Norway’s wealth fund, a jumbo piggy bank to be used prudently
Norway, which holds legislative elections on Monday, has the world's largest sovereign wealth fund, a piggy bank of more than $1.4 trillion.
The idea behind the fund is that oil is a fortuitous natural resource that belongs to all Norwegians, and should benefit both current and future generations by financing the expenses of the welfare state.
By setting aside oil revenue now, Norwegians will still be able to reap the benefits when the planet no longer uses fossil fuels.
The Government Pension Fund Global (GPFG), as it is officially known, was set up in 1990 but received its first deposit only in May 1996 with a modest cheque of less than two billion kroner (about $305 million).
Today, all of the state's oil revenues are placed in the fund: taxes, profits from the state's holdings in oil and gas fields, and dividends from oil firm Equinor, owned 67 percent by the state.
Absolutely not. In 2001, Norway decided that governments could tap the fund to balance the budget, but within a strictly-defined framework.
The government is only allowed to use the fund's estimated returns, not the capital itself, to prevent the fund from being depleted.
The fund's estimated return was originally set at four percent (after inflation and management costs), but was slashed in 2017 to three per cent, a figure considered more realistic for the future performance of financial investments.
The fund has so far averaged an annual net return of 4.6 per cent.
In 2016, the government began withdrawing more from the fund than it put in, as its oil revenues decline.
Even though this means Oslo has de facto stopped saving, the fund has continued to grow as the yield on investments exceeds the government withdrawals.In exceptional times, such as this year due to the pandemic, the government is authorised to tap a little more money than usual.
The government plans to tap 3.7 per cent of the fund's value, or some 39 billion euros, this year.
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