Norway Announces Massive Withdrawals From Sovereign Wealth Fund To Cover Deficits

Tyler Durden's picture

Back in August, we noted that, for the first time since it's creation in 1996, the Norwegian government had started raiding its sovereign wealth fund to cover government deficits.  Now, as noted by Bloomberg, the Nordic country has revealed plans to massively increase withdrawals by over 25% in 2017, to $15 billion.  The money would be used to cover Norway's budget hole that’s expected to be roughly 8% of GDP. 

Of course, Norway's ultimate GDP potential, and therefore budget deficits, are heavily dependent on oil prices so any further weakening of crude could result in even more withdrawals.  Moreover, given the substantial YoY increase, it's important to recall that there are fiscal limits imposed on fund withdrawals equal to 4% of assets, or roughly $36 billion, which could come into play at some point in the future if oil prices remain "lower for longer."

“What’s worrying is the enormous pace,” said Torstein Tvedt Solberg, a member of parliament and a finance committee member for Labor. The largest opposition party has asked the fund “about the threshold for when it becomes really problematic for them and the signal they’ve given us is that it’s 150-200 billion kroner. With the pace we’re seeing now, we’re beginning dangerously fast to come close to the critical level.”

Norway

 

Of course the withdrawals have accelerated just as the heavily oil-dependent economy of Norway has started to absorb the impact of lower oil prices.

Norway

 

As we previously pointed out, the Norwegian government first started to withdraw funds from its sovereign wealth fund to cover government deficits in 1Q 2016.  

Norway Sovereign Wealth

 

The contemplated $15BN withdrawal in 2017, would imply a 36% surge in withdrawals over the 1H 2016 run-rate of approximately $11BN.  To put those withdrawals into perspective, Norway's economy generates roughly $375 billion of annual GDP and federal spending accounts for roughly 60% or $225BN.  Therefore, a $15BN withdrawal in 2017 represents roughly 7% of total government spending 

In a previous interview with Bloomberg, Egil Matsen, the Deputy Governor at Norway’s Central Bank, said the withdrawals were starting to impact the manner in which the fund manages its risk profile.   

"Relevant for how we think about the risk-bearing capacity of the fund.  Say you have a decline in the equity market, and these returns have been partly funding the government, do you want variations in international financial markets to have a direct impact on fiscal policy?

Matsen, among others, has also questioned whether the 4% fiscal limits on withdrawals were the right cap in the current return environment noting that “as the older bonds come to maturity and are reinvested, a big chunk of that will be reinvested in bonds with very low or even negative yields.” 

But Finance Minister Siv Jensen dismissed criticism of the withdrawals saying that the administration is using the fund as was intended noting that withdrawals remain below the fund's annual return target of 4%.   

“Now that we are in an extraordinary situation, hit by the biggest oil price shock in 30 years, it would be crazy if we didn’t have an expansionary fiscal policy,” she told Bloomberg. Jensen rejected suggestions that the fund was “vulnerable.” She described it as “rock solid.”

 

The fund’s managers have warned it’s getting harder to live up to a real return target of 4 percent. It has returned 3.44 percent over the past 10 years. For now, planned withdrawals aren’t big enough to force the fund to sell assets. It estimates income from dividends, real estate and bonds will reach 207.5 billion kroner next year, almost double the amount the government plans to withdraw.

While we could debate the merits of Norwegian fiscal policy, at least the country is actually funding deficits as they're incurred.  That would seem to be a "slightly" better approach than the U.S. plan which calls for printing more cash to fund massive deficits while ignoring the long-term impacts of ballooning national debt that can't possibly ever be repaid. 

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silverer's picture

Wait...wait...let me guess. Productivity is down? Counting on oil to run your socialism? It worked out so well in Venezuela!

Escrava Isaura's picture

Darn’t.

Another nation going Venezuela.

Why that Norway don’t just go to the bond market and borrow instead?

I don’t get it.

 

johngaltfla's picture

All is well. All we need is moar QE.

Somewhere.

Handful of Dust's picture

"Deficits and withdrawals don't matter..."

 

People who say that don't give a flying phuck about the future of their nation and younger people. They only care about their spending and power today.

It's the worst "ME" group of world leaders I have ever seen, from Hitlery Cunton to Angela Merkel.

No.Fifth.Turning's picture

Congratulations Norway.  You understand the meaning of a savings account--saving for a rainy day.

