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.”
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