Norway Central Banker Warns Of Massive 50% Drop In Wealth Fund Assets To Cover Budget 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 in 2016 to cover government deficits.  Then in October the Nordic country revealed plans to massively increase withdrawals by over 25% in 2017, to $15 billion, to cover a budget hole that was expected to be roughly 8% of GDP. 

That said, 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."



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



And what do you do when you depend on portfolio returns to fund everyday living expenses but are faced with extremely low returns courtesy of artificially depressed international bond yields?  Well, you just buy more equities, of course.  Which, as we noted back in December, was exactly the motivation behind a decision to increase the fund's equity allocation from 60%, to a staggering 75%, all while funneling another $130 billion to the global equity bubble.

The central bank’s board, which oversees the fund, on Thursday recommended an increase in the equity share to 75 percent from 60 percent. That will raise the expected average annual real return to 2.5 percent over 10 years and to 3.5 percent over 30 years, compared with 2.1 percent and 2.6 percent, respectively, under the current setup.


The world’s largest sovereign wealth fund said that it expects an annual return of only 0.25 percent on bonds over the next decade and that the expected “equity risk premium,” or return on stocks over government bonds, will be just 3 percentage points in a cautious estimate.


“In our analyses, this is clearly evident in global data: internationally, growth in firms’ cash flows and equity returns are correlated with growth in the global economy,” Deputy Governor Egil Matsen said in a speech Thursday in Oslo. “Global economic growth in the coming years is expected to be below its historical level. This ‘pessimism’ is partly related to the driving forces behind the low level of the real interest rate.”

But despite their best efforts to protect the principle balance of Norway's sovereign wealth fund through statutory spending caps and buying more and more equities, Norway’s central bank governor Oystein Olsen warned earlier today that increasing reliance on the fund to cover budget deficits could result in a "sharp reduction" in the fund's capital over the next 10 years.  Per Bloomberg:

Governor Oystein Olsen said that the continued rise in oil cash spending, which now accounts for about 20 percent of the budget and 8 percent of gross domestic product, must now be halted to protect the $900 billion fund, the world’s largest sovereign pool of cash.


“With a high level of oil revenue spending, there’s a risk of a sharp reduction in the fund’s capital,” Olsen said in the traditional Annual Address in Oslo Thursday. “This could, for example, happen if a global recession triggers both a decline in oil revenue and low or negative returns on the fund’s capital.”

In fact, in some of the more dire scenarios, Olsen warned that 50% of the fund's $900 billion in assets could be wiped out over the next 10 years in the event of a global recession that kept oil prices low while also driving equity valuations down.

While the fund, which is overseen by the central bank, so far has said it’s more than able to handle outflows without selling assets, Olsen’s speech did lift the lid to reveal some of the worst case scenarios being calculated by the investor.


For example, it sees a 1 percent chance of a 50 percent decline over 10 years if spending is kept at the current level of about 3 percent of the fund. If spending is raised to 4 percent that probability rises to about 5 percent. If the fund’s allocation to stocks is boosted to 75 percent from 60 percent, which is currently being discussed, the probabilities rise even further to about 2 percent and 6 percent, respectively.


“This shows what you may risk if you increase oil spending from today’s level,” Olsen said in a separate interview. “This helps us to strengthen the message.”


“It must be recognized, however, that the longer-term challenges facing the the Norwegian economy can’t be resolved by spending more oil revenue and keeping interest rates low,” he said in the speech, arguing the Norwegian economy needs more legs to stand on.

That said, we wouldn't be too worried because equity prices never go down, right?  Silly Central Banker...

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VWAndy's picture

When all you know how to do is theft. Guess what?

SunRise's picture

You eventually go to jail?

peddling-fiction's picture

Scandinavia beware, the thieves are putting speed to their actions.

Finland, do not accept more debt.

techpriest's picture

At least Norway was smart enough to put some money aside. For the US the only option is a soft (inflation) or hard (real) default.

Son of Loki's picture

It's not cheap supporting several hundred thousand unemployable immigrants.

DownWithYogaPants's picture

Let me guess....private central banker warned.    

