Oil Fund Set for Record-High Growth: Implications for Finance Minister Vedum’s State Budget

The oil fund is set for record-high growth this year. This makes it easy for Finance Minister Vedum to appear both generous and strict in the state budget for next year.

Finance Minister Trygve Slagsvold Vedum (Sp) fills the Oil Fund and can laugh all the way to Wall Street. Photo: Olav OlsenPublished: Published:

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The short version

The oil fund is set for record growth this year and could increase by around NOK 2,500 billion. The fund now stands at NOK 15,000 billion. If the Ministry of Finance’s estimate of the fund’s value at the turn of the coming year is the same as today’s value, this will give Vedum an additional room for maneuver of NOK 75 billion in the 2024 budget. It will come on Friday. According to the latest estimates, the government is using 3 percent of the Oil Fund this year. It is exactly on the action rule and corresponds to NOK 373 billion. If next year’s oil money use of 3 per cent is also added, it means a record high of 450 billion.

The summary is made by the AI ​​tool ChatGPT and quality assured by E24’s journalists

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It is expected that the Oil Fund will increase by around NOK 2,500 billion during 2023. Never before has the fund increased so much in one year.

This gives Finance Minister Trygve Slagsvold Vedum (Sp) a big slap in the arm on the state budget 2024. He will present it to the Storting on Friday at 9am.

The fund was DKK 12,429 billion at the turn of the previous year. Afterwards, super returns, a greatly weakened krone and fresh oil money from the shelf have given the fund one trouser up.

At the time of writing, the fund is around 15,000 billion kroner.

In the national budget, the Ministry of Finance will estimate the fund’s value at the start of the 2024 budget year. The estimate will probably end up roughly where the fund is now.

75 billion extra on the table

The core of the action rule for using oil money is that 3 per cent of the fund can be used on the national budget.

If the estimate of the fund’s value remains approximately where it is now, this year’s increase gives Vedum an increased room for maneuver of NOK 75 billion in the 2024 budget.

Professor Hilde C. Bjørnland at BI Business School was a member of a public committee which in 2015 assessed the rules of procedure for the use of oil money.

– The Norwegian economy is in a completely peculiar situation compared to other countries, particularly because of the state’s wealth and extraordinarily high incomes in the last couple of years, she says.

Can push up interest rates

According to the latest estimates The government is using 3 percent of the Oil Fund this year. It is exactly on the action rule and corresponds to NOK 373 billion. Total expenditure in the 2023 budget is just under NOK 1,800 billion.

If Vedum stays at 3 per cent in the 2024 budget as well, that means he is spending NOK 450 billion.

– I don’t think the government should lie down there, says Bjørnland.

– It will create further pressure in the economy and contribute to even higher interest rates. It is indebted Norwegian households that make the Norwegian economy vulnerable now. Even higher interest rates will hit them hard, she says.

Both generous and strict

If Vedum adheres to the action rule’s 3 percent next year, the increase in spending will only be surpassed by the corona year 2020.

But Vedum can settle for less than 3 percent and the associated NOK 450 billion. Then he achieves two things at the same time:

Use more oil money than this year, calculated in billions of kroner. Several good causes can receive money. He appears to be generous. He can point to the fact that he falls under the 3 per cent action rule. He comes across as strict and responsible

Unchanged use of oil money in 2024, calculated in billions of kroner, corresponds to 2.5 per cent of the fund.

Vedum can thus be both generous and strict by putting between 2.5 and 3 per cent of the fund.

– The government understands that households are burdened by high price inflation and increased interest rates. I therefore believe that the budget will be closer to 2.5 per cent than 3 per cent in the use of oil money, says Bjørnland.

Gas or brake?

The code of conduct is aimed at managing the oil money for the benefit of future generations. There is no rule that says anything about slowing down or accelerating the economy.

Then there are two other standards that apply:

The change in the use of oil money as a percentage of the economy in mainland Norway. Large calculations from the Ministry of Finance that try to estimate whether all the budget’s items increase activity in the mainland economy or not.

A year ago, Prime Minister Jonas Gahr Støre (Ap) said that he would help Norges Bank to keep price inflation down. He told E24:

– Norges Bank’s mission is to bring down the high rate of inflation. This happens by drawing in purchasing power through increasing interest rates. Then we cannot raise more coal and blow purchasing power over the national budget.

Prime Minister Jonas Gahr Støre (Ap) wants to help Norges Bank reduce price inflation. Photo: Olav Olsen

More coal though

Little in the Norwegian economy has fulfilled Støre’s intentions:

Norges Bank expects the government to give gas to the economy next year as well. Increased public demand is the main driving force behind the growth in the economy.

At the same time, Norges Bank is putting the brakes on fully to reduce price inflation. The bank predicts that Vedum will use 2.7 percent of the Oil Fund next year.

In other words: He ends up in the interval where he can be generous and strict at the same time.

2023-10-05 15:34:09
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