Pula Fund

What Is the Pula Fund?

The Pula Fund is a sovereign wealth fund (SWF) established by the government of Botswana in 1993. The fund manages revenue derived from the nation's diamond exports, with the government contributing excess fiscal revenue and the nation's central bank, the Bank of Botswana, contributing foreign exchange reserves. The government and Bank of Botswana co-own the fund, with the central bank responsible for formulating its investment policies.

The fund has an estimated $5 billion in assets as of 2021.

Understanding the Pula Fund

The Pula Fund is one of Africa's largest and oldest sovereign wealth funds. Named after the national currency, the Botswana Pula, the fund was created to preserve and invest earnings generated by the nation's diamond industry, which many experts believe will be depleted of resources beginning in 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.

Special Considerations

The governance of the Pula Fund has been a subject of controversy. The Columbia Center on Sustainable Investment has given 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. In addition, the center says 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.

Sovereign Wealth Funds

The Government Pension Fund of Norway is the largest sovereign wealth fund in the world, holding more than $1.1 trillion in assets. The China Investment Corporation is the second-largest with $1 trillion in assets, while the Abu Dhabi Investment Authority is third with $579.6 billion in assets.

The Pula Fund and Other SWFs

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 an SWF to provide a cushion for future periods when either resource prices or supplies might 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.