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relates to Barclays Says Lira Still Below Level That Would Prompt Rate Hike relates to PBOC Policy to Be More Flexible, Appropriate and Targeted: Yi relates to Pandemic Puts Millions of Europeans on Path to a Debt Crisis relates to Philippines Needs $31.8 Billion Recovery Plan, Lawmaker Says relates to China’s Data Deluge Set to Show Recovery Accelerating: Eco Week relates to Italy’s First Mid-August Bond Sale in Decade Shows Cash Needs relates to Debt Collector Profits Soar With People Flush and Easy to Find relates to Canada’s Stock Rally May Slow Down as ‘Shock Effect’ Wears Off relates to Oil Slides in Wake of U.S.-China Tensions and Stimulus Doubts
Photographer: Mikhael Holter/Bloomberg
Markets

Norway Unexpectedly Withdraws Cash From Massive Wealth Fund

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Norway Unexpectedly Withdraws Cash From Massive Wealth Fund

  • Surprise withdrawal follows drop in oil price to 7-month low
  • Highlights sensitive budgets amid record oil-income spending
Statoil ASA Oil And Gas Operations In Barents Sea
Photographer: Mikhael Holter/Bloomberg

Norway unexpectedly took almost $400 million from its sovereign wealth fund in August, marking the first 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 withdrawal, which comes after oil prices dropped to a seven-month low in early August, was made to keep a balance between oil revenue and oil money spending this year, the Finance Ministry said Tuesday in a response to questions from Bloomberg.

“New information also suggests that more withdrawals will be necessary in the coming months,” the ministry said. “As cash flow from oil output will decline, and since the fund has become so large, it will become more common for transfers to go from the fund. Eventually it will become the new normal.”

In The Clear

Norway is back to depositing money in its wealth fund after oil recovered

Source: Norway's Finance Ministry

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 34 billion kroner ($3.7 billion) in the fund in 2019. The withdrawal brings net deposits through August to 19.9 billion kroner, putting the government slightly off track to reach the goal for the year.

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 Oct. 7, including updated forecasts for 2019.

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 $1 trillion 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 238 billion of its oil wealth in 2019, up from 214 billion last year.

Even so, withdrawals in 2016 and 2017 were well below the fund’s yearly cash flow of roughly 200 billion kroner from stock dividends, interest payments on bonds and real estate income, meaning the investor has had little trouble handling them.

(Adds comment from finance ministry. An earlier version was corrected to show the withdrawal was made in August, not last month.)