Sovereign Wealth Fund Model: A Tool for Economic Stability and Public Financial Management: Evidence from a Developing Country

Abstract

Nations create Sovereign Wealth Funds to accumulate, save and invest excess liquidity that arise from natural resources and other excess funds in infrastructural developments and in achieving other policy objectives. The paper thus investigated sovereign wealth fund as an effective tool for public financial management and economic sustainability with a particular focus on Nigeria. The exploratory and descriptive research design approach was adopted in evaluating the sovereign fund model as an alternative to public resources management. The paper reveals that sovereign wealth funds can be helpful to a nation especially in the time of economic crisis as it could be used to minimize government revenues volatility rate as well as to build up the level of savings for future generation ( r = 0.689 and 0.763 for volatility rate and saving for future generation respectively and p-values < 0.05). However, it is discovered that to produce the intended results, the fund must form part of the home country policy document and must be prudently invested. Based on these findings, it is recommended that regulatory body must strengthen the accountability framework around the fund. To this end, there should be fiscal discipline, probity and transparency in the investment, management and reporting of the fund. Nigeria is thus encouraged to sign up and uphold the Santiago principles and guidelines proposed in 2008 for the promotion of global best practices in National Sovereign Wealth Funds operations and management.