OSLO (Reuters) – Norway should sharply cut spending from its $1.3 trillion sovereign wealth fund in 2022 as the economy rebounds from the pandemic, the outgoing centre-right minority government told parliament on Tuesday.

In one of its last official acts before stepping down later this week, the government proposed withdrawing 322.4 billion Norwegian crowns ($37.6 billion) from the wealth fund next year, down from 406.8 billion crowns in 2021.

The government of Conservative Party Prime Minister Erna Solberg lost https://www.reuters.com/world/europe/norway-opposition-expected-win-election-fought-oil-inequality-2021-09-13 last month’s election for parliament and will be replaced https://www.reuters.com/world/europe/norways-labour-centre-agree-form-minority-government-2021-10-08 by a coalition of the leftwing Labour Party and the rural Centre Party.

The new government will have only a few weeks to introduce its own budget amendments and is thus expected to incorporate a significant part of Solberg’s spending plan for 2022.

In it, the so-called structural non-oil deficit for next year was set at 2.6% of the fund’s expected value at the end of 2021, the finance ministry said, well within parliament’s 3.0% spending cap.

Projected spending for 2021 corresponds to 3.6% of the fund’s value under a rule that allows extra withdrawals in times of economic hardship, below the 3.7% projected in May.

Mainland gross domestic product, also known as non-oil GDP, is now expected to grow by 3.9% in 2021, up from the 3.7% seen in May and more than reversing the 2.5% contraction of 2020, with a further expansion of 3.8% next year.

The wealth fund, which invests proceeds from the country’s oil industry in foreign assets, is worth about $250,000 for every Norwegian citizen.

The Norwegian crown weakened slightly against the euro, to 9.92 at 0608 GMT from 9.91 just before the statement.

($1 = 8.5759 Norwegian crowns)

(Editing by Gwladys Fouche, Kirsten Donovan)

Copyright 2021 Thomson Reuters.

Tagged in: