Norway Reveals Record Withdrawals From $1.1 Trillion Fund

(Bloomberg) -- Norway’s government is set to take out a record amount of cash from its sovereign wealth fund this year, and to continue pumping historic amounts of stimulus into the economy in 2021, to fight the “severe setback” triggered by the Covid crisis.

Withdrawals from the fund will surge to an all-time high of 346.5 billion kroner ($37 billion) in 2020, followed by 273 billion kroner next year, Norway’s finance ministry said on Wednesday.

That’s more than the wealth fund generates in cash flow, which was 131 billion kroner in the first half of the year. For all of 2019, when the fund booked record returns, its cash flow reached 249 billion kroner. Assuming an unchanged cash flow in 2020, the fund will need to liquidate about $10.5 billion worth of assets to meet government withdrawals.

The investor has already started selling off bonds to keep up with withdrawals, it said in August. “If something has to be sold, the fund’s relative positions have to remain constant,” its spokesperson Thomas Sevang said in an emailed comment on Wednesday. “We sell the broad reference portfolio, and we usually take it from the most liquid portfolios.”

Stimulus in Action

Norway faces a milder recession than most of the rest of Europe. That’s in large part thanks to its $1.1 trillion wealth fund, which gives the government room to add record stimulus without tapping bond markets. The finance ministry estimates that GDP will shrink 3.1% in 2020, compared with an expected slump of about 8% in the euro zone.

Finance Minister Jan Tore Sanner has promised to do “everything in our power to ensure that Norway emerges from this crisis in the best possible position.” That’s as the coronavirus pandemic inflicts “the most severe setback in the Norwegian economy since World War II.”

Norway estimates that the so-called structural non-oil fiscal deficit will jump to 3.9% of the fund this year, compared with 2.9% in 2019. By 2021, the figure will recede to 3%, it said on Wednesday. It sees mainland GDP, which adjusts for Norway’s oil and offshore industry, shrinking 3.1% this year before growing 4.4% in 2021.

©2020 Bloomberg L.P.