The Norwegian government announced this morning, as part of its revised budget plan for this year, that it will withdraw NOK30bn (€2.9bn) less from its sovereign wealth fund than previously envisaged – citing a need to avoid overheating the domestic economy which is currently exceptionally strong.
Finance minister Trygve Slagsvold Vedum said: “Unemployment is low, but we have to be careful to avoid overheating the economy, keep inflation under control and avoid excessive interest rate rises.”
Omicron, high electricity prices and war in Europe had necessitated unforeseen financial allocations, the government said, adding that it had therefore taken active steps to compensate for increased expenditure in the revised budget.
The revised plan unveiled today includes cuts in spending in some areas, including the suspension of a number of costly national construction projects such as one to expand the new government district in Oslo.
“Russia’s invasion of Ukraine has triggered a substantial increase in defence and public security allocations. The government will ensure that refugees coming to Norway receive the help they need,” the finance minister said.
Overall, the government would use about NOK30bn less of petroleum revenue – via withdrawals from the Government Pension Fund Global (GPFG) into which oil revenue flows – than expected before today’s revised budget, he said.
However, this still meant spending from the GPFG would be approximately NOK30bn higher than in last autumn’s amendment to the 2022 Fiscal Budget Proposal, he said.
Since that amendment to the budget in November, which was made by a newly-elected government, extraordinary fiscal allocations totalling almost NOK60bn were proposed and approved earlier this year.
The ministry said today that its leeway on budget policy would shrink from now on, and that the impact of the war in Ukraine on future budgets was uncertain.
Regarding that impact, the ministry said that so far, Norway’s petroleum revenues had increased, while the value of the GPFG had fallen.
Norway now expects oil and gas revenue to triple this year from last, with the ministry today estimating net cash flow from petroleum activities at NOK933bn – some NOK646bn more than last year.
The high revenues are mainly due to higher oil and gas prices in the second half of 2021 and estimates for 2022, the government said.
However, the GPFG made a loss on its investments in the first quarter of 2022 of NOK653bn as financial markets plunged.