Norway to withdraw $40.6 billion from wealth fund amid Covid-19 shock
The Norwegian SWF has said it would liquidate some of its assets to cover government withdrawals.
Norway's Ministry of Finance announced on Tuesday that the government has planned to withdraw a record 419.6 billion kroner (USD 40.6 billion) to tackle the economic shocks of the novel coronavirus (Covid-19) pandemic. The amount is contained in the Scandinavian country's revised 2020 budget and is more than the 243.6 billion kroner structural non-oil deficit the government forecast in October 2019.
The deficit is to be fully financed by transfers from the Norwegian Government Pension Fund Global, the world's largest sovereign wealth fund (SWF). However, withdrawals from the Fund are capped at 3 per cent of its value, estimated at USD 1.19 trillion as of 2019, according to the Sovereign Wealth Fund Institute.
This year’s withdrawal is expected to now reach 4.2 per cent, exceeding the annual limit put by the fiscal rule. The last time Norway exceeded the withdrawal limit to plug its deficit was in 2009 during the Global Financial Crisis.
According to Bloomberg, the government predicts its net cash flow from oil will drop by 62 per cent to 98 billion kroner, the lowest since 1999. Statistics Norway said on Tuesday that the economy contracted by 6.9 per cent in the first quarter of 2020, as the country faces its worst economic slump since World War II.
“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 statement obtained by Reuters.
The Norwegian SWF said in March that it would liquidate some of its assets to cover government withdrawals. To cover the unprecedented withdrawal this year, the bond sale could reach 124 billion kroner ($12 billion). Previous withdrawals from the Fund were covered by its cash flow from dividends and interest payments, which have been significantly reduced due to the impact of Covid-19. For instance, companies it invests in have suspended dividends due to the current crisis.
As part of measures to tackle its own Covid-19-induced economic shock, a withdrawal from the Nigerian SWF was announced last month by Finance Minister, Zainab Ahmed, who disclosed that President Muhammadu Buhari had approved the withdrawal of $150 million from Nigeria Sovereign Investment Authority (NSIA), which manages the country's SWF. The minister said the amount would be distributed to the three tiers of government.
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