines should prioritise the following principles:
a. That a ‘high’ return target be the primary motivator prior to the attainment of set thresholds.
b. That thresholds to trigger non-investment withdrawals be defined, with these triggers being tied to portfolio size relative to GDP.
c. That the fund be invested according to the Environmental, Social, and Governance (ESG) principles; and (d) That derivatives and similar instruments be used only for hedging purposes.
There is no mention of the initial size of the investment or, critically, the measure of the predicted growth. As mentioned above, the Prime Minister has not divulged from whence the Fund will be financed, but perhaps it could be from the Citizen Investment Programme.
The concept of a SWF is not necessarily a bad thing. Having an investment vehicle owned by Saint Lucia can be a worthwhile aspiration. Such a development instrument or investment account, which is essentially a nest egg for Saint Lucia, permits current funds to be spent in ways that benefit current and future generations of Saint Lucians. One cautionary thought, however. It would be a foolish policy to increase the Country’s deficit to fund the Fund. That would simply be robbing Peter to pay Paul.
Under the Constitution of Saint Lucia, in section 77, the Government of the day is required to pay all monies raised or received by Saint Lucia “shall be paid into and form a Consolidated Fund”. The Constitution requires certain procedures to be followed, both in terms of the requirements for the expenditure of monies in the Consolidated Fund and for the accounting and publicity of such accounting of transactions involving the Fund. Unfortunately, governments have, from time to time, found clever ways of circumventing the Constitutional requirements by establishing corporate vehicles owned by the Government. Two classic examples, among many others, of such corporate structures are SLASPA and the CIP fund.
We are aware that political meddling can result in incompetence, corruption, and the waste of resources intended for the public good. To guarantee that the fund achieves its intended purpose robust auditing and depoliticising measures must be legislated, even to the extent of imposing penalties for infractions.
If such a Sovereign Wealth Fund is to be established, let its ethos be the provision of a legacy for our children and not the promotion of narrow political advantage.