Sovereign Wealth Funds and the New Era of BRIC Wealth
Among each of the BRIC countries, the paper finds the following:
Based on an average oil price of $75 per barrel, Brazil’s Tupi oil field is expected to generate more than $650 billion in revenue over its lifespan. Unfortunately, the Fundo Soberano do Brasil (FSB) has not released an accumulation or withdrawal fiscal rule in relation to managing its fund capital which is expected to start growing rapidly as oil production rises to more than one million barrels per day by the end of this decade.
Recent changes to Russia’s sovereign wealth fund (when it was split into two funds in January 2008) contain no provisions limiting government expenditures. While the fund’s rapid draw down in 2009 probably helped stabilize Russia’s economy, the lack of fiscal restraint vis-a-vis the funds, jeopardizes its long-term fiscal health.
India currently lacks the surplus capital (it runs neither a structural current account surplus or is a large commodity exporter) to establish a sovereign wealth fund.
In 2007, China established its sovereign wealth fund because its annualized real losses on its foreign exchange reserves amounted to nearly 5% of GDP.
The paper states that the primary factors causing fund surpluses in Russia and China (and for newcomer Brazil) look to be well placed for the immediate future. The paper also recommends that these funds immediately move to increase their level of transparency and accountability to help mitigate any political concerns over their increasingly visible foreign ownership.