NORWAY - Wide variations in oil prices could make it difficult to complete a transfer of oil revenues from the government to the Government Pension Fund - Global, and the time for the first withdrawals from the fund “may be near”, the governor of Norges Bank has warned.

Speaking at a meeting of the Supervisory Council of Norges Bank on ‘Economic Perspectives’, Svein Gjedrem noted that each year since 1996 the government has transferred a portion of the income from petroleum activities into the pension fund.

Gjedrem said the Government Global pension fund currently has assets of around NOK2.6trn (€323bn), or “slightly higher than annual GDP in Norway”. He noted the annual transfers could potentially continue for just over another decade, at which point the scheme may reach twice its current size.

However, he warned the oil price needs to be over $50 (€36.80) a barrel in 2010 in order to generate sufficient revenues to enable the government to make transfers to the fund, compared to just $20 a barrel in the mid-1990s.

He told the council: “We must be prepared for wide variations in oil prices, and the first year without transfers of oil revenues - but rather withdrawals - may be near.”

In the context of meeting fiscal challenges, the governor said after transfers to the fund stops, and the oil and gas revenues “no longer provide the government with economic rent, only the annual real return on the fund can be used on a permanent basis” by the government to help meet budgetary requirements.

The government has stated the annual return on the fund is expected to be around 4% over time, and uses this as the target of its non-oil central government budget deficit. However, Gjedrem said the average return has been 2.5% since its establishment, following the steep fall in global capital markets.

That said, he added: “By maintaining the fund’s risk profile, it is fairly probable that the average return will gradually approach 4% again.”

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