Even though Finance Minister Siv Jensen has tapped into more of Norway’s oil revenues than any of her predecessors, to pad the state budget, the country’s famous Oil Fund just keeps growing. It’s the ultimate piggy bank, more than 70 percent bigger now than when Jensen assumed her post in 2013, and new figures show that both she and others before her have been prudent indeed.
Since 1998, when the fund was set up to save Norway’s oil wealth for future generations, a succession of state governments has used less than half of the fund’s total earnings. According to a study by Fredrik Wulfsberg of the College of Oslo and Akershus, which recently was reported in newspaper Aftenposten, relatively low use and periods of extremely high earnings have generated total earnings of nearly 2,000 billion kroner that could have been used, but weren’t.
Wulfsberg’s study measured actual use of the fund’s earnings compared to earnings actually generated, between 1998 and 2016. Total earnings from Wall Street and other stock exchanges where the Oil Fund has invested amounted to just over 3,400 billion kroner. Total actual use of those earnings amounted to around 1,500 billion kroner.
That means more than 1,900 billion kroner has not been used and instead remains in the fund, continuing to generate even more earnings. That’s because the state government has always limited its annual withdrawals to no more than 4 percent of the size of the fund in any given year. The 4 percent figure (known as handlingsregelen, the rule for how much of the fund can be added to the state budget) was chosen because that was viewed as the average earnings over the life of the fund.
Fund earning more than expected
For many years, however, actual earnings were much higher than 4 percent. In recent years, with low interest rates, they were expected to be much lower. Wulfsberg’s numbers, presented in the current issue of the magazine Samfunnsøkonomen, show that even from 2012 to 2016, the fund’s earnings averged 9.3 percent. The state government, however, has only used 2.8 percent on average.
That means the state, also during the current government period when Jensen has been criticized for using too much oil money, has been very careful with its use of oil money. More than two-thirds of actual, annual earnings on the fund have been left untapped, even amidst Jensen’s so-called “expansive” monetary policy. She has a long way to go before she can rightfully be accused of violating the basis for the 4 percent rule.
Meanwhile, the Oil Fund just keeps growing. It was worth 7,510 billion at the end of 2016. Last week, just four months later, the unit of Norway’s central bank that manages the fund (NBIM, Norges Bank Investment Management) reported that the fund had exceeded 8,000 billion, equal to around NOK 1.5 million per Norwegian.
Good news for Jensen’s revised state budget
This is all good news for Jensen, as she prepared to present the government’s revised state budget at mid-year to Parliament on Thursday. She had expected the Oil Fund to be worth 7,671 billion at the end of the year. It has instead surpassed that already. Despite the collapse in oil prices three years ago that sent shudders through the Norwegian economy, Jensen has in fact presided as finance minister during a period of phenomenal growth for the Oil Fund, up 70 percent with two more quarters to go in her current term. That gives her the ultimate safety net at a time of rising economic prospects.
Jensen has planned to use NOK 121 billion from the fund to balance this year’s state budget. That doesn’t mean she’ll be ripping into its real value, however, according to Wulfsberg. Current earnings remain higher than the percentage she’ll withdraw.
So even though Jensen caught criticism for withdrawing more from the fund last year than was actually deposited in terms of fresh oil revenues, it wasn’t justified, in Wulfsberg’s view. “Barely half of the Oil Fund’s earnings so far have been used,” he told Aftenposten. Actual withdrawals last year were also much less than earnings generated.
He doesn’t advocate increasing use of oil money, and Jensen has in fact warned that after the “expansiveness” of 2015 and 2016, there will be less use ahead. “But the untapped earnings give us more room to use more money in the future, in the event of a steep economic downturn,” Wulfsberg said. Norway’s financial situation is thus quite solid, according to plan and the history of prudence.