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Sunday, May 26, 2024

Oil can’t grease many more budgets

With less money flowing into state coffers from Norway’s offshore oil fields, and the return on that money reduced as well, even Finance Minister Siv Jensen is warning that her record withdrawals from the Oil Fund will likely be the last. She justifies tapping into the country’s famed sovereign wealth fund again this year, to revive economic slowdown after the fall in oil prices, but the splurge will stop after next year.

Oil drilling has slowed down, oil prices are down and so are returns on Norway's oil investments. That all means the government won't be able to Norway's huge oil fund to pad the state budget like it has the past few years. PHOTO: Statoil
Oil drilling has slowed down, oil prices are still relatively low and so are returns on Norway’s oil investments. That all means the government won’t be able to dip into Norway’s huge oil fund to pad the state budget like it has for the past few years. PHOTO: Statoil

“There will be considerably less room to act in the future,” conceded Svein Flåtten, finance policy spokesman for the Conservative Party, which leads the governemt coalition that includes Jensen’s Progress Party. As he told newspaper Dagens Næringsliv (DN) over the weekend: “You can say that the government is warning itself.”

On Friday, the day after Jensen presented her oil-greased budget to Parliament, the Oil Fund itself released figures showing how the fund logged a 4 percent return on investment during the third quarter even in a climate of record low interest rates. A strengthening of the Norwegian krone, however, led to losses that offset the gain. By the end of September, the Oil Fund was NOK 58 billion smaller than it had been at the end of the second quarter.

The numbers are fluctuating all the time, and the fund has earlier recorded enormous growth. It remains the biggest sovereign wealth fund in the world, after prudent Norwegian politicians stashed away Norway’s oil revenues instead of spending them during the boom years. It still provides a unique cushion for the Norwegian economy that’s envied around the world, but the government can’t continue to dip into it like it has since Jensen took over as finance minister in 2013. Its years of record growth are likely over, so the record withdrawals will need to stop if the Oil Fund is to be relied on, as planned, to finance pensions for future generations.

On a happier note, the fund’s shareholdings resulted in a 6 percent return, while real estate earned 2.4 percent. Just over 60 percent of the Oil Fund’s assets are invested in stocks worldwide, while 36.3 percent is invested in financial instruments and 3.1 percent in real estate.

The results were in line with what Jensen’s own ministry had expected. While the fund has grown more than 500 percent in the past 10 years, because of record high oil prices and strong returns on how the oil revenues were invested, lower oil prices now mean the flow of fresh oil revenues is much smaller, while returns may subside as well because of low interest rates.

Prime Minister Erna Solberg told DN that she still thinks the fund can be tapped, to pad future budgets, but not to the same degree as now. Like Jensen, Solberg supports the recent increases in Oil Fund withdrawals as a means of responding to the shock of suddenly lower oil revenues on the Norwegian economy. There was a need for expansive budgets, but with the economy getting back on track, state spending will likely be cut back from 2018. Berglund



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