Turning Minerals into Fiscal Muscle: The Role of Sovereign Wealth Funds in Debt Financing

Across the world, countries have turned their natural resources into financial strength through Sovereign Wealth Funds (SWFs). Built from oil, gas, or mineral revenues, these funds provide stability during commodity price swings, safeguard savings for future generations, and create cushions that help governments manage debt more sustainably. A well-designed SWF signals that a nation’s natural wealth will not be consumed immediately but managed with clear rules for long-term benefit.

The global models show what is possible. Norway’s Global Pension Fund directs all petroleum revenues into a unified pool and caps annual withdrawals through a transparent fiscal rule. Qatar’s Investment Authority channels hydrocarbon surpluses into long-term savings and international investments, helping reduce dependence on resource cycles. Botswana’s Pula Fund created in 1994, is supported by a statutory rule that caps public debt at 40% of GDP, ensuring fiscal space is preserved even during downturns.

For East Africa, the arrival of new oil, gas, and mineral revenues presents both opportunity and risk. Without credible frameworks, these inflows could fuel volatility and debt dependence. With disciplined funds, they could instead stabilise economies, preserve savings, and support sustainable development. The experience of Norway, Qatar, and Botswana shows that the difference lies not in resources themselves but in the rules and institutions that govern them.

Sovereign Wealth Funds and Debt Management

The success of sovereign wealth funds (SWFs) is not merely about accumulating assets; it is about strategic returns and their profound impact on national economies. The long–term performance of leading funds demonstrates how robust governance and clear mandates translate into tangible benefits, providing a blueprint for aspiring African nations.

The Government Pension Fund Global (GPFG) – Norway: The GPFG, the world's largest SWF, grew its assets to over $1.9 trillion by mid–2025. It’s remarkable growth is a direct result of a transparent, long–term investment strategy heavily weighted toward global equities (around 70%). For instance, in 2024, the fund posted a record annual profit of $222 billion, driven by strong stock market performance, particularly in American technology stocks. The fund's success has not only provided a stable anchor for Norway's fiscal policy but has also enabled the country to fund a generous social welfare system and weather economic volatility without excessive borrowing. By withdrawing only a small percentage of the fund's value each year, Norway can consistently finance a significant portion of its government budget, estimated at nearly 20%.

Qatar Investment Authority (QIA) – Qatar: With an estimated $526 billion in assets as of late 2024, the QIA has been critical in diversifying Qatar’s economy away from hydrocarbon dependence. It channels surplus revenues into a diverse portfolio of international assets, including real estate and critical infrastructure. The QIA's recent strategic partnership with Blue Owl Capital to establish a digital infrastructure platform with over $3 billion in initial assets demonstrates a forward–looking strategy to invest in the global computer and data centre ecosystem. This approach not only generates significant returns but also builds a financial buffer that stabilizes the economy and supports domestic development. The fund also helps provide liquidity to the local economy and invests in domestic projects to fill market gaps.

The Pula Fund – Botswana: While smaller in size, the Pula Fund, with an estimated $4 billion in assets as of 2025, has been a cornerstone of Botswana's fiscal discipline. Established to save income from diamond exports, the fund's statutory backing and the government's commitment to a 40% debt–to–GDP cap have proven resilient. This framework has allowed Botswana to maintain fiscal space and manage debt sustainably, even during economic downturns, proving that robust legal structures are the bedrock of a fund’s credibility. The fund's primary objective is to preserve wealth from non–renewable resources for future generations, and it has successfully done so by generating long–term returns on its investments.

The East African Opportunity

East Africa stands at a pivotal moment, facing a profound fiscal transformation. The path forward, however, is not without precedent. From Norway's unparalleled transparency to Qatar's strategic diversification and Botswana's unyielding fiscal discipline, the lessons for building a resilient financial future are clear. These global models show that new discoveries of oil, gas, and minerals offer a historic chance to reshape the region’s economic future, but only if they are managed with foresight and strong institutions. The core challenge for policymakers is to earn resource wealth twice: once from the ground, and again through the trust of investors and the commitment to a sustainable financial legacy.

