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Historic Asset Sale at $1 Trillion Fund Gives Norway an Edge

Historic Asset Sale at $1 Trillion Fund Gives Norway an Edge

(Bloomberg) -- For the first time in its history, the world’s biggest sovereign wealth fund will have to liquidate assets to cover withdrawals by Norway’s government.

Norges Bank Governor Oystein Olsen, who oversees his country’s $1 trillion piggy bank, says the mechanism provides “room to maneuver” through the worst economic crisis since World War II.

“It’s part of the general guidelines that in such circumstances you can spend more,” Olsen said in an interview with Bloomberg Television. “It obviously is a positive feature of our society that we have this room to maneuver, unlike a number of other countries.”

Historic Asset Sale at $1 Trillion Fund Gives Norway an Edge

Norway is suffering a crisis on two fronts, with a Covid-19 induced lockdown compounded by an historic rout in oil, the country’s main export. On Thursday, Olsen stunned markets by delivering a quarter-point rate cut to zero, the lowest ever in the country. He said the severe economic decline warranted ultra-low rates.

But much of the crisis support in Norway needs to come from the government, and that’s where the country’s vast wealth fund plays a key role.

Norway’s government already drew more money from the fund in March than in any other month. The pace of withdrawals is set to exceed the fund’s cash flow from dividends and interest payments. That means that in order to provide the government with the money it needs, the fund has to dump assets. Though it’s not yet clear how much, the fund’s rebalancing requirements imply that its bond portfolio will see the biggest divestments.

In its latest estimate before a revised spending plan is released next week, Norway’s Conservative-led government said it expects this year’s budget to take a 201 billion-kroner ($20 billion) hit due to the lockdown. The budget will also be set back by lower oil prices, as well as the possible deferral of 60 billion kroner in petroleum taxes to help the offshore industry (that figure could be even higher if the minority government is forced to amend its proposal).

But with Norway’s “huge” wealth fund backing up the state, Olsen said there’s “no drama in fiscal policy.”

The fund hasn’t provided estimates for its cash flow, but said it will make less than previously expected because the companies it invests in are cutting dividends. In 2019, the fund’s cash flow was 243 billion kroner.

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