Norway Digs Deeper Into $860 Billion Fund Amid Refugee Costs

Just three weeks after announcing it will dip into its massive $860 billion piggy bank for the first time, the Norwegian government is at it again.

The government will use 209 billion kroner ($24 billion) of its oil revenue in its budget next year, up from the 207.8 billion it planned to spend in its initial proposal released Oct. 7. It’s also scaling back planned income tax cuts and a reduction to its wealth levy to cover 9.5 billion kroner in extra costs from an expected inflow of about 33,000 refugees next year.

“In September Norway received a larger number of asylum-seekers than in the entire first half of the year, giving rise to practical and economic challenges,” Finance Minister Siv Jensen said in a statement. “With this supplementary proposition, the government puts forth proposals for handling the situation in the near-term and proposes a balanced approach to financing the measures.”

The government this month announced it will for the first time ever tap its sovereign wealth fund to cover budget needs as it uses up all its direct oil revenue. Western Europe’s biggest crude producer is trying to shield the economy from a 50 percent drop in crude prices. Budget documents released Friday show the government will need to withdraw 4.9 billion kroner from the fund next year.

Tapping the fund comes at a time when the custodians of the fund, set up to safeguard wealth for future generations, warn that it also faces diminished returns amid record-low interest rates. It suffered its biggest loss in four years in the third quarter, dragged down by Chinese stocks and Volkswagen AG.

Faced with the prospect of withdrawals, strategy shifts will cost more to implement, the fund has said. The fund is now formulating a new plan to deal with the lack of capital flowing in, according to Deputy CEO Trond Grande.

Prime Minister Erna Solberg said it’s important to remember that the fund will still be “getting bigger and bigger.”

How it does its job “is not for me to comment on,” Solberg said in an interview after a Friday press conference.

Overall the budget stimulus remains the same and is equal to 0.7 percent of mainland gross domestic product.

The government also proposed tightening requirements and benefits for asylum seekers as it sees potential costs of 85 billion kroner over the next six years from the inflow.

It now faces negotiations with the Liberal and Christian Democrats to pass the budget.

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