Norway Takes $41bn from Oil Fund to Boost Economy

The Norwegian government plans to withdraw nearly krone 420bn ($41.4bn) from its national oil fund to help pay for a revised budget plan this year, it said on May 12, describing the economic hit from the Covid-19 crisis as the country's "most severe setback ever in peacetime."

The amount that will be withdrawn represents 4.2% of the total value of the Government Pension Fund Global, providing a boost to the economy worth 5.1% of Norway's gross domestic product. Budget expenditure is set to rise to krone 1.62 trillion this year, up from krone 1.38 trillion in 2019, whereas budget revenues are seen falling to krone 1.24 trillion from 1.41 trillion. Excluding transfers from the oil fund, the budget will run at a krone 382bn deficit in 2020, the Norwegian finance ministry estimates, compared with surpluses in both 2018 and 2019.

Oil and gas exports typically account for around 20% of Norway's budget revenues, but their contribution is forecast to more than halve this year to krone 125.8bn, due to the collapse in oil prices and the cuts Norway has imposed cuts to production. Brent is currently trading at around $30/b, less than half its value at the start of the year. Norway expects oil to average $33.2/b in 2020, versus $64.1 in 2019.

"Increased spending has been a necessity in the current situation - both to avoid an even sharper downturn and to help healthy companies through the crisis so they can create jobs and growth when normal circumstances return," finance minister Jan Tore Sanner said. "As we carefully begin opening up and relaxing infection control rules, we will have to adjust the existing measures and eventually introduce new ones to get the economy up to speed and people back to work. We must also keep in mind that the challenges we faced before the coronavirus crisis have not disappeared. Our solutions going forward must incorporate long-term perspectives."

The government plans to unveil a new crisis package in late May or early June, building on measures announced in March and April.