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Monday, July 15, 2024

Oil fund tapped, but ‘krone’ was stable

Never before has a Norwegian government tapped so much of its oil revenues for use in a state budget, but the actual amount (NOK 194 billion) is well within the limits set to preserve the fund’s capital for future generations. Nor did the use of so much oil money have any major effect on the value of Norway’s currency, the krone, which was relatively steady Wednesday morning when the budget was presented.

The Oseberg Field Centre has already been hit by the strike, which now may result in a lock-out that would shut down all Norwegian oil installations in the North Sea. PHOTO: Statoil/Øyvind hagen
When times get tougher, Norway is able to dip into its giant savings account known as the oil fund, where oil revenues have been stashed for years. Now it’s doing just that, using more actual petro-kroner than ever but still an amount that’s just 2.8 percent of the size of the fund itself. Previous governments have used as much as 4 percent. PHOTO: Statoil/Øyvind Hagen

Economists, business owners and government officials generally now agree that it’s important for the krone to remain “stable and weak,” to make Norwegian exports more competitive and continue to boost industries that were hurt during the years of the krone’s record strength, like tourism. Salmon exporters are selling more than ever, not least since the prices of Norwegian seafood (which has ranked second only to oil as an export product) are now lower in euros, dollars and pounds, for example.

The krone’s stability Wednesday morning was a sign that Finance Minister Siv Jensen’s state budget proposal for 2016 was internationally well-received. There’s been concern that pumping too much oil money into the Norwegian economy would spur inflation, higher interest rates and a stronger currency. Now, the availability of oil revenues that Jensen long has wanted to use for investment within Norway helps offset her proposed tax relief and doesn’t seem to be rocking the boat.

Savings comes in handy
“We fortunately have a lot of money saved up,” Steinar Juel, chief economist at Nordea Markets, said on state broadcaster NRK Wednesday morning. He doesn’t see much problem with using the NOK 194 billion now, an amount that represents an increase of around NOK 25 billion more than in this year’s budget.

That’s also because the state’s so-called “oil fund,” Norway’s big savings account of sorts that ranks as one of the largest sovereign wealth funds in the world, has grown despite the dive in oil prices. The amount of money that Jensen is tapping relative to its size is actually less than in many previous years, at 2.8 percent of the value of the fund itself. State politicians have had a rule of using a maximum of 4 percent or less over the years, since that’s the rate at which the fund is expected to grow over time. Lower oil prices and record low interest rates may affect that level, but in the long-term, it’s still the rule.

The NOK 194 billion now set to be spent (equal to USD 23.6 billion at current exchange rates) will not only help Jensen offset a loss of revenues resulting from her tax relief proposals but will also help finance the state’s efforts to diversify Norway’s economy away from oil. Juel agrees that the government can increase the actual amount of petro-kroner it spends to “dampen the effect” of the oil industry’s current downsizing and finance economic diversification.

“We can’t use an additional NOK 20 billion more every year for a long time,” Juel cautioned, but he understands why the government is doing so right now. The government has to have some short-term measures to offset the consequences (mostly in the form ofjob losses) of oil sector cutbacks, he noted. “The government needs to make it easier to grow in other areas,” Juel said.

Opposition objects
Opposition politicians had immediate objections, though, with initial reaction to the budget consisting of complaints over the “record use” of oil money and likening it to “breaking into the piggy bank for our children.” Several don’t think the government is doing enough to help the unemployed, create new jobs or address environmental concerns.

Snorre Valen of the small Socialist Left party (SV), who lodged the “piggy bank” complaint, also criticized what he sees as a lack of priority on more environmental measures and climate solutions, while Labour and Center Party politicians criticized a lack of spending to offset unemployment. Labour politicians worried that local governments will still need to cut services despite extra infusions of more than NOK 7 billion. They apparently don’t think the earmarking of NOK 4 billion for jobs programs was enough.

The most serious criticism came from the Liberal Party, because it’s one of the government’s own “support parties” in Parliament. Sveinung Rotevatn of the Liberals (Venstre) made it clear he was unimpressed with the government’s response to climate concerns and efforts towards a so-called “green shift.” He warned of a battle when the Parliament starts discussing and negotiating the budget proposals. Debate over the budget will carry on through much of the autumn. Berglund



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