Norway on Thursday proposed to curb the amount of money it can withdraw from its sovereign wealth fund, the largest in the world, amid lower expected returns.
The minority rightwing government also recommended that the fund, worth 7.5 trillion kroner (847 billion euros, $903 billion), increase the share of equity from 60 to 70 percent. At its current value, this would amount to buying close to 85 billion euros worth of shares.
The government lowered its expected real rate of return to three percent of the fund's value a year, down from four percent.
This would in practice limit the government's room for maneuvre: when tapping the fund to balance its budget, it cannot exceed the expected return.
"The backdrop for this downward adjustment is the prospect of lower returns on international financial markets," Prime Minister Erna Solberg told reporters in Oslo.
Set up in the 1990s, the public pension fund is intended to finance the future expenses of the welfare state by growing the country's oil wealth.
But the state's oil revenues, which fuel the fund, have been hit by falling hydrocarbon prices since mid-2014, which come on top of a decline in production since peaking in 2000.
Last year the government, for the first time, took more money out of the fund than was put in.
Many economists have for years been calling for the ceiling of withdrawals to be lowered.
"The use of oil revenues must slow down," Norwegian central bank governor Oystein Olsen reiterated on Thursday.
Failing that, he warned, the country could run up a budget deficit equivalent to eight percent of so-called "continental" GDP, which excludes the oil and shipping sectors.
This year, the government expects to withdraw around 226 billion kroner from the fund, which would be a new record and equivalent to three percent of the total value, an amount which has been labelled excessive and untenable by some economists.
In addition to the 60 percent in shares, rules require 35 percent of the fund to be invested in bonds and five percent in real estate, all of which must be outside Norway to avoid overheating the national economy.
The announced proposals will be detailed in documents presented to parliament on March 31. To get them passed, the minority government will need to secure the backing of other parties.
Norway on Thursday proposed to curb the amount of money it can withdraw from its sovereign wealth fund, the largest in the world, amid lower expected returns.
The minority rightwing government also recommended that the fund, worth 7.5 trillion kroner (847 billion euros, $903 billion), increase the share of equity from 60 to 70 percent. At its current value, this would amount to buying close to 85 billion euros worth of shares.
The government lowered its expected real rate of return to three percent of the fund’s value a year, down from four percent.
This would in practice limit the government’s room for maneuvre: when tapping the fund to balance its budget, it cannot exceed the expected return.
“The backdrop for this downward adjustment is the prospect of lower returns on international financial markets,” Prime Minister Erna Solberg told reporters in Oslo.
Set up in the 1990s, the public pension fund is intended to finance the future expenses of the welfare state by growing the country’s oil wealth.
But the state’s oil revenues, which fuel the fund, have been hit by falling hydrocarbon prices since mid-2014, which come on top of a decline in production since peaking in 2000.
Last year the government, for the first time, took more money out of the fund than was put in.
Many economists have for years been calling for the ceiling of withdrawals to be lowered.
“The use of oil revenues must slow down,” Norwegian central bank governor Oystein Olsen reiterated on Thursday.
Failing that, he warned, the country could run up a budget deficit equivalent to eight percent of so-called “continental” GDP, which excludes the oil and shipping sectors.
This year, the government expects to withdraw around 226 billion kroner from the fund, which would be a new record and equivalent to three percent of the total value, an amount which has been labelled excessive and untenable by some economists.
In addition to the 60 percent in shares, rules require 35 percent of the fund to be invested in bonds and five percent in real estate, all of which must be outside Norway to avoid overheating the national economy.
The announced proposals will be detailed in documents presented to parliament on March 31. To get them passed, the minority government will need to secure the backing of other parties.
