Coffs Coast Business, Politics

50 years ago Norway made a decision that put it way ahead of other resource rich nations

In one of the world’s richest countries, the finance minister may soon need to break the spending record he just set.

By Mikael Holter

The Johan Sverdrup oil field in the North Sea west of Stavanger, Norway. Photographer: Carina Johansen/AFP via Getty Images

For Jan Tore Sanner, the 55-year-old who’s been running Norway’s finances since January, that’s not really a problem thanks to a couple of choices his country made a while back.

After Norway first discovered oil in 1969, a decision was made that would set it apart from other petroleum and resource rich states. Instead of splurging its newfound wealth on glitzy opulence to be savored by a small elite, Norway ended up putting the money in an oil fund for the people. Its wealth fund is now more than three times the size of Saudi Arabia’s, even though Norway’s oil production is dwarfed by the OPEC leader’s.

For Norway, the moment of truth has now arrived. Its $US1 trillion wealth fund — the world’s biggest — has reached an historic turning point that lays bare the scale of the current crisis, and the remarkable prescience of Norway’s past leaders.

Norway's Finance Minster Jan Tore Sanner
Jan Tore Sanner. Photographer: Marte Garmann

For the first time ever, Norway will draw more money from the fund than the vehicle generates in cash flow, due to the twin crises of Covid-19 and a slump in oil prices. That requires an unprecedented asset sale to cover state spending. But the mechanism also means Norway won’t need to borrow an extra penny from bond markets.

Norway’s government estimates it will need to take $US37 billion from the fund this year. The final figure may be even bigger. In an interview with Bloomberg, Sanner said, “We must be prepared to implement measures that will lead to higher oil money spending.”

“I don’t start the discussion with how much oil money we should spend,” he said. “I start the discussion with what measures are necessary and pertinent.”

Here’s what Bloomberg Economics’ Johanna Jeansson said in an analysis on Monday:

Norway has a unique advantage — a $US1 trillion wealth fund built from its vast oil reserves.” (…) “This assistance will limit lasting damage to the economy and quicken the recovery once the virus recedes.” (…) “Still, the risks to our outlook are to the downside.”

Protecting Wealth

The Government Pension Fund Global, also dubbed the oil fund, was created in the 1990s to invest income from petroleum and gas in securities outside Norway. The idea was not only to build up savings, but also to protect the domestic economy from overheating.

To make sure future generations benefit from Norway’s fossil-fuel wealth long after the oil runs out, governments aren’t supposed to spend more than 3% of the fund’s value each year (which matches its expected real return).

During crises like the current one, politicians are allowed to bend the rules. So this year, Sanner is using a record amount of oil wealth, representing 4.2% of Norway’s fund. That’s about the same, in percent, as during the financial crisis in 2009 (but far more in absolute terms).

The worry is that persistent overspending might prevent the fund from becoming the perpetual welfare machine Norway intended it to be. But those overseeing the investment vehicle say even the current level of withdrawals isn’t an issue.

“It obviously is a positive feature of our society that we have this room to maneuver, unlike a number of other countries,” said Oystein Olsen, the governor of Norges Bank, which manages the fund. With such a “huge” piggy bank to draw on, there’s “no drama in fiscal policy,” he said in an interview.

Norway’s economy still faces a deep contraction in 2020 of around 4%. But Sanner says GDP may grow as much as 7% next year. The money he’s released from the wealth fund is helping pay for cash support for businesses, loan guarantees and more generous jobless benefits. That’s on top of free health care and education.

Norway’s fossil fuels laid the foundations for its extreme wealth. But as risks around oil grow, Norway wants to be less exposed. For now, its oil reliance might actually result in a longer economic downturn, and Sanner won’t say when spending will again be within the 3% rule.

“We don’t know how the oil price will develop or what the situation will be in the global economy,” he said.


First published at Bloomerg – Sunday May 17, 2020. See;


  1. The Scandinavian countries often seem to lead the world in thinking which is politically, economically and socially unconventional. They also seem to have developed societal management practices which provide education and health services that are the envy of many larger, and financially wealthier, nations.

    If this is true, how has it happened, and what can we learn?

    In Norway’s case there seems to have been two principle factors at play : long-term economic and social planning, and the application of a principal which puts the quality of life of its people, before the accumulation of wealth for its own sake.

    The last time I can remember an Australian federal government giving any emphasis to these two principles, was the Whitlam government, which was destroyed because it dared to do so.

    Since then, we’ve been cursed with a succession of governments which have judged their successes, not by the level of security enjoyed by Australians, but by how closely they’ve been able to emulate America’s socially destructive capitalist system, one which, unlike Norway’s, is currently being progressively crippled, economically and socially, by the pandemic.

    Meanwhile, as Norwegians ride out the economic storm, Australians will bear the consequences of decades of government mismanagement which has seen, for example, the mast majority of our trading eggs placed in one Chinese basket.

  2. John Cleese

    Its interesting that Norway regards their resources as the peoples, here we leave it to a handful of billionares, who act like their doing us a favour digging them up.
    As commented, Whitlam had the audacity to suggest nationalising our resources. Who could forget Gina Rineharts father, Lang Hancock, who wanted to sell all WA iron ore, only stopped by the then WA Premier?
    God help anyone who suggests a mining/resource tax for Australians like Norways.
    Maybe it could help our treasurer get his precious surplus back. Almost a treasonous idea.

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