(Bloomberg) -- Norway expects to withdraw less from its giant sovereign wealth fund this year as a recovery in oil prices is boosting the country’s coffers.
Western Europe’s biggest oil and gas producer is turning the page on the oil industry’s deepest downturn in at least a generation after output cuts from OPEC and others, coupled with geopolitical tensions, have supported a recovery in crude prices.
The government on Tuesday reduced the amount of oil wealth it intends to spend in 2018, at the same time as higher income from petroleum production means it will have to cover far less of that amount with withdrawals from its $1 trillion wealth fund.
The government expects to withdraw 21.1 billion kroner ($2.6 billion), down from the 72.3 billion it forecast when it presented its first budget in October, according to revised-budget figures obtained by Bloomberg and confirmed by official documents published Tuesday. That is down from as much as 87.7 billion kroner in 2016, the first year ever Norway had to dip into its piggy bank since setting up in the 1990s.
Yet the forecast still contrasts with fiscal accounts published earlier this month that showed monthly withdrawals had ceased. The new estimate is based on an oil-price assumption of 519 kroner ($65) a barrel for 2018, which could prove conservative. Benchmark Brent has averaged about $69 a barrel so far this year, and is currently trading at $78.7 a barrel, the highest level since 2014.
It’s “obviously possible” that withdrawals could turn to deposits for 2018 as a whole, the fund’s chief executive officer, Yngve Slyngstad, said last month.
Norway’s structural oil-corrected deficit, or the amount of oil cash the country will spend, will be cut to 225.5 billion kroner this year from an initial estimate of 231.1 billion kroner. It was estimated at 219.2 billion kroner last year.
Prime Minister Erna Solberg has said she will try to reduce Norway’s oil wealth spending as the economy recovers from a slowdown in the oil and gas industry. The revised budget envisages that spending will now provide a fiscal impulse of 0.1 percent this year, down from 0.2 percent last year.
Oil wealth spending now amounts to 2.7 percent of its sovereign wealth fund, down from from 2.9 percent forecast in October. The reduction “should be read in the light of a substantial rise in the fund’s market value by the end of last year,” the government said.
Mainland economic growth is seen at 2.6 percent next year, picking up from 2.5 percent this year. Surveyed unemployment for this year was revised down to 3.8 percent from 4 percent in the initial budget. It will fall to 3.7 percent in 2019, the government said.
Economic growth is “above the historic trend, and capacity utilization will increase and remain close to normal levels next year,” Finance Ministry said in a statement. “The labor market has improved faster than projected.”
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