Daily Management Review

Norway to increase spending of sovereign wealth fund by 10% in 2017


10/11/2016


For the first time in 25 years, Norway can get a shortfall budget. The authorities decided to withdraw money from the wealth fund. Their plans also include reduction the tax burden for individuals and large corporations. Despite this, the economic growth is expected to drop to 0.4% in 2017 year.



Norway continues to extract money from the wealth fund, volume of which amounts to $ 890 billion. The money is used to support economic stabilization in anticipation of further fall of the oil sector.

According to budget of Norway in 2017, next year the government plans to increase support of the oil industry by 10%. Total volume of cash injections will amount to 225.6 billion kroner ($ 28 billion).

Of this sum, 121.2 billion kroner will be taken from the wealth fund. To compare, the authorities used 95.7 billion kroner in 2016. At the same time, in spite of clear signs of economic recovery, the growth rate is expected to fall to 0.4% (according to analysts, growth in will number 1,1%), Bloomberg reported.

Management of the wealth fund is experiencing increasing pressure from the government, which is trying to achieve its goals with record-low interest of credit. In the following year, the fund profits from dividends, real estate and securities are expected amount to 207.5 billion kroner, which, according to the budget plan, should cover the increasing costs. 

"Norway will become stronger with currently undertaken economic restructuring", - said the Minister of Finance Siv Jensen. According to Jensen, the budget for 2017 is focused on combating unemployment in the regions and sectors most affected by the drop in oil prices.

The government predicts a decrease in oil and gas production on the background of rising oil prices in 2017.

Investments in offshore production will be reduced by 10% in 2017, and by 6.8% in 2018, continuing a two-year drop.

The authorities will reduce the tax burden by 6.5 billion Siv Jensen. Taxes on corporate profits will be reduced further. About 4 billion crowns will go to support the labor market.

"Incomes policy is very close to forecast of Norvay’s central bank, so the budget will not affect monetary policy - said Gaute Marius Langeland, an analyst at Nordea Bank in Oslo. - But it's just a guess. The government of minority may have to change something to get support of other parties in parliament. However, the signals received from these parties do not assume that final budget will be significantly different."

7 October, Norway Statistics Service published another report, which showed that national income in the second quarter declined year on year by 2.3% and amounted to $ 328 billion ($ 336 billion in 2015).

The main reason for declining revenues is sluggish activity of crude production on the continental shelf, and reduction of tax revenues (by 8.3%).

Income from oil production in April - June amounted to only $ 23 billion, according to The Norway Post. Furthermore, costs increased to $ 333 billion, which is by 8% higher as compared to 2015. 

source: reuters.com, bloomberg.com






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