Norway unexpectedly took almost $400mn from its sovereign wealth fund in August, marking the first such withdrawal in over a year as western Europe’s biggest petroleum producer takes advantage of its enormous piggy bank amid a decline in oil prices.
Tapping the world’s biggest wealth fund remains an extremely rare occurrence in Norway. The government made its first ever withdrawal in 2016, following a collapse in crude prices. The huge fiscal buffer that the fund represents has helped Norway’s central bank avoid some of the extremes of monetary stimulus to which its peers have had to resort.
The finance ministry in Oslo has yet to give an official reason for its latest withdrawal, which comes after oil prices dropped to a seven-month low in early August. But the decision suggests Norway’s budget may have grown more sensitive to volatility in commodity prices after the Conservative-led government spent record amounts of the country’s income from fossil fuels.
Still, the August withdrawal from the wealth fund comes as a surprise. The government said in its revised budget in May that it expects to deposit a total of 34bn kroner ($3.7bn) in the fund in 2019. The withdrawal brings net deposits through August to 19.9bn kroner, putting the government slightly off track to reach the goal for the year.
The finance ministry wasn’t immediately available for comment on the reasons behind its decision. Norges Bank Investment Management, a unit of the central bank that manages the fund, declined to comment on the August withdrawal, referring to the ministry. The government will present its 2020 budget on October 7, including updated forecasts for 2019.
Magne Ostnor, a strategist at DNB in Oslo, said it was hard to understand why the government made the withdrawal.
“I don’t see exactly why [the withdrawal] was necessary,” he said by e-mail. “That said, the price of oil has fallen a bit.”
Benchmark Brent crude fell to about $56 a barrel in early August amid concerns over the impact of trade wars and slower global growth on oil demand. That’s well below the government’s estimates in the revised budget, which assumed oil prices of between $67 and $70 a barrel between August and the rest of the year, bringing the forecast for the annual average price to 559 kroner a barrel, or about $61 a barrel at today’s exchange rate.
Norway’s central bank said in the end of August that it planned to boost daily purchases of Norwegian kroner by 40% in September from the previous month, a possible sign that more of the state’s foreign-currency oil revenue needs to be converted into kroner for government spending.
Norway, which has produced oil and gas since the 1970s, uses income from petroleum taxes, state stakes in offshore fields and dividends from Equinor ASA to plug budget deficits, with a self-imposed rule of not spending more than 3% of the wealth fund’s value each year. Until 2016, total petroleum income was superior to the deficit, allowing governments to transfer the sometimes hefty balance to the wealth fund, which has soared to more than $1tn since it was set up in the 1990s.
Conservative Prime Minister Erna Solberg, who became the first head of government to tap the wealth fund, has raised the use of the nation’s oil income to record highs. The government plans to spend 238bn of its oil wealth in 2019, up from 214bn last year.
Even so, withdrawals in 2016 and 2017 were well below the fund’s yearly cash flow of roughly 200bn kroner from stock dividends, interest payments on bonds and real estate income, meaning the investor has had little trouble handling them.
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