Norway’s outgoing government proposes wealth fund spending cut

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OSLO (Businesshala) – Norway should sharply cut spending from its $1.3 trillion sovereign wealth fund in 2022 as the economy recovers from the pandemic, the outgoing centre-right minority government told parliament on Tuesday.

FILE PHOTO: Norway’s Prime Minister Erna Solberg speaks at the SDG Moment event as part of the 76th session of the United Nations General Debate at the United Nations General Assembly Hall, New York City, US, September 20, 2021. John Angelillo/Pool via Businesshala

In its last official acts before stepping down this weekend, the government proposed to withdraw 322.4 billion Norwegian crowns ($37.6 billion) from the funding fund next year, down from 406.8 billion crowns in 2021.

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Prime Minister Erna Solberg’s government of the Conservative Party lost elections to parliament last month and will be replaced here by a coalition of the left-wing Labor Party and the Rural Center Party.

The new government will have only a few weeks to present its own budget amendments and is thus expected to comprise a significant part of Solberg’s spending plan for 2022.

In it, the so-called structural non-oil deficit for the next year was set at 2.6% of the fund’s expected value at the end of 2021, the finance ministry said, within Parliament’s 3.0% spending cap.

Estimated spending for 2021 corresponds to 3.6% of the fund’s value under a rule that allows additional withdrawals in times of economic hardship, down from 3.7% projected in May.

Fiscal policy expansion?

Economists at Nordea Markets said the 2022 budget deficit was “still higher than in 2019”, before the pandemic began and extraordinary measures were taken to support the economy.

This “should not be viewed as a contractionary budget,” he said in a note, adding that the amount to be used from the money fund increased from 7.4% in 2019 to 10% of the trend mainland GDP in 2022.

“This is a clear extension of fiscal policy,” Nordea said.

Mainland GDP, also known as non-oil GDP, is expected to grow 3.9% in 2021, up from 3.7% seen in May and more than reversing 2020’s 2.5% contraction, 3.8% With further expansion next year.

The wealth fund, which invests proceeds from the country’s oil industry in foreign assets, is worth about $250,000 for each Norwegian citizen.

($1 = 8.5759 Norwegian Crown)

Editing by Gwladys Fouche, Kirsten Donovan and Barbara Lewis

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