The ruling ANC party in South Africa has reached final stages of setting up a sovereign wealth fund (SWF).
This fund will be one of the governing party’s flagship ideas ahead of next year’s general elections.
The party says the fund will boost the country’s economy by investing in diversified high-risk and high-return assets.
The ANC report said the SWF would enable government “to provide a steady resource for national development objectives”.
The intervention would also “sterilise inflows of mineral rents to avoid significant exchange rate appreciation during commodity booms that displace industrial and farming exports”.
Wits University economist Lumkile Mondi said countries that had established the SWF “used windfall proceeds” like oil or commodity rents.
“With debt-to-[gross domestic product] ratio at 53%, a budget deficit of 5% and a weak revenue collection institution, an SWF is a dream that has no economic base nor justified when cash is too tight. Where will the money come from?” he asked.
Econometrix director Azar Jammine said thinking about an SWF when the country is running a budget deficit is “a bit crazy”.
“When you are running a budget deficit that you’re trying to reduce, what are you doing building a fund when you really need the money just simply not to borrow for your own sake to keep the country going?” asked Jammine.
With mining in South Africa on its knees and agriculture not doing well, he said government itself needed whatever money it can get for ordinary expenses.
“There is no room to establish an SWF when it is running a budget deficit,” Jammine said.