Norway’s $1 trillion piggy bank, the world’s biggest sovereign fund, will have to liquidate assets to “give room to maneuver through the worst economic crisis since World War II” according to Norwegian Bank’s Governor Øystein Olsen. Now, Norway’s Sovereign Wealth Fund liquidates assets.
On 12th May the Norwegian government proposed a revised budget for 2020, which called for using US$41 billion (420 billion Norwegian crowns), 4.2 per cent of the fund’s estimated value at the beginning of this year. In its original budget the government had planned to spend just 2.6 per cent of the fund.
Spending more in time of crisis
In an interview with Bloomberg Television, Olsen said, “It’s part of the general guidelines that in such circumstances you can spend more. It obviously is a positive feature of our society that we have this room to maneuver, unlike a number of other countries.”
Norway has rarely used more than 3 percent of the Government Pension Fund Global, as Norway’s oil fund is officially known. “To counter the economic fallout of the virus’ outbreak the Government has introduced sweeping measures in successive rounds,” the finance ministry said in a statement.
Both the corona induced lockdown and a historic rout in oil, Norway’s main export, have caused the country’s present crisis.
Increased spending a necessity
“‘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 in a statement.
Norway’s government already drew more money from the fund in March than in any other month. The extra spending will pay for a tax shortfall and a range of initiatives announced since a partial lockdown of the country began on March 12, including extra unemployment benefits, cash support for companies and oil industry investment incentives.
Last week, Norway slashed its key policy rate to 0 percent in a surprise move. “The downturn is amplified by the severe impact of the pandemic on surrounding countries and by a sharp fall in oil prices. Lower oil prices have contributed to weakening the krone exchange rate,” Norges Bank said in a statement.
Reopening after the country’s lockdown
Norway in recent weeks began a gradual reopening of its economy as the rate of Covid-19 infection declined, and has said the revised budget will be followed in late May or early June by a long-term recovery roadmap.
Cutting oil production
Norway has decided it would cut its crude oil production by 250,000 bpd (barrels per day) in June, and then maintain a 134,000-bpd lower rate of production for the rest of 2020. This is the first time Norway has joined oil production cuts since 2002.
Norway’s Sovereign Wealth Fund Liquidates Assets, written by Tor Kjolberg
Feature image (on top): Zbynek Burival/Unsplash