Norway shatters wealth fund spending cap amid pandemic

Norway will sharply raise spending this year from its trillion-dollar sovereign wealth fund, the government said on Tuesday, exceeding a self-imposed cap for the first time in over a decade to aid an economy reeling from the novel coronavirus crisis.

Cash withdrawal from the fund is now projected to hit a record 419.6 billion Norwegian crowns ($40.6 billion) in 2020, the Finance Ministry's mid-year fiscal review showed, up from 243.6 billion crowns seen last October. The so-called structural non-oil deficit thus corresponds to 4.2% of the fund's Jan. 1 value, the government said, making use of a provision in its fiscal framework that allows withdrawals to exceed a 3% cap to counteract economic setbacks.

In its original budget the government had planned to spend just 2.6% of the fund. "To counter the economic fallout of the virus outbreak the Government has introduced sweeping measures in successive rounds," the finance ministry said in a statement.

The extra spending will pay for a tax shortfall and a range of initiatives announced since a partial lockdown of the country began on March 12, including extra unemployment benefits, cash support for companies and oil industry investment incentives. Norway in recent weeks began a gradual reopening of its economy as the rate of COVID-19 infection declined, and has said the revised budget will be followed in late May or early June by a long-term recovery roadmap.

The economy will likely contract this year by 4.0%, the ministry predicted, and last week the central bank cut its key policy rate to zero percent for the first time. ($1 = 10.3335 Norwegian crowns)