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Sovereign Wealth Funds and Macroeconomic Stabilization in the Home Economy

Author

Listed:
  • Hoda Youssef

    (The World Bank)

  • Ibrahim Elbadawi
  • Raimundo Soto
Abstract
The analysis of this paper suggests that SWFs have a robust stabilizing role against fiscal procyclicality and have also been a strong contributor to the sustainability of fiscal balance. Also, other fiscal institutions, such as revenue, expenditure and debt rules, were found to be associated with fiscal stabilization, though with a lesser degree of robustness. Our policy recommendation is, therefore, for emerging countries to consider the enactment of a SWF as an important institution that would bring both stabilization capabilities and an additional source of resources to improve the sustainability of fiscal policies. We also recommend to consider in the design of a SWF the reinforcing role of certain fiscal rules (either based on limiting the public debt or the expansion of expenditures). In this context, we highlight the case of the GCC countries, which despite their highly-endowed SWFs will likely need to consider adopting some fiscal rules in order to support the stabilizing role of the SWFs, especially under the new “normal” of expected relatively long-term low prices of oil and other commodities.

Suggested Citation

  • Hoda Youssef & Ibrahim Elbadawi & Raimundo Soto, 2018. "Sovereign Wealth Funds and Macroeconomic Stabilization in the Home Economy," Working Papers 1175, Economic Research Forum, revised 29 Mar 2008.
    • Handle: RePEc:erg:wpaper:1175
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    File URL: http://erf.org.eg/wp-content/uploads/2018/03/1175_Final.pdf
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    References listed on IDEAS

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