What does a country do with a windfall of $130 billion dollars? Such is the question that Israel has been asking itself in the wake of two massive gas discoveries. In fact, one of the discoveries will be the biggest in the Mediterranean’s history and could dramatically alter the Israeli economy and society. This is why the country is talking seriously about setting up a new SWF:
Smart. The purpose of such a fund will be to prevent the sudden influx of wealth from weakening internationally exposed industries as well as the costs of restructuring domestic industries and employment institutions. Such a fund could also help minimize the short-term costs of fluctuating revenues and ensure macroeconomic stability. For such a small economy, the volume and volatility of resource earnings could pose a threat to domestic economic stability, which means it’ll be wise to have a stabilization mechanism.
Anyway, it appears the Israeli government already gets it. Much of the money from the gas will flow directly into the budget, but a significant portion will in fact be squirreled away into a new SWF (specifically the revenues from the new “excess profit tax”). Here’s a blurb from the Israel Ministry of Foreign Affairs:
So – like the Norwegian fund it’s based on – the Bank of Israel will manage the assets in the fund. And, apparently, the Bank of Israel will work with the National Economic Council to develop the investment strategy for the fund over the next year. It’ll be interesting to see what they come up with, as some estimates suggest the new SWF will have as much as $80 billion in AUM by 2040...
