Should Bangladesh create a sovereign wealth fund?

The answer is undoubtedly yes. A sovereign wealth fund (SWF) is a state-owned investment vehicle designed to manage national assets strategically for long-term wealth creation and intergenerational equity. In many ways, SWFs function is similar to how households or families approach long-term investments in housing, stocks, or other financial assets seeking to build wealth over time through strategic asset allocation rather than focusing solely on immediate liquidity.

One might ask why do we need a SWF when we have foreign exchange reserves in the central bank? This is where the function of a SWF becomes clear. Usually the foreign exchange reserves are invested in low-risk, low-yield liquid bonds, so that they can be sold quickly in times of need. This is the 'liquidity' purpose of foreign exchange management, just like keeping money in a current account and withdrawing it on demand. Whereas there are no rigid rules for designing a SWF, countries can invest their SWF in equities or in specific projects. For example, recently Singapore's wealth fund Temasek has invested in India's Haldiram, a multi-national fast-food restaurant chain. This is the 'investment' purpose of the SWF, which serves a different role than that of foreign exchange reserves whose main function is liquidity.

So, where would the money come from, usually in US dollars, to create such a SWF for Bangladesh? As a starter, we could create a SWF with 10 billion dollars, which would provide a meaningful foundation for future growth. There are several possible avenues which we could explore to raise the initial 10 billion dollars. First, the government (current and future) could work hard to recover partial money stolen from Bangladesh over the last one and half decades. Suppose this attempt generates 3-4 billion dollars. Second, the government could purchase 3-4 billion dollars from the inflows of remittance and export earnings. Another 2-3 billion can be obtained by strategic selling or leasing of public assets inside the country (for example, underutilised government land, stakes in state-owned enterprises, or infrastructure concessions). These sources can collectively provide a solid starting pool. There are of course other imaginative ways of designing funding modalities.

Now, let's consider what could happen if we manage to raise 10 billion dollars to create the first SWF for Bangladesh. Let's imagine what the power of mathematical compounding could do even to this modest initial investment over time. If managed effectively, the proposed $10 billion fund could transform the national finances over decades. At an annual return of 8 per cent, a $10 billion Bangladesh SWF could grow to $46.6 billion in 20 years. At 10 per cent annual returns, it would reach $67.3 billion, and at 12 per cent, nearly $97 billion. An annual return of 10 per cent is not unrealistic, considering that the S&P 500 has delivered similar total returns over the past two decades. However, targeting such returns requires calculated exposure to higher-volatility assets. A phased investment strategy-beginning with stable infrastructure projects and gradually expanding into global equities-could help manage both risk and learning curves. For Bangladesh's $460 billion economy, these figures represent significant potential. In 40 years, assuming consistent 10 per cent returns, the fund could reach approximately $453 billion-nearly equivalent to Bangladesh's current GDP. This potential for wealth creation cannot be ignored, especially given the country's development needs and demographic challenges.

With these possibilities in mind, why not consider creating a SWF seriously? Before moving further, let's address some common questions about this proposal. One likely concern could be that when Bangladesh's current official reserves are hovering between $20-25 billion, covering roughly four months of imports, establishing a SWF seems premature.

This concern is understandable, but it fails to recognise several important considerations. First, the traditional approach of holding all reserves in low-yielding sovereign bonds represents a significant opportunity cost. Even allocating a small portion of these assets to a professionally managed SWF could generate substantially higher returns over time without materially affecting the country's ability to weather short-term financial shocks.

Moreover, a SWF serves different strategic purposes than foreign exchange reserves. Whereas reserves primarily function as insurance against balance of payments crises, a SWF acts as an investment vehicle for long-term wealth creation. These complementary roles suggest that both should exist in parallel, rather than viewing them as mutually exclusive alternatives.

Second, critics might argue that usually only countries with net positive savings such as Norway or the UAE can create such funds, whereas Bangladesh is a net debtor country. But being cash-poor is not a valid financial justification for avoiding the creation of a SWF. Years of academic research have shown that even very low-income households actively save and invest despite limited resources, often prioritising asset building alongside managing debt.

Although Bangladesh is cash-constrained, it is not poor in assets. Bangladesh's current public debt stands at approximately 40 per cent of GDP, but the government owns significant land, buildings, state-owned enterprises, natural resources, and infrastructure that could be strategically monetised. Bangladesh ranks favourably in terms of agricultural land fertility, with the Ganges-Brahmaputra delta creating some of the most productive soil in the world. The Bay of Bengal offers maritime resources that remain largely untapped. The country's strategic location between South and Southeast Asia gives it geographical value that cannot be calculated on standard balance sheets. The government could monetise a portion of these dormant assets, putting them to work generating returns far superior to the meager yields of sovereign bonds. This asset monetization strategy addresses the apparent paradox of creating a wealth fund amid limited liquidity.

Another key challenge is the risk of mismanagement. A major concern around setting up a SWF in Bangladesh is the risk of corruption or poor management. Given the country's track record of financial misconduct in both public and private sectors, such concerns are understandable. High-profile cases like Malaysia's 1MDB scandal, where about USD 4.5 billion was misused, serve as clear warnings.

Yet, despite these risks, many countries have succeeded. It's worth noting that today over 200 SWFs operate across more than 80 countries, most without major scandals. Botswana's Pula Fund, launched in 1994 with diamond revenues, is a good example. Despite being a middle-income country, Botswana has managed the fund well, using it to support long-term stability.

Norway established its fund in 1990 with a modest amount of $300 million, which now stands at $1.7 trillion! Singapore launched Temasek in 1974 during a period of uncertainty following its separation from Malaysia. These examples show that the key requirement isn't having a large fiscal surplus-it's the willingness to treat land, resources, and people as long-term assets. Wealth is not something to wait for; it's something to build through timely decisions. Doing nothing carries its own risk-especially in the face of inflation and underutilised savings.

The proposed SWF must be guided by professional investment judgment, not held back by bureaucratic red tape. Fund managers should follow private sector standards, free from the overly cautious mindset often found in central banks and other public institutions. This requires a governance structure that ensures both independence and accountability. A dual-key model, where investment decisions require joint approval from fund managers and a legislative oversight body, could balance autonomy with public trust. To attract skilled professionals, the fund should offer competitive pay, performance-based incentives, and the freedom to operate within clear strategic guidelines. Bangladesh can look to successful global models while putting in place safeguards like independent audits (e.g., IMF-reviewed), oversight committees, and transparent reporting. These measures are key to ensuring the fund serves the country's long-term interests.

Starting a SWF now, even on a small scale, gives Bangladesh the chance to build the skills, systems, and experience needed for long-term success. Delaying until reserves are "sufficient" only pushes back learning and growth. Meanwhile, parking savings in low-yield bonds while paying higher interest on foreign debt locks the country into a losing cycle. An SWF won't solve all problems overnight, but it can help shift the mindset from short-term spending to long-term asset-building. And the right time to begin is now.

Syed Abul Basher is an economist and researcher. syed.basher@gmail.com