Norway May Need to Pull Record $13 Billion From Wealth Fund
Norway May Need to Pull Record $13 Billion From Its Wealth Fund
(Bloomberg) -- Norway looks set to withdraw a record $13 billion from its giant sovereign wealth fund to help pay for the historic stimulus measures being unveiled.
Western Europe’s biggest oil exporter is suffering a bigger shock now than in 2008, and than during the 2014 oil crisis. Crude prices have crashed while the coronavirus has brought the domestic economy to a standstill.
That’s put a huge dent in state revenue. It also brings Norway closer than ever to using the principal in its $900 billion wealth fund for the first time since it was created.
“The government will do what’s required and spend the money that’s needed to safeguard the Norwegian economy and get businesses through this crisis,” Prime Minister Erna Solberg said on Friday.
The extra spending has already cost the government 111 billion kroner ($9.5 billion), it said on Friday. If Brent crude keeps trading about 30% below Norway’s budget assumption for the year (some analysts expect it could drop further), the government will need to withdraw about 150 billion kroner from its fund, according to Bloomberg calculations. The record so far was the 88 billion kroner withdrawn in 2016, which is the first time the government tapped the fund.
The investment vehicle’s 2019 cash flow from dividends, interest payments and rental income was about 240 billion kroner. If withdrawals exceed the fund’s income, it would be forced to start selling securities to generate the cash needed.
With Norway signaling it’s ready to announce more stimulus measures, and many of the companies the fund invests in suspending dividends, it may get close to touching its principal for the first time. The fund declined to comment on its cash-flow expectations for 2020.
“I wouldn’t rule out that the withdrawal from the fund in 2020 will be bigger than the deposit of fresh oil income and the fund’s cash flow,” Harald Magnus Andreassen, chief economist at Sparebank 1 Markets, said by phone. “That’s entirely by the book. This is the strongest shock we will experience in a while.”
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