ActiveAllocator has researched the economic conditions of countries with SWFs prior to their establishment. Our objective has been to uncover economic conditions in place to help determine the timing for the creation of future SWFs. We chose key relevant budget and balance of payment economic ratios from 18 countries, and focus our analysis on the five years prior to the inception of each country’s respective SWF. These ratios, many normalized for GDP, are the GDP growth rate, inflation, fiscal balance, trade balance, financial account, current account, foreign exchange reserves and levels of external debt. To bring specificity to context I also compared a particular nation’s (name anonymized) ratios that is now considering establishing a SWF, with summary ratios from other countries that have already established SWFs. The exercise provides both summary and individual indicators at the time prior to establishing a SWF. It may also serve as a framework for policy makers considering setting up new SWFs.
Our findings reveal, there is no ideal timing or any one measure that must be at a certain level to create a SWF. In fact, many countries have created SWFs in the face of deficits, inflationary periods and low growth. However, in most cases, the overall economic picture was pointing in a positive direction prior to inception.