Norway’s government is on track to withdraw a record amount from its sovereign wealth fund this year, and to continue pumping historic amounts of stimulus in 2021, to fight the “severe setback” triggered by the Covid crisis.
The richest Nordic economy estimates that the so-called structural non-oil fiscal deficit will jump to 3.9% of the fund this year, or 404 billion kroner ($43 billion), compared with 2.9% in 2019. By 2021, the figure will recede to 3%, it said on Wednesday.
“The coronavirus pandemic has caused the most severe setback in the Norwegian economy since World War II,” Finance Minister Jan Tore Sanner said in the statement.
“Activity has been on the rebound in the last few months, but the road ahead remains fraught with uncertainty,” he said. “Although the upturn has been faster than we envisaged in May, the activity level is likely to remain lower than normal for a long time to come.”
The government expects mainland GDP, which adjusts for Norway’s oil and offshore industry, will shrink 3.1% this year before growing 4.4% in 2021.
Norway faces a milder recession than most of the rest of Europe. That’s in large part thanks to its $1.1 trillion wealth fund, which gives the government room to add record stimulus without tapping bond markets.
Western Europe’s biggest oil producer relies on the fund to plug budget deficits, and this year resorted to withdrawals on an unprecedented scale. The development has forced the fund to start liquidating assets to cover the government’s cash needs.
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