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Norway’s trillion dollar wealth fund posts 107 billion dollar first quarter gain

Norway's sovereign wealth fund, the world's largest, posted a gain of more than $100 billion in the first quarter amid the global stock market recovery, it said Thursday.

Published: 18 April 2024 16:28 CEST
Pictured is an assortment of Norwegian kroner.
Norway's sovereign wealth fund, the world's largest, posted a gain of more than $100 billion in the first quarterPictured is an assortment of Norwegian kroner. Photo by Andrzej Rostek GettyImages

The fund — fuelled by the Norwegian state’s oil and gas revenues — saw a return of 6.3 percent in the first three months of the year.

The $107 billion gain brought the fund’s total value to a dizzying 17.7 trillion kroner ($1.6 trillion) at the end of March, or almost $291,000 for each of Norway’s 5.5 million inhabitants.

“Our equity investments had a very strong return in the first quarter, particularly driven by the tech sector,” the fund’s deputy chief executive Trond Grande said in a statement.

Shares, which accounted for 72.1 percent of the fund’s portfolio, saw a 9.1 percent return in the first quarter, buoyed by a stock market rally amid the prospect of falling interest rates.

The fund is the world’s biggest single investor, with stakes in some 9,000 companies around the globe and representing 1.5 percent of the total market capitalisation.

Its bond investments, representing 26 percent of assets, meanwhile fell by 0.4 percent in the first quarter. Real estate holdings and those in unlisted renewable energy projects also fell, by 0.5 percent and 11.4 percent respectively.

Weaker currency

Norway’s currency, the krone, weakened against several main currencies during the quarter, contributing $59 billion to the increase in the fund’s value.

According to a ranking by the Sovereign Wealth Fund Institute (SWFI), the Norwegian fund is the biggest in the world, just ahead of the China Investment Corporation.

Created in the early 1990s, the fund is aimed at financing future spending in Norway’s generous welfare state, as revenue from oil and gas exports are expected to decline over the long term.

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.

It is managed by the country’s central bank.

Norwegian governments are allowed to tap the fund to balance the budget, but within a strictly-defined framework.

They are only allowed to use the fund’s estimated returns, not the capital itself, to prevent the fund from being depleted.

All investments are made outside Norway to avoid destabilising the country’s economy.

The fund also follows strict ethical guidelines set by the finance ministry.

It is, for instance, barred from investing in companies accused of serious violations of human rights, child labour or serious environmental damage, as well as manufacturers of “particularly inhumane” arms and tobacco firms, and companies which derive a large part of their activities from coal.

Dozens of groups, including giants like Airbus, Boeing, British American Tobacco and Walmart, have therefore been blacklisted by the fund.

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POLITICS

Four key things to know about Norway’s revised budget for 2024

The revised national budget was unveiled by the Norwegian government on Tuesday. Here are the key takeaways you need to know about the fiscal plan. 

Published: 14 May 2024 12:50 CEST
Four key things to know about Norway's revised budget for 2024

The government continues to tap the oil fund for public spending 

The current government isn’t the first to use the country’s oil and gas wealth to cover public spending costs. However, the revised budget will take public spending drawn from the oil fund close to the limit. 

Subsequent governments have limited themselves to using 3 percent of the value of the sovereign wealth fund where Norway’s oil and gas revenues are invested to top up public spending. 

The extra 9 billion kroner the government plans to spend from oil revenues will bring the total spending from the fund to nearly 419 billion kroner, which equates to around 2.7 percent of the fund’s value. 

This also means that the use of oil money in Norway will be 34 billion kroner higher this year than last year. 

Norway’s finance minister, Trygve Slagsvold Vedum, said that staying under the 3 percent threshold was important for the government. 

“It has been important that we are now under the action rule, even though we are making a heavy defence and security lift. The oil fund must be a generational fund,” he said. 

However, some analysts have previously suggested that the 3 percent limit is too generous and could deplete the fund. 

The increase in oil spending comes after a couple of cautious years where the government tried to limit spending from the fund to curb inflation. 

READ ALSO: Could Norway’s 1.3 trillion dollar oil fund run dry? 

Significant increase in defence spending 

The revised budget’s main focus is increased defence spending. The Norwegian Armed Forces will receive around 7 billion kroner more in defence spending as part of the revised national budget.

In the months leading up to the revised budget, PM Jonas Gahr Støre said that Norway would hit the NATO “two percent target”. 

The two percent refers to member countries allocating at least two percent of their GDP to defence spending. 

Some 2 billion kroner will increase immediate operational capability, while 5 billion would be spent on a long-term defence plan. 

The cost of living increases to ease, but interest rates to remain high

The Norwegian government has noted that the economy had outperformed its expectations and forecasts from last autumn when the initial budget was presented. 

Furthermore, unemployment has remained low at 1.9 percent and the government expects this to rise to 2 percent during the rest of 2024. 

It also expects the consumer price index to rise by 3.9 percent for 2024. The good news for consumers is that a real wage rise, meaning salary increases outpace the cost of living, is looking more likely as the year progresses. 

Looking ahead to 2025, inflation is expected to slow to 2.8 percent. 

Overall, the government expects the mainland economy in Norway to grow by 0.9 percent this year. 

Despite the optimistic outlook from the government, the figures are unlikely to move the needle regarding interest rate cuts. 

Norway’s central bank has brought the key policy rate to a 16-year high of 4.5 percent to curb inflation, and it isn’t expected to cut rates until December at the earliest. 

“Today’s budget gives no reason for Norges Bank to change the interest rate plans, which now point towards an interest rate cut in December,” DNB’s chief economist Kjersti Haugland told public broadcaster NRK.

The government doesn’t have a majority for its budget 

The most interesting side plot of every budget and revised budget is that the minority coalition comprised of the Labour Party and the Centre Party will rely on the support of the Socialist Left Party to get majority support for its proposals. 

This means the budget’s contents usually change throughout negotiations between the government and its budget partner. 

The Socialist Left Party has said it will advocate for an increase in the child benefit for the oldest children and a new tax on oil companies that would fund investment in offshore wind. 

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