What is the Sustainability Fund?

During the opening of the recent Legislative Council, His Majesty announced the formation of the Sustainability Fund. I have been asked a number of times what it is. I was still in MOF when the project started and the concept took quite a while to gel and after that the legal part took quite sometime as well because it affects the Constitution.

Since there is still some interest, I thought I will spend a bit of time writing about it. But if you don't want to read my entry, you can actually read the law for yourself as it is now on pdf from AG Chamber's website. To make life easy for you, here is the LINK.

If you read from the Sustainability Fund Order, the Ministry of Finance (MOF) is required to ensure the sustainability of the government finances and clearly identifies the financing required for government spending as non-oil and oil revenues. The main function of the fund will be to function as collection accounting and channelling funds to 3 trust sub-funds where it can be withdrawn and applied solely for the purpose of funding one or more of the trust funds.

The 3 trust sub-funds are (i) the Fiscal Stabilisation Reserve Funds (FSR Funds), (ii) the Retirement Funds (RF) and (iii) the Strategic Development Funds (SDF).

The FSR is the most important as this is the fund which will fund the government finances should there be any shortfall in government's revenues. Without the FSR, in the past, for any shortfall of revenues, the government has to liquidate investments kept at BIA.

The RF is to fund liabilities caused by paying benefits on pensions, allowances and also to cover contributions by the government under the Employees Trust Funds (TAP) and any pension schemes introduced by the government. Currently the government pays out of all these payments out of the general expenditure. This RP will ensure that these payments will be self funding out of the investments of the fund.

The SDF is to is to provide risk capital for strategic local development which contributes to economic growth and diversification of government revenue.

In the speech, His Majesty mentioned that the fund is the accrued surpluses in our oil and gas revenue during the price upsurge over the last few years and the Sustainability Fund was created to handle the surpluses. So with the expected shortfall in the oil revenue with the lower oil prices and the current economic crisis, this Fund will be able to come to the rescue.

The Government Gazette Part II No.20 dated 26th March 2008 not only gazetted the Sustainability Fund Order but also gazetted several other notifications namely the amendments to the Pensions Act and the Old Age and Disability Pensions Act (the funding of these pensions is now out of the Retirement Fund instead of general government revenues) and also the amount of money that goes into the Sustainability Fund which is $9,445,886,491.96 (approximately $9.4 billion). You can get the Gazette from the Attorney General's Chamber or the Printing Department for $5.

So in terms of sustainability of the government finances for the future generation, we have the long term investments kept at BIA and now the shorter term Sustainability Fund. And with the recent signing of the Brunei-Malaysia boundary issue, we will at last have access to the oil and gas in the deep waters and hopefully with revenues from there, plus all the funds, it certainly augurs well for the country of Brunei Darussalam. Alhamdulillah...