Erek's picture

Kinda reminds me of what .gov did to our social security.

Paul Kersey's picture

What would life look like in Norway, if it had no sovereign wealth fund and was $20 trillion in debt? It would look like the US of A, only without murdering gangs in its inner cities and a government owned by kleptocratic corporatist oligarchs, commanding exponential wealth extraction from 99% of its citizens. The Government of Norway owns 67% of Statoil (by far the country's largest energy company), while in the US of A, the energy companies are owned by international energy conglomerates, and American citizens subsidize them.  And remember, Norway, like the US, prints its own money.

new game's picture

print oil, or is that bonds for future oil. but oil is not infinete, but bonds can be, or so it appears...

WTFUD's picture

Yeah they should do something about those murdering gangs of police in the inner cities. You're spot on fella!

Calmyourself's picture

Wee ewik, once the oil money slows even more your dreams of diversity in Norway and Sweden will die.  Welfare and welfare alone hold the illusion together.  Economics and tribe is what really matters.  Keep building that wall at best you can keep Sweden's multi-culti hordes out after the collapse.

ACES FULL's picture

Good move, refute Eewik's bullshit without answering directly below him on the thread. I just down vote the idiot and keep moving now.

As for the article, quite a predicament we have. High oil prices=the American people go broke buying gas. Low oil prices=oil producing countries go broke and are unable to meet their obligations. Tough times ahead.

TeamDepends's picture

OT:. Tyler this is too.important, Clinton is DISQUALIFIED from becoming POTUS!http://stateofthenation2012.com/?p=51452

Erek's picture

We know this already.

Do you really believe this will stop the criminals from attempting to achieve that which is not legally theirs?

This crime-wave is going full tilt and there doesn't seem to be any way to stop it until the elections.

Mustafa Kemal's picture

"This crime-wave is going full tilt and there doesn't seem to be any way to stop it until the elections."

I disagree, I dont think the elections are going to slow it down at all.

HalinCA's picture

If I read this correctly:

filed or deposited with any clerk or officer of any court of the United States, or in any public office, or with any judicial or public officer of the United States,

Hillary skates free because the stuff she stole/erased was not filed or depositied with a clerk of a court, or deposited in a pubic office.

As much as I can't wait to piss on her grave, I don't think this fed reg gets her.

new game's picture

theft of first resort.

we ran out of other people oil, lol.

fucken-eh

two cronic human devises, greed and "sumtin for free"....

survival by devise, dee-vise, mon...

why can't we all just pull the wagon  

equally?

and get rewarded for effort of pull?

oh, that's right, disability, yup, hop on da wagon.

lol

flyingpigg's picture

So Norway will sell equities and bonds to the Central Banks and will get fresh printed fiat in return.
All going according the wealth-transfer script...

Escrava Isaura's picture

silverer: Counting on oil to run your socialism?

Which socialism?

State Socialism that is capitalism for the public.

Or State Capitalism that is socialism for the rich.

https://www.youtube.com/watch?v=lT4VXF1XJYk

                                                         

Billy the Poet's picture

Your previously stated position that both socialism and communism are forms of capitalism make any additional comments you make on the subject less than compelling for informed readers.

HenryKissingerChurchill's picture

It worked out so well in Venezuela!

It worked for Hugo Chavez fugly offspring Maria Gabriela Chavez, she is now pretty wealthy, UN and shit.

newsphotos-us.photoshelter.com/gallery/Ambassador-Maria-Gabriela-Chavez-of-Venezuela/G0000BoCcgzSRXPk/
www.independent.co.uk/news/world/americas/hugo-chavez-daughter-is-sent-t...
www.wsj.com/articles/u-n-role-for-chavez-daughter-roils-venezuela-141115...
www.businessinsider.com/the-favorite-daughter-of-venezuelas-late-leader-...
https://www.instagram.com/gabychvz/

Blackfox's picture

Fractional reserve banking and its made up Usury, coming to take everything you and your nation has. Very very soon.

 

ersatz007's picture

Ummm maybe I'm missing something but looks like Norway socked a lot of money away. It looks like they've been saving for a rainy day since about 1998. Just like the good ole capitalist USA.

I guess no one here has ever dipped into their savings to cover shortfalls?

Billy the Poet's picture

Norway socked a lot of money away.

Lost it all at the bottom of a fjord.

