********* Lower oil prices shows the importance of sovereign fund for Iraq

04/12/2014 12:05



BAGHDAD / Obelisk: Analysts say that the exporting countries to energy materials which accumulated billions of dollars in windfall profits in the sovereign investment funds may have to drag them with the decline in oil export revenues which strong earthquake may occur in stocks, bonds and real estate markets around the world.

And sovereign wealth funds that are based on oil export revenues a key player in international finance as reserves by more than five trillion dollars of assets, according to estimates by David Spiegel emerging markets expert at BNP Paribas.

The money these funds usually divided into different baskets, each serving a specific function and help to promote government spending in times of falling export revenue windfall profits or management over the decades for future generations.

The Government of Norway and able to spend each year up to four per cent of its sovereign wealth fund of $ 850 billion, the largest in the world, but only 2.8 per cent did not spend in 2014. These funds were used to finance tax cuts.

The Stabilization Fund in Nigeria, about 20 per cent of the total sovereign wealth fund.

However swing Brent crude oil prices around $ 70 a barrel, which is much lower than at the present time about parity fiscal hand in many of the major exporting countries for energy products, including Saudi Arabia, Russia, Nigeria -zlk level that ensure the achievement of a balanced budget - much of the funds began already use components of achieving stability.

And demanding economy Iraqi experts to establish an independent and effective sovereign fund has administrative efficiencies, in order to give the future generation a good standard of living.

They resorted to Iran's sovereign wealth fund in a move to counter the impact of lower global oil prices on its economy.

Attention economist appearance of Mohammed Saleh to "remnants of the assets of a memorandum of understanding on the oil-for-food and other sovereign funds program after 2003".


He adds, "The research hypothesis on the principle that the risk of Iraq Development Fund and the promise of a sovereign fund for stability, not moving objectives and method of administration that is actually a fund being one of SWFs models, as it was a fund precautionary measure to cope with fluctuations in oil revenues in the annual budget since mid-2003 Until the present time.

At the global level, the Government of Norway said, in October, it may raise your ceiling as much as it may have used its sovereign wealth fund to cope with the economic effects of falling oil prices.

Oil has fallen more than $ 20 per barrel since then.

As in Russia, the decline in oil prices increases the pressure to be used for sovereign wealth funds. Moscow is looking forward already to fund the national wealth of the $ 82 billion as a source of financing in emergencies for companies affected by the Western sanctions imposed on Moscow because of its interference in Ukraine.

And holds stabilization funds in the habit of more low-risk investment instruments, particularly bonds that can be quickly converted to liquid funds.

Spiegel said, "the bulk of the funds (stabilization funds) is being invested in high-quality tools and many of them in US Treasury bonds and other government bonds."

Spiegel and the transfer of the International Monetary Fund estimates that the money reinvested the proceeds from oil exports make US Treasury bonds yield less by 50 basis points, almost all the likely level without these investments.

Spiegel said that sovereign wealth funds "are also investing in the stock markets to some extent," and pointed out that Nigeria, Kazakhstan, Kuwait and Iran are examples of countries where these public treasury of the state funds to help in times of need.

The worst possible scenarios for the oil-producing countries with the continued decline in oil prices for a long time is a possibility that governments are forced to use funds that are managed for future generations.

This includes the type of sovereign funds are often more long-term investment instruments and less liquid, such as real estate. Alsiadeon investors participated in some of the biggest real estate deals and infrastructure this year.

Any possible withdrawal of sovereign wealth funds may lead to damage to commercial real estate values ​​in some of the world's largest cities.

In London, for example, have the sovereign funds such as the Qatar Investment Authority, some of the most prominent commercial buildings in London including Harudz.oukal Stephen Clifton stores, head of central London in the real estate company Knight Frank "has kept its sovereign wealth funds focus on central London, but is difficult to estimate the total volume investments because transactions take place mostly through investment funds. and about 5.2 billion pounds ($ 8.2 billion) of foreign investments in the past year can be classified as "private" and may be large part of the sovereign funds. "

He says Massimiliano Castelli, head of strategy in the global sovereign markets at UBS Foundation The effect of stabilization funds on the market may not appear for some time.

Oil prices rebound even if not recovered much of the oil-exporting countries, particularly in the Middle East policies pursued cautious enough to withstand lower oil prices at least a year.

Castelli said "the majority of the Middle East countries pursued a very wise policies and retain large amounts of reserves to be able to withstand one or two years in the face of low oil prices between $ 60 and $ 70."


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