- Government set tap wealth fund for first time next year
- Biggest wealth fund will still grow next year, PM says
Now that Norway has opened the spigots on its $850 billion wealth fund, the country’s prime minister says it will probably continue to make withdrawals as oil prices stay low.
Erna Solberg’s government revealed on Wednesday it will be the first to take money out of the fund to pay for tax cuts and additional spending. The 2016 budget proposal is the most expansionary yet as Solberg fights to avoid a recession in western Europe’s biggest crude producer.
“The whole system of putting in more oil money in the budget means that on a level when oil activity and oil prices give less revenue, there will of course be a crossing point,” Solberg told Bloomberg on Thursday.
The minority coalition plans to spend 208 billion kroner ($25.2 billion) of its oil wealth next year, topping the 204 billion kroner it predicts it will receive from offshore oil and gas fields. That implies a withdrawal from the fund of 3.7 billion kroner, compared with the 38 billion kroner the government is transferring into the fund this year. The forecasts assume Brent crude at about $49 at the end of this year and $56 by the end of next year.
“Even if the activity in the oil sector means that we are putting less revenue in, the fund is still going to increase next year,” Solberg said. The government sees the fund growing by 423 billion kroner in 2016.
Spending remains below the limit that Norwegian governments have agreed not to overstep, which is set at 4 percent of the fund’s expected returns. So-called structural oil money spending will amount to 7.1 percent of mainland gross domestic product and 2.8 percent of the fund. The government also said it is considering letting the fund take on riskier investments by boosting its stock allocation from 60 percent.
The government still needs backing from the smaller Christian Democrats and Liberals to pass the budget in parliament. Solberg said she is prepared for “tough negotiations” through November.