This article first appeared in Forum, The Edge Malaysia Weekly on July 13, 2026 - July 19, 2026
The “resource curse” is a paradox of plenty. Economies with rich endowments of natural resources develop weaker institutions of governance and experience slower growth compared with resource-poor ones. Public coffers made up of revenues from natural resources are not as well governed as revenues raised through taxation, where taxpayers care about how their taxes are spent. More fundamentally, natural resources, be they minerals or fuels, contain high proportions of economic rents that distort overall prices resulting in distortionary and inefficient use of resources, which explains the lower growth trajectory in a resource-rich economy.
The Hartwick rule, named after economist John Hartwick, says a society that consumes the rents from its exhaustible resources will be poorer when those resources are gone; while a society that invests those rents in other forms of capital — financial, physical, human — can sustain its consumption indefinitely. This suggests a way out of the resource curse: isolating as much rents as possible from natural resources from present-day markets to minimise their distortionary effects. Putting aside today’s rents from exhaustible resources is also being fair to those who are not yet born.
Malaya and Malaysia until the late 1980s was a major tin producer and exporter, and since the mid 1970s, Malaysia has been an oil and gas producer — a net exporter of natural gas till today. Not much has remained from a century of tin, which was a big part of our colonial legacy, but Malaysia legislated putting aside such resource rents via the National Trust Fund Act, and Kumpulan Wang Amanah Negara (KWAN) came into being in February 1988, with Petroliam Nasional Bhd (PETRONAS) as its first contributor. The Act envisioned a broader set of contributors, as long as proceeds were obtained from exhaustible natural resources. We were early. Norway’s Oil Fund was established two years later in 1990. Granted Norway’s oil production and reserves are some four times larger than Malaysia’s, but Norway’s Oil Fund today stands at an impressive US$2.2 trillion (RM9 trillion). The country has strict rules for putting all revenues the government earns, dividends and taxes collected from oil and gas into the fund. There are also strict rules on how the fund can be used to finance shortfalls in government finances.
It is now five years since most Malaysians discovered that KWAN existed at all. In April 2021, with parliament suspended under the nationwide state of emergency due to Covid-19, an ordinance was gazetted amending the fund’s permitted purposes, and RM5 billion was withdrawn for the procurement of vaccines and funding the national immunisation programme. The Ministry of Finance then disclosed that the fund held about RM19.5 billion. This recollection brought back bad memories. Declaring emergency and suspending parliament while the cabinet acted unchecked will be etched as a black spot in our history. Using executive powers exclusively to alter the terms of the trust meant for future generations and withdraw funds from it — even for the crucial purpose of procuring vaccines during a pandemic — should not have happened. Any withdrawal from such a fund, as is a withdrawal from the Consolidated Fund, must obtain parliamentary consent.
The KWAN Act therefore needs to be tightened; its purposes, uses and processes associated with these must be made clear. We need such a fund for various reasons — from removing the distortions of rents to building a sovereign wealth fund.
I wrote in this column a year ago about the Public Finance and Fiscal Responsibility Act (FRA) 2023, the centrepiece of the government’s fiscal reforms. What made that legislation groundbreaking was its willingness to dilute the enormous discretionary powers of the minister of finance — to replace goodwill and judgement with quantitative rules that only parliament can change. That is what reform means. It is uncomfortable, it binds the very government that enacts it, and it is the only mechanism by which good intentions survive changes of administration and the pressures of any given budget year. The same principle should be applied to the nation’s intergenerational savings, its sovereign wealth fund, KWAN.
The problem with the KWAN Act 1988 is its loose and discretionary nature. It lists the sources from which the fund may receive money — contributions from governments and from businesses harvesting our depleting resources — but prescribes no rate and no timing. As a result, after nearly four decades, only PETRONAS has contributed, voluntarily and irregularly, while the federal and state governments have contributed nothing. It permits withdrawals for broadly defined development purposes at ministerial discretion, with no annual limit and no parliamentary consent. A savings scheme in which deposits are optional and withdrawals discretionary will produce exactly the fund we have: a carefully managed portfolio — Bank Negara Malaysia has been a prudent steward — that is a fraction of what it could have been.
Budget 2025 announced the government’s intention to amend the 1988 Act to expand the fund’s contribution sources and strengthen the governance of withdrawals. Twenty months have passed since that announcement; one hopes the wait reflects thoroughness rather than drift. At any rate, here are some considerations to take note of in amending the Act.
First, contributions by rule, not by goodwill. A statutory minimum — a defined share of federal revenue, of petroleum-linked receipts, or both — payable annually, in good years and bad. The amount matters less than the obligation; small percentages compound, but only if they arrive.
Second, a withdrawal rule anchored to long-run investment returns, which is how Norway disciplines itself. Spend a portion of what the fund earns, never the principal, and tie the rule to returns expected over decades rather than to any single year’s performance, so that spending on the fund’s purposes is stable across market cycles.
Third, a parliamentary gate. Anything beyond the rule should require a resolution of the Dewan Rakyat, openly debated. If 2021 taught us anything, it is that the fund for future generations should not be drawable in the dark. And the purposes themselves should be few and unarguably intergenerational — education, health and the environment our children will inherit.
Fourth, governance and disclosure. Separate the ownership of the fund from its supervision and its day-to-day management, give it a board answerable for results, and put its audited accounts before parliament — and the public — every year as a matter of statutory course.
None of these is novel. These ideas have been in the public domain, waiting for a government willing to enact it, to bind itself and future governments the way the FRA has done. Rules such as these would not merely rebuild the fund; they would rebuild trust — which is, after all, the operative word in its name.
The government promised in 2021 to replenish what was withdrawn. Publicly reported figures show the fund has been rebuilt to roughly its pre-withdrawal size through investment returns and PETRONAS’ continued contributions, including RM2 billion in 2023. That is welcome, but what the fund needs are clear rules to grow and how it can be used. Five years after the withdrawal that introduced KWAN to the country, the best way to mark the anniversary is to give the fund what it has lacked since 1988: the contributions that must be made, withdrawals that must be justified, and a parliament whose consent must be asked. We would be doing the right thing as custodians of those not yet born.
Dr Nungsari A Radhi is an economist
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