Hobbleknee's picture

Not to mention all the lazy Norwegian women faking fibromyalgi.

mind reset's picture
mind reset (not verified) Hobbleknee Feb 18, 2017 6:21 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

silverer's picture

I'm not so sure a "soft" inflation can chase away 20 trillion. Anyway, any inflation at all is simply stealing people's money. The higher the inflation, the greater the theft. Maybe a hard default is better. Enter Donald Trump.

techpriest's picture

In this case "soft" only means to pretend to pay it back. Maybe it's not the best choice of words, because you are right, we would need astronomical inflation to print that much away.

rockface's picture

Yes, but like the rest of the Left they cannot conceive of reducing government spending.  They will have a hard landing.

silverer's picture

Good idea. That's why they are called the National Guard.

Gilnut's picture

The "thieves" are the people themselves, wanting more in return than what they are willing to put out.  Governments tend to become a reflection of the people that create them.

HillaryOdor's picture

Yup, hence leftism and it's deflection of all blame from where it belongs, government and themselves, the worthless people their government represents, and projecting this blame outside their sphere of influence onto the big bad greedy corporations, as if the leftists aren't greedy themselves.  Cognitive dissonance is a very unfortunate thing.  But not to worry.  The world will fix itself.  We just need a massive paradigm shift in the fundamentals of human consciousness.  Should happen any day now.  Either way, life goes on, even if humans don't.  We aren't that important.

SoDamnMad's picture

I would worry that 50% of the 900 billion fund could be wiped out in the next 2 years if the equities market crashes.  There is only so much the PPT can do to hold up the fraud.  

Stormtrooper's picture

No dummy!  Trump chooses you for a high level financial cabinet post.

Giant Meteor's picture

There will be casualties ...

ipso_facto's picture

It's easy when you're investing other people's money.

DaBard51's picture

AAPL, Norway owns?  How much?

The Swiss, for AAPL they are known...



When nine hundred years old you become, look this good you will not.

LOL123's picture

I bet Norway wishes it hadn't contibuted 5 million per year ( 2007- 2013 in the Clinton foundation. Apparently it didn't reap much gains from it. The price you pay for joining the secret elite club with tax payer monies... Soooo sad.

Steaming_Wookie_Doo's picture

Really? They did that? How does this not qualify as political tampering...but if a Russian official calls his US counterpart, howls of "the russkies are trying to subvert America!" are overwhelming. I'm so confused. Weren't the democrats the ones who thought socialism was all cool? Now they shriek worse than McCarthy did. I have to give points to McCarthy for pointing out some legit stuff, unlike this baseless fluff now. Even JFK was on his side (much to the dismay of Evelyn "Fish-puss" Roosevelt and her cadre of Red sympathizers). 

Now that I think about it, Norway had some real stinkers in some CDO mortgage paper around 2007 that turned out to be a total loss.

chimchim's picture

Some legit stuff?
Don't have your life jacket on board or something?
C'mon, jump in, the waters warm.

sinbad2's picture

No country likes paying tribute to the empire, Australia paid nearly $90 million, and that's just to the Clinton foundation, the total tribute would be much higher.

But if you don't pay?

Son of Loki's picture

I thought I saw that on the front page of New York Slime in bold headlines the other day exposing the clinton corruption.....


... then again, maybe i didn't.

WTFUD's picture

Riddle Me Ree :-
Norway is the 28th most populous country in Europe ( if you count UK as one ) with approximately 5.2 million people.
Norway is Europe's largest Producer of Oil and 12/13 largest producer in the world with approx. 1.8 Million Bbls per day.
The cost (in dollars) of ONE LITRE of Diesel in Norway is $1.80 the HIGHEST in the World bar None. ( Source )
USA = $0.66 ; Russia $0.65; Iran is $0.09. Norway is a Basket Case shafting its own citizens.

Blankone's picture

When the numbers make no sense look for their tracks or droppings.  5 million people, the 12/13 largest producer of oil.  They should be living the dream. 

As a teen I would wonder how the US could have any financial problems and why all the turmoil about interest rates and debt since in 1945 all the competition was bomb out and had to rebuild everything.  And yet they were in better financial position.  Number made no sense.  Asked a couple high school teachers, one history and one some sort of business/economics teacher.  No idea. 

sinbad2's picture

5.2 million people and 900 billion in the bank means that even the poorest Norwegian has $173 thousand in the bank, I think they can afford the fuel.

