Norwegian Finance Minister Siv Jensen announced plans on Wednesday to bolster Norway’s surprisingly resilient economy once again, by tapping another NOK 10.4 billion of the country’s Oil Fund reserves. NOK 900 million will be earmarked to combat unemployment in the southwestern portions of Norway that have been hit hardest by the dive in oil prices.
Jensen had referred to the government’s “expansive budget” earlier in the day, before confirming that even more money from the country’s huge “Oil Fund” will be spent. The total remains well within the limits placed on use of money from a sovereign wealth fund that’s meant to secure pensions for future generations, 2.8 percent of the size of the fund while the limit is 4 percent. The actual kroner amount, however, is significant from a government otherwise keen on saving its oil revenues and limiting government spending.
In the current economic climate, however, Jensen decided to rest more on the cushion Norway has in dealing with an economic downturn. While other countries from Russia to Venezuela have had to severely cut government spending because of the fall-off in oil revenues, Norway can increase it, since it’s been saving the vast majority of its oil wealth for the past 20 years.
“Norway’s economy has held up amazingly well,” wrote commentator Ola Storeng in newspaper Aftenposten earlier this week. “The reason is that the state is hit the hardest by lower oil revenues, but continues to boost its use of (saved up) oil money like never before. We’re now reaping the gains provided by politicians who had the foresight to never allow the state to be dependent on the current levels of oil revenues flowing in.”
Those current levels have fallen so low that Jensen already dipped into what she often calls the state’s “piggy bank” earlier this year. The new withdrawals are largely aimed at offsetting the lower amount of tax revenues to the state because of lower oil revenues, along with lower dividends to the state treasury from its own direct ownership interests in oil fields and state oil company Statoil.
Criticism from the left
Opposition politicians in Parliament had demanded more funding to create jobs and otherwise fend off unemployment, with LO trade union boss Gerd Kristiansen demanding NOK 5 billion and the Christian Democrats demanding NOK 1.5 billion just for southwestern Norway. Jensen seemed to provide much of that but faced immediate criticism.
The Christian Democrats complained the NOK 900 million wasn’t enough, while Kristiansen and Labour Party- and opposition leader Jonas Gahr Støre criticized Jensen’s use of Oil Fund money. They think Jensen and Prime Minister Erna Solberg should instead have cut the budget in other areas.
Both Kristiansen and Støre accused Jensen of “poor economic management.” Even tough Jensen came up with twice the amount of money Kristiansen demanded, LO thinks the government is using too much oil money and called the jobs program “weak.” Kristiansen claimed the government should instead use more money on education, job placement services and training programs.
Støre suggested Jensen intentionally avoided making budget cuts when she “didn’t manage to create a budget with the revenues they’d planned on getting, and had to take out record high amounts of oil money at mid-year.”
Jensen received high marks, however, from local government leaders who are happy to get extra funding to meet needs at mid-year. The mayors of both Stavanger and Sandnes, where thousands of oil workers have lost their jobs the past two years, said they were “grateful” and welcomed the job creation measures. “The money could have come three months ago,” Sandnes Mayor Stanley Wirak told NRK. “But the most important is that it’s coming.”
Pumping in stimulus
Jensen cited both the reduced income to the state and higher expenditures in explaining why NOK 10.4 billion will be pumped into the revised national budget for 2016. Of the NOK 900 million earmarked for Western and Southern Norway, NOK 250 million will be used to help create new jobs through maintenance and rehabiliation work on local roads, train lines, public buildings and other facilities.
Another NOK 50 million will be earmarked for health care service and NOK 65 million for environmentally oridented maritime projects. The government also plans to create 1,000 new jobs for people completely out of work.
“Southern and Western Norway have been hit hard by one of the biggest oil price declines in history,” Jensen said at a press conference on Wednesday.
She stressed, however, that other sectors of the Norwegian economy are doing very well, and that it’s demanding to strike a balance so that government spending doesn’t hurt industries doing well. During an early morning radio talk show on state broadcaster NRK1, she had described how she met with leaders of two companies in the same west coast city of Ålesund, one of them an oil service company that’s suffering and the other a seafood business that’s booming. The government, she said, doesn’t want to jar the economy so much that helping one company that harm the other.
Other portions of the oil fund spending will go towards covering unforeseen expenses (NOK 1.3 billion) tied to the influx of asylum seekers into Norway last year. They include more funding for local communities to help them settle refugees, along with covering the costs of expanded asylum centers and integration programs.
Local governments, meanwhile, will also get another NOK 4 billion to help fund schools, elder care and pensions. Owners of businesses currently recording losses can also postpone paying formueskatt, Norway’s controversial tax on net worth.