Norway’s central bank Governor Oeystein Olsen urged lawmakers not to spend more than 3 percent of the nation’s oil fund as the new government reworks next year’s budget.
Norway, which uses oil money to plug its budget deficits, caps the spending at 4 percent of its $810 billion sovereign wealth fund to avoid overheating the economy. Olsen already in 2012 said 4 percent was too much, as the rule he helped design last decade is being undermined by the surging size of the fund.
“Even to stick to 3 percent now has the implication of an expansionary impulse to the Norwegian economy,” Olsen said yesterday in an interview at his office in Oslo.
The Conservative-led government started an internal budget conference today to make revisions to the outgoing Labor-led coalition’s budget that was presented earlier this month. That budget called for using 2.9 percent of the wealth fund, staying within the 4 percent cap for a fifth year.
While that may seem restrictive, actual spending will grow as the oil fund is predicted to swell to $870 billion by the end of next year and reach $1.2 trillion by 2020. Total use of oil money will be 135 billion kroner ($23 billion) next year, up from an estimated 124 billion kroner this year, according to the previous government’s budget.
“The fiscal stance in the budget was in line with what we foresaw,” Olsen said. “We don’t see any contraction in fiscal policy in our country.”
In a 2012 speech, Olsen recommended lowering the fiscal spending rule limit to 3 percent, which was based on estimates on the long-term expected return of the fund. Olsen said yesterday that his “calculation has not changed dramatically” as “interest rates will remain low for quite some time.”
While Olsen said it’s “good” that spending was proposed below 3 percent, he emphasized that his proposal has “not been adopted as a rule.”
Finance Minister Siv Jensen, who took office on Oct. 16, will present a supplementary budget on Nov. 8 with possible adjustments in the spending plans. While Prime Minister Erna Solberg’s administration has promised to stick to the fiscal rule, it has signaled it wants to spend more on infrastructure, education and health care.
Norway, western Europe’s largest oil and gas producer, gets revenue from taxes on oil and gas, ownership of petroleum fields as well as from its 67 percent stake in Statoil ASA. It’s wealth fund now holds on average 1.2 percent of the world’s listed companies and invests abroad to avoid stoking domestic inflation.