Benjamin123's picture

Its not the norwegian's money, it belongs to the government. What a stupid idea to parrot, that each norwegian has $200.000 in the bank just because the government has X dollars. Like the government is not a separate entity from the population. Like some random norwegian can go to the bank and ask for "his" $200.000. 

chimchim's picture

Where can I get that $.66 deasel?

Benjamin123's picture

Thats only taxes and the oil doesnt even belong to the people, it belongs to the oil company, which is owned by the government. The government of norway as a whole gives more in freebies to the population than it charges in taxes, thanks to oil income.

Collective ownership is an even more deranged superstition than private ownership. You only own your personal assets (your house, businesses, properties, land, vehicles, metals, etc), you dont "own" shares in random oil wells, mines or farms located in your country just because you are a national.

The citizens of Norway live in paradise and are not being shafted by their government at all. The only problem is that it will all come to a end in a couple of generations, but norwegians die rich and therefore happy.

monad's picture

Dude, I got your money.

Anders Breivik is Snake Pliskin

Scuba Steve's picture

... and their lawyers are Dewwe, Cheatham and Howe.

Atomizer's picture

Actually, it's the Sovereign Wealth Fund. Don't let the twats mislead you.

mary mary's picture

How many refugees is Norway housing?  I show a 75% correlation between NORW and XOI, which does make it appear that Norway is counting on one commodity to finance its Socialism.  Isn't that what got Venezuela into trouble?  Is Mr. Olsen implying that either the Socialism has to end, or Norwegians are going to see their retirement accounts eaten up?  Why is it so hard for legislators to rein in Socialism?  Is it because their wives and children were given juicy NGO jobs handing out the assorted welfare candies?  Would that classify as "corruption"?

Son of Loki's picture

Mohammed, his wife, his wife's mother and his 8 kids are expensive.

mary mary's picture

I do not believe Loki would put up with this.   :-)

Benjamin123's picture

You are wrong, turns out he is.

Benjamin123's picture

Venezuela is no longer financing socialism. It only funds the generals.

Boca's picture

Norway has zero national debt, 900 billion in reserved, we can only dream of being in there position. This is fack news

TrustbutVerify's picture

To help your economy, just set up discount stores nationwide to sell imported Chinese goods. All Norwegians will feel great that they are now able to buy goods at a discount. Like in the United States, ignore your evaporating manufacturing sector, disappearing know-how, and the social benefit of manufacturing sector networking and innovation. Feel good that more and more of what you buy is made in countries that pay their workers pennies a day - at the expense of your own economy.

captain-nemo's picture

Norway are expecting an average oil price this year of 425 NOK a barrel. That means that they need an oil price of about 51 US dollar a barrel. But keep in mind that the central bangsters have devalued the Norwegian Krone by 30%. If they had not done that they would only have got about 330 NOK a barrel with the price we have today.

The 30% devaluation of NOK is thus actually only a method to manipulate the oil price locally from 39 US dollar a barrel to 51 US dollar a barrel.

Besides from this it is worth knowing, that most of the oil fields in Norway are about to get dry in the years to come and there are new wells to replace those. Also note that the money that the Norwegian goverment spend annually on oil and gas related infrastructure in the north sea are enormous. In the coming decade there are however no more projects to spend money on. That means that at least 85% of the Norwegian industry that makes their living on building this infrastructure looses their income. This downward spiral has already started and is expected to get worse every years from now.

Meanwhile, the housing bubble reaches new insane levels every month and the flow of muslem migrants keeps coming. The income taxes and prices in Norway are already ranked on the top ten highest in the world.

Norway is currently paying 1,3% of it's GDP to NATO. Mattis wants 2%. According to the Norwegian finance minister, they won't pay 2%. According to the foreign minister , Americas has been nagging about this for years and it shouldn't be taken serious.

Jens Stoltenberg is currently the leader of NATO, and they are not even willing to pay. The Norwegian army is currently just a single batallion of about 600 trained soldiers. That is the entire army.

50% of the Norwegian GDP is now being used to feed and manage the multitudes of migrants living in Norway. In a country with a population of only 5 million , they Norwegians will be gone in a couple of generations.


Warning.  Dont EVER trust a word coming from the Norwegian fakstream media or any official reports comming from them.



Scuba Steve's picture

And Oh, BTW ... "Get out your NATO contract because there are gonna be addendums in the section named "Fees" !

Good Luck to you"