Norway dips into wealth fund for pandemic relief
Norway is relying on its $1.3-trillion sovereign wealth fund more than ever, as the country ratchets up spending without turning to bond markets to provide economic relief from the pandemic.
The government of Prime Minister Erna Solberg, facing an election in September, is raising this year’s structural non-oil fiscal deficit more than 9% to 403billion krone, or almost $50bn, it said on Tuesday. Government withdrawals, as a share of the world’s biggest wealth fund, will reach 3.7%, compared with the central bank’s estimate of 3.3%.
“Fundamentally, it shows that the government sees a bigger need for fiscal support throughout this year,” Handelsbanken analyst Marius Gonsholt Hov said in a client note.
The wealth fund, built on Norway’s North Sea oil revenue, has shielded the richest Nordic economy from the worst of the pandemic. The intensity of government withdrawals from the fund forced the giant investor to start liquidating assets last year, marking a historic moment for Norway. Since then, the fund has generated near-record returns as markets rebounded.
Mainland GDP, adjusted for Norway’s oil and offshore industry, is expected to grow 3.7% this year after a 2.5% contraction in 2020, the finance ministry said.
The measures announced on Tuesday “add to an already expansionary budget”, it said. “This will pave the way for new growth, a green shift, and activity and employment.”
Kyrre Aamdal, a senior economist at DNB Markets, says the decision to boost spending this year may, in part, have been motivated by the upcoming parliamentary elections. A wider
deficit is likely to result in more krone purchases, as Norges Bank converts offshore revenue and transfers from the fund into the domestic currency to pad government coffers, he said.
Solberg’s Conservatives are polling neck-and-neck with the opposition Labour party. But she faces a weakened parliamentary support base, as junior partners sink to about 4%. That may be enough to put an end to eight years of centre-right government in Norway.
Meanwhile, Norway’s vaccination efforts have been disrupted by a decision to shelve AstraZeneca from its immunisation programme. A government-appointed expert group has also advised against the use of Johnson & Johnson’s vaccine, amid concerns over blood clots.
The finance ministry says “significant” uncertainty remains over how the pandemic will continue to affect society, and warned the recovery may be delayed by new coronavirus variants, challenges with vaccine deliveries, and new infection waves outside Norway.
According to analysts at Nordea, Norway will have enough vaccines to ensure that all adults will have had at least one shot by the end of July.