Sovereign wealth fund to play a key role to diversify economy and increase employment

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Ulaanbaatar/MONTSAME/.  At the initiative of the Chairman of the State Great Hural (Parliament) G.Zandanshatar, a meeting entitled ‘Mongolians are the owner of their wealth’ on the Sovereign Wealth Fund was held on May 26.

The meeting brought together MPs Kh. Bulgantuya, P. Anujin, T. Dorjkhand, B. Battumur, members of a working group responsible for drafting a first-ever bill on Sovereign Wealth Fund (SWF), as well as economists and experts.

At the beginning of the meeting, Chairman of the State Great Hural G.Zandanshatar emphasized the important role of the SWF in diversifying the economy, increasing employment, making strategic investments and developing the socio-economy. To date, more than 120 countries around the world have established SWFs that meet their own particularities.  As of 2019, a total of USD 11 trillion has been under the management of 120 funds, regardless of their asset type.

At the discussion, several presentations were provided, namely ‘General concept on the Sovereign Wealth Fund and its legal environment’ by Deputy Minister of Mining and Heavy Industry O.Batnairamdal,  ‘Economic content, income and expenditure of the Sovereign Wealth Fund’ by Head of the Fiscal Policy and Planning Department of the Ministry of Finance J.Ganbat,  and ‘International experience of the Sovereign Wealth Fund and introduction of Sovereign Wealth Fund into Mongolia’ by Director of the Contracts, Law and Cooperation Department of Erdenes Mongol LLC B.Sunderiya.

Internationally, there are five categories of social wealth funds, namely, Stabilization Fund, Future Generation Fund, Reserve Investment Fund, Development Fund and Pension Reserve Fund.  Primary function of the SWF is to support state ownership and macroeconomic policies. Its sources of funding can fall into two categories – commodity or non-commodity, emphasized the speakers in their presentation.

For the first time, Mongolia has distributed the benefits of natural resources fairly to its citizens, canceling pension loans of the elderly with the income from the Salkhit gold and silver deposit, and issuing MNT 1 million to the elderly who did not have loans. Diverting the benefits of natural resources to overly widespread welfare care will have negative consequence in the long run. Therefore, it is necessary to have the proper resource management and wealth fund management, stressed the specialists of the sector. They also suggested, “It needs to consider SWF as a component of the state budget, build up accumulations, as well as funnel it into investments for export promotion.”

With an adoption of the Law on Human Development Fund in 2009, Mongolia is considered to have established its first Wealth Fund. However, this law revoked as the Law on Future Heritage Fund was passed in 2016. The Future Heritage Fund is set to distribute income of non-renewable resources accumulated at the budget equally to present and future generations.

For Mongolia, there is still a need to make its wealth fund an internationally recognized and to manage it properly. Internationally, there are several forms of funding. For instance, the SWFs are built up with money from exports of state-owned mineral deposits in Botswana, Kuwait, Chile and the United Arab Emirates, taxes of mineral exports in Russia, pension funds in France, Ireland and New Zealand, central bank reserves in China and Singapore,  as well as revenue from privatization in Australia and Malaysia. 

Under the leadership of the IMF, the world’s main SWFs come together in a summit in Santiago in 2008, Chile and formed a temporary International Working Group of Sovereign Wealth Funds. This working group then drafted the 24 Santiago Principles, to set out a common global set of international standards regarding transparency, independence, and accountability in the way that SWFs operate. These principles should be reflected in the Bill on Sovereign Wealth Fund of Mongolia, said B. Sunderiya.

Participants underscored an importance of defining the SWF’s purpose clearly in the law, harmonizing it with other legislations and having a common understanding of the terminology aside of creating a model of business activity to promote the fund.

Chairman of the State Great Hural G.Zandanshatar emphasized, “The Constitutional amendment enables the establishment of the Sovereign Wealth Fund and distribution of the benefits from natural resources to all citizens in an inclusive manner. It will become an actual work through the implementation of Law on Sovereign Wealth Fund.” …Thus, the government needs to submit the first Bill on Sovereign Wealth Fund to the State Great Hural urgently, added the Speaker. 

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