Sovereign Wealth Funds and Long-Term Development Finance: Risks and Opportunities

Abstract

Sovereign wealth funds have traditionally invested in external securities but are increasingly being tapped to provide financing for domestic investments, including to help close infrastructure gaps. This opens up some potential opportunities but also a number of serious risks, including undermining hard-earned efforts to sustain macroeconomic stability and becoming a vehicle for politically driven “investments” that fail to add to national wealth. How can the opportunities be realized and the risks mitigated? The paper proposes a set of checks and balances to help ensure that domestic investments do not undermine the fund’s role in the area of sovereign wealth.