MANvsMACHINE's picture

I'm so glad the US hasn't had to make any withdrawals from its sovereign wealth fund.

Say what?!?!

dark fiber's picture

Don't worry man.  Fort Knox is overflowing with gold.  They don't audit it because it is so much more than the official figures.  Just remember, you can't spell fund without FU.

silverer's picture

For sure! Isn't the US about three generations out on that "wealth fund" they're tapping?

Escrava Isaura's picture

“Wealth is a flow. Spent it must be to produce future wealth.”Frederick Soddy, 1921.

 

Midas's picture

The reason the US doesn't have a well stocked wealth fund is because we do not have enough immigrants.  If we were to pull in another 30 or 40 million people from the third world who would bring their landscaping, burrito folding, and EBT swiping skills we could have some real prosperity. 

jdow's picture

Could this also be occurring in other large Sovereign FUnds, where an "unwind" of assets is occuring worldwide, accounting for potential "Black Swan" events like the recent "flash-crash" drop in the British Pound this week?

I'm wondering too, if the huge sell off of gold and silver this week are due to Sovereign Fund sales on a large scall?

 

new game's picture

junkies desparate for cash to pay the bills. Honey, i've got to sell some of my favorite pre 64 winchesters, what else are we going to do?

HenryKissingerChurchill's picture

let´s just add rapefugees to the equation

Nightjar's picture

The jews are coming for that pot of capital.

Umh's picture

At least they have a sovereign wealth fund with assets in it.

commie's picture
commie (not verified) Oct 8, 2016 8:04 AM

The founding fathers should have written into the constitution that all mineral rights would be the property of the federal government for the benefit  of the ENTIRE population. 

Billy the Poet's picture

Founders should have given me everything you own and will ever produce.

silverer's picture

Funny how governments to the one always have issues and problems with "running out of money". Ever hear them complain that they can't find enough ways to cut government spending?

wmbz's picture

The obvious solution is to raise taxes, it takes a village!  Or so says the Hildabeast.

They should just get the bitch on the blower, she'll tell them how to handle it.

BurningFuld's picture

Don't let her know how much money they have she will want to put in a new "Friendly" government.

Stu Elsample's picture

Paying the foreign muslim trash invaders to move in and overtake the country.

...those stinky muslim pigs have to be laughing themselves silly at how stupid those Euro-PEON nation 'leaders' are

Handful of Dust's picture

The welfare money to support millions of rapefugees has to come from somewhere, right? Henrikksen and Guftavsen simply need to retire later and work harder. That's all.

It's one of the many benefits of multiculturalism (besides the mall attacks and cafe bombings)

(While the Elites rake in the profits from ultra cheal labor)

Catullus's picture

Asked another way "why shouldn't the tax eaters raid a pile of money just sitting there?" Gubbermint logic.

It ain't yours unless you possess it.

opport.knocks's picture

Hardly newsworthy, the same is happening here in Canada where the oil funds are owned by provincial governments. Both Alberta and Newfoundland are experiencing big budget deficits which they will cover with borrowing for a time.

Then there is the Saudi government, which is more dependant than any on oil.

One has to wonder if this is one reason why the crimiinal syndicate at the Fed has been musing about buying stocks recently.  That is one path to global control.

GoinFawr's picture

No, this is not 'same-same' as Alta.Nfld.&Lbrdr. at. all.  Unlike Norway, provincially/nationally, net, the Canuck gov'ts do not own shit. And their (provincial) royalty rates are still the laughinstock of the oil-producing world.

In the simplest terms:

In Norway, a wildly successful oil producing SOE, along with folks' taxes, funds their also wildly successful, gov't run, SWF, keeping the state's books in a darkening state of black.

In Canada all the oil is produced/sold privately, real costs externalized to the cheapest of the cheap, keeping the state's books an ever brightening shade of red.

So you see, it's not the same, at all. Kind of the opposite, in a lot of ways

Try again.

john milton's picture

Oil, oil oil,, by the way exxon got 74 billion penalty from Chad plus 820 million penalty for unpaid royalties

All is chosen's picture

I only visit countries where I wont be ripped off by a govt.

I have never been to Norway.

opport.knocks's picture

Then you can't have travelled much. There are only 2 types of governments, elected organized crime and unelected organized crime.

All is chosen's picture

I'm being lectured by a baby.