Uganda: Oil on the Horizon

Uganda is preparing for first oil exports in the mid-2020s, with reserves estimated at 6.5 billion barrels. Development of the Lake Albert fields is being driven by TotalEnergies and CNOOC, supported by the USD 5 billion East African Crude Oil Pipeline. Yet the fiscal backdrop is fragile. Public debt rose 17.8 percent in 2024, reaching 52.1% of GDP. To manage inflows, Uganda has established a Petroleum Fund under the 2015 Public Finance Management Act. While the legal framework is strong on paper, investors are watching closely to see whether future oil receipts are ring-fenced and transparently reported.

Tanzania: Gas Ambitions

Tanzania holds 57 trillion cubic feet of gas, one of the largest reserves in sub-Saharan Africa. The government is currently negotiating a USD 42 billion LNG project with Equinor and Shell, with agreements expected by 2025. If successful, the project could reshape the country’s external accounts. Yet Tanzania has not issued a Eurobond, leaving investors without a sovereign track record to assess repayment behaviour. Establishing a credible SWF early, before revenues begin to flow, would signal foresight and provide a stabilisation buffer. Investors will look for a transparent mechanism that demonstrates Tanzania’s ability to avoid the “resource curse”.

Kenya: Mining Potential

Base Titanium closed its Kwale operations in 2024 after exporting over 5.2 million tonnes of mineral sands, highlighting the urgency of new revenue streams. Rare earth deposits in coastal counties, estimated to be worth USD62.4 billion, position Kenya to benefit from rising global demand. Yet fiscal pressure is acute: debt service consumed 68% of revenues in FY 23/24, making a credible Sovereign Wealth Fund essential to reassure investors and stabilise future repayment capacity.

Figure 2: Chart by author. Data Source.

Looking Forward

For East Africa, the discovery of oil in Uganda, gas in Tanzania, and minerals in Kenya represents more than a fiscal opportunity. It is also a credibility test in the eyes of investors. The experience of resource-rich economies worldwide shows that Sovereign Wealth Funds succeed not because they exist, but because they are designed and managed with discipline.

The first requirement is governance. Markets respond to clarity and independence. Norway’s fiscal rule, which caps annual withdrawals from its fund at 3% of its value, is widely credited with insulating its economy from volatility. Botswana’s fund has likewise preserved savings by adhering to rules that prioritise stabilisation and intergenerational equity. For East Africa, credible governance means separating fund management from political discretion, mandating independent boards, and publishing strict rules for deposits and withdrawals

The second requirement is transparency. Investors price risk based not on promises but on disclosure. The Santiago Principles, established by the International Forum of Sovereign Wealth Funds, offer a global benchmark: publish investment policies, release audited accounts, and disclose governance structures. Uganda, Tanzania, and Kenya can strengthen investor trust by committing to such standards early, demonstrating that revenues will be managed with the same openness expected in mature capital markets.

The third requirement is legal safeguards. Without statutory backing, funds remain vulnerable to political pressures. Uganda’s Petroleum Fund and Tanzania’s Natural Gas Revenue Fund already have enabling laws, but their long-term credibility hinges on enforcement. Kenya’s proposed legislation remains unpassed, leaving a critical gap. Passing and implementing these laws would reassure investors that mineral and energy revenues will be dedicated for stabilisation and debt management rather than absorbed into recurrent budgets.

The lesson for policymakers is straightforward: resource wealth must be earned twice – once from the ground, and again in the trust of investors. Meeting the tests of governance, transparency, and legality will turn new revenues into buffers against shocks and anchors for cheaper sovereign borrowing. Failing them will merely amplify fiscal risk. If East Africa’s governments rise to this challenge, investors will come to see their future debt as backed not only by resource flows but also by resilient institutions. That credibility dividend is the difference between countries that simply discover resources and those that transform them.