OSLO (Reuters) – Norway will exceed a self-imposed cap on spending from its $1 trillion sovereign wealth fund for the first time in more than a decade to aid an economy hobbled by the coronavirus pandemic.
A sharp increase in spending will see withdrawals from the fund hit a record 419.6 billion crowns ($40.6 billion), projections in a revised budget from the finance ministry showed on Tuesday, up from 243.6 billion crowns forecast last October
“The Norwegian economy has suffered its most severe setback ever in peacetime. However, the government is laying the groundwork for Norway’s emergence from the crisis,” the finance ministry said in a statement.
Spending will likely grow even further in the weeks and months to come as the government prepares to present a longer-term roadmap to recovery later this month, both DNB and Handelsbanken said in notes to clients.
The wealth fund – which invests proceeds from the country’s oil industry in foreign stocks, bonds and property – is worth about $190,000 for every Norwegian man, woman and child.
Annual withdrawals from it, known as the structural non-oil deficit, are capped at 3% of its value, though that can be exceeded in times of economic hardship.
This year’s withdrawals will primarily come from the sale of fixed income assets, the fund’s chief executive said in March.
Statistics Norway said on Tuesday the mainland economy contracted by 2.1% in March from February, and by 6.9% in the first quarter, bigger falls than preliminary readings reported on April 24.
The ministry predicted the economy would contract this year by 4%, before an expected rebound of between 4% and 7% in 2021. The central bank last week cut its key policy rate to 0% for the first time.
Norway last exceeded the fund ceiling during the 2008-2009 financial crisis, withdrawing 4.1% at a time when the cap was set at 4%. It was lowered in 2017 to the current 3% to reflect lower expected future returns.
This year’s withdrawal will now reach 4.2% of the fund’s Jan. 1 value, rather than the originally planned 2.6%, the government said.
The ministry also said it planned to introduce a new tax on its fish farming sector, the country’s second-largest industry after oil production.
The tax, of 0.40 crowns per kilo of fish and payable from 2022, should raise some 500 million crowns for local and regional governments from 2022, the ministry predicted.
Listed fish farmers include the world’s largest, Mowi <MOWI.OL>, Salmar <SALM.OL> and Leroey Seafood <LSG.OL>.
The crown currency initially weakened slightly following the budget and the GDP data, but traded stronger at 11.09 per euro at 0952 GMT.
(Editing by John Stonestreet and Alex Richardson)