Norway warns of sharp down in oil fund assets

Baku. 17 February. REPORT.AZ/ Norway’s central bank governor Oystein Olsen sharpened his warning on rising spending of oil revenue.

Report informs citing Bloomberg, he drew up scenarios for a 50 percent loss of capital over the next 10 years for the world’s biggest sovereign wealth fund. Governor Oystein Olsen said that the continued rise in oil cash spending, which now accounts for about 20 percent of the budget and 8 percent of gross domestic product, must now be halted to protect the $900 billion fund, the world’s largest sovereign pool of cash.

According to the traditional Annual Address, both a decline in oil revenue and low or negative returns on the fund’s capital, may face Norway with a very difficult situation.

Notably, government withdrawals from the fund are estimated to jump about 25 percent this year after an historic first outflow last year. It will nearly amount to 125 billion crowns (19 billion US dollars), or about 2% of the fund's assets.

It sees a 1 percent chance of a 50 percent decline over 10 years if spending is kept at the current level of about 3 percent of the fund. If spending is raised to 4 percent that probability rises to about 5 percent. If the fund’s allocation to stocks is boosted to 75 percent from 60 percent, which is currently being discussed, the probabilities rise even further to about 2 percent and 6 percent, respectively.