Norway Withdraws More On Oil Fund; Lowers Price

October 7
6:00 AM 2016

Norway predicts it will for the first time need to withdraw cash from its $820 billion sovereign wealth fund as western Europe's biggest oil exporter uses a record chunk of its petroleum revenue to cover budget holes and stimulate the economy.

In January the fund transferred $781 million dollars to the government -- the first such transfer since the fund was set up in 1996, according to the country's Ministry of Finance.

"It is however not surprising that oil revenues eventually would become lower than the real return on the fund, resulting in a net transfer from the fund to the budget" said  state secretary Pall Bjornestad in a statement to CNBC Monday. Bjornestad even told CNBC that even with withdrawals, the oil fund will continue to get larger. "As long as spending of oil revenues is within the expected real return on the Fund, the Fund will overtime not to be tapped in real terms." He said.

The government in using the cash to boost growth. So-called structural oil money spending will amount to 7.1 percent of mainland gross domestic product and 2.8 percent of the fund. The budget stimulus is equal to 0.7 percentage point. The government also said "A large part of the expected return will remain in the fund and contribute to that the fund is expected to increase by 423 billion kroner during 2016".

As it boosts spending, the government predicted mainland economic growth of 1.3 percent this year and 1.8 percent next year. Unemployment will rise to 4.4 percent this year and 4.5 percent in 2016. It said that oil investments will fall this year and in the following two years. It bases its estimates on Brent crude averaging $52 a barrel in 2015 and $53 next year, converted from kroner.

The government also said that it will spend 4 million kroner on a jobs plan and cut or hold income taxes for nine out of ten people. Its lowering its corporate tax rate into 25 percent from 27 percent and aims to cut it in 22 percent by 2018.

Norways key policy rate stands at 0.75 percent but analysts are predicting the country will reduce rates at the next meeting.

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