Pula Fund

What Is the Pula Fund?

The Pula Fund is a sovereign wealth fund (SWF) established by the government of Botswana. It is co-owned by Botswana's government and the central bank, the Bank of Botswana. Launched in 1994, it is one of Africa's largest and oldest sovereign wealth funds. the Pula Fund is long-term investment portfolio, that manages revenue derived from Botswana's diamond exports. Additional contributions are made by the federal government and the nation's central bank.

Understanding the Pula Fund

The Pula Fund is one of Africa's oldest sovereign wealth funds. Created in 1994, it was named after the national currency, the Botswana pula (BWP). It aims to preserve and invest earnings generated by the nation's diamond industry. Recent data ranks the Pula Fund as the 56th largest in the world and the second-largest in Africa after the Libyan Investment Authority. The fund had a total of $4.1 billion in assets as of June 2022.

As noted above, the fund is run by both the country's federal government and the Bank of Botswana. The latter is responsible for formulating the fund's investment policies. The national government contributes excess fiscal revenue to the fund. This is in addition to contributions of foreign exchange reserves made by the central bank.

The Pula Fund is modeled after SWFs established by other nations over the second half of the 20th century, one of the first of which was established by Kuwait in 1953. Countries with valuable natural resources often establish SWFs to provide a cushion for future periods when either resource prices or supplies decline significantly or suddenly.

Top-performing SWFs, such as those of Norway or the United Arab Emirates, have succeeded by pursuing a policy of setting money aside for overseas investment under rigorous oversight and restrictions on government access to those funds. Botswana's Pula Fund uses a similar asset aggregation and investment strategy but is considerably weaker with respect to the fund's oversight.

Special Considerations

Experts believe Botswana's diamond industry will be depleted of resources as early as 2030. This looming shortage of diamonds poses a severe threat to Botswana's economy. At its peak, mineral revenue contributed about 60% of the government's annual budget, but now accounts for about 33%. Minerals contribute about 12% to GDP, down from a peak of 30%. The government hopes that by saving and investing these earnings while they are still available, the long-term economic impact can be softened.

Criticism of the Pula Fund

The Pula Fund's governance has been a subject of major controversy. The Columbia Center on Sustainable Investment issued the Pula Fund low marks when it comes to public accountability. It notes the fund lacks clear policy objectives and explicit operational rules for deposits and withdrawals. The center also suggests the public is given insufficient information on the fund assets and oversight of its activities is weak.

The Bank of Botswana acknowledges there have been times when the government has drawn upon the fund's resources, such as when it transferred assets to establish the Public Officers Pension Fund.