Norway to Spend Record $50 Billion of Oil Wealth on Recovery

(Bloomberg) -- Norway is relying on its $1.3 trillion sovereign wealth fund more than ever, as the country ratchets up spending without turning to bond markets to provide economic relief from the pandemic.

The government is raising its so-called structural non-oil fiscal deficit for 2021 to 403 billion kroner, or almost $50 billion, compared with 369 billion kroner last year, it said on Tuesday. The withdrawals, as a share of the world’s biggest wealth fund, will reach 3.7%, compared with the central bank’s estimate of 3.3%.

“Fundamentally, it shows that the government sees a bigger need for fiscal support throughout this year,” Handelsbanken analyst Marius Gonsholt Hov said in a client note.

The wealth fund, built on Norway’s North Sea oil revenue, has shielded the richest Nordic economy from the worst of the pandemic. The intensity of government withdrawals from the fund forced the giant investor to start liquidating assets last year, marking an historic moment for Norway. Since then, the fund has generated near-record returns as markets rebounded.

What Bloomberg Economics Says...

“Norway’s fiscal superpower has enabled swift and ample support during the pandemic, lessening the economic hit from the virus. The challenge now is to tailor the measures so that the economy gets back to work.”

--Johanna Jeansson, Nordic economist

Mainland GDP, which adjusts for Norway’s oil and offshore industry, is expected to grow 3.7% this year after a 2.5% contraction in 2020, the ministry said.

While Norway has started to reopen much of the economy as infection rates decline, its vaccination efforts have been disrupted by a decision to shelve AstraZeneca Plc from its immunization program. A government-appointed expert group has also advised the country to drop Johnson & Johnson’s vaccine.

Still, shipments of other vaccines are expected to leave Norway with adequate supplies to ensure that all adults will have had at least one shot by the end of July, according to analysts including from Nordea.

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