Norway spends on oil to avoid slump

Norway’s government has boosted the amount of oil money it will spend this year to a record level, dipping deeper into its sovereign wealth fund to ward off a recession.

The government will use 205.6 billion kroner (€22bn) of its oil wealth, up from the 195.2bn kroner it estimated in October, according to the budget released in Oslo yesterday.

The spending will have a stimulus effect of 1.1 percentage points, up from 0.7 percentage point in the initial budget.

“A key government priority is to support growth and employment in sectors exposed to international competition,” Norway’s finance minister Siv Jensen said.

“Tax reform with lower taxes and increased spending on education and infrastructure, is essential in this respect.”

The added spending means the government plans to withdraw 84.2 billion kroner from its $860 billion wealth fund.

That’s up from an October estimate of just 4.9 billion kroner, made before oil plunged at the end of last year, and is also higher than the 80 billion kroner estimate made by the fund in February.

The plunge in crude prices is squeezing the economy of western Europe’s biggest oil producer, driving up unemployment and threatening to halt growth.

Norway’s central bank in March cut rates to a record low 0.5% and signalled it was prepared to ease further to avoid an outright recession.

According DNB ASA, Norway’s largest bank, the expansionary budget will cool the need for more rate cuts from the central bank.