Norway shatters wealth fund spending cap

OSLO: Norway will sharply raise spending this year from its one trillion-dollar sovereign wealth fund, exceeding a self-imposed cap for the first time in over a decade to aid an economy hobbled by the coronavirus pandemic. The withdrawal from the fund is projected to hit a record 419.6 billion crowns ($40.6 billion), a revised budget from the finance ministry showed yesterday, up from 243.6 billion crowns forecast last October. The wealth fund - which invests proceeds from the country’s oil industry in foreign stocks, bonds and property, - is worth about $190,000 for every Norwegian man, woman and child. Annual withdrawals from it, known as the structural non-oil deficit, are capped at 3 percent of its value, though that can be exceeded in times of economic hardship.

Statistics Norway said on Tuesday the mainland economy contracted by 2.1 percent in March from February, and by 6.9 percent in the first quarter, bigger falls than preliminary readings reported on April 24.

Norway last exceeded the fund ceiling during the

2008-2009 financial crisis, withdrawing 4.1 percent at a time when the cap was set at 4.0 percent. It was lowered in 2017 to the current 3.0 percent to reflect lower expected future returns. This year’s withdrawal will now reach 4.2 percent of the fund’s Jan. 1 value rather than the originally planned 2.6 percent, the government said.

The extra spending will help to offset a tax shortfall and cover initiatives announced since a partial lockdown began on March 12, including extra unemployment benefits, cash support for companies and oil industry investment incentives, the finance ministry said.

As its rate of COVID-19 infection declines, Norway is gradually easing the curbs and will soon publish a long-term recovery plan. The ministry has predicted the economy will contract this year by 4.0 percent, and last week the central bank cut its key policy rate to zero percent for the first time.

The ministry also said it planned to introduce a new tax on its fish farming sector, the country’s secondlargest industry after oil production.

The tax, of 0.40 crowns per kilo of fish and payable from 2022, should raise some 500 million crowns for local and regional governments from 2022, the ministry predicted. Listed fish farmers include the world’s largest, Mowi , Salmar and Leroey Seafood.

The crown currency initially weakened slightly following the budget and the GDP data, but traded slightly stronger at 11.13 per euro at 0732 GMT. – Reuters