Could Norway's 1.3 trillion dollar oil fund run dry?
Experts have advised the Norwegian government to reduce the proportion of spending that it draws from the Government Pension Fund. So, how likely is it that Norway's 1.3 trillion dollar fund is depleted?
Norway's fortunes changed in the late 60s and 70s when oil was discovered in its waters, with the "black gold" providing an important revenue stream for the Nordic country.
The government has three revenue streams from Norwegian oil.
Firstly, there is a surplus tax of 78 percent on all oil companies that operate in Norwegian waters. Secondly, the state earns dividends from government ownership in oil companies. Thirdly, the government earns money from the direct ownership of drilling rights in Norway's waters.
Given the country's position as Western Europe's largest oil and gas producer, these revenue streams translate into a massive windfall.
To ensure the money generated from the oil trade is spent wisely, the Government Pension Fund was created. The fund, also referred to as the oil fund, is the largest sovereign wealth fund in the world.
In simple terms, the Government Pension Fund, or oil fund, is a giant savings pot that makes its money by investing in more than 9,000 companies all over the globe.
READ MORE: What does Norway do with all its oil wealth?
Some 70 percent of its funds are invested in shares, and the oil fund holds, on average, 1.5 percent of listed companies worldwide.
The fund is valued at almost 15 trillion kroner or 1.3 trillion dollars. You can see the real-time value of the fund here on the Government Pension Fund's website.
Money from the pot is used to fund government spending. Professor Halvor Mehlum from the economics department at the University of Oslo has previously told The Local that the oil fund accounts for around 20 percent of government spending.
To prevent the fund from being depleted, the government can only spend 3 percent of its value each year.
However, experts are concerned that this means the fund could become depleted and that future generations in Norway could be left worse off.
"We must spend much less than the current 3 per cent of the fund each year if future generations are to benefit from it as we do. Maybe half," Knut Anton Mork, professor emeritus at the Norwegian University of Science and Technology, told public broadcaster NRK.
"I am really scared… about how indifferent leading Norwegian politicians are to the rules of action. They should take this very seriously. The sooner the better," he added.
Mork previously chaired a committee on how the fund should invest its money.
His concern is that the fund could be depleted within a few decades if the current spending cap isn't lowered.
READ ALSO: Norway just lost 374 billion kroner, but is it a big deal?
Former Oil Fund manager Knut Kjær also expressed concerns recently to the Norwegian business news publication Dagens Næringsliv (DN) that the fund could be depleted.
Professor Steinar Holden at the University of Oslo has suggested that the government adopt a new spending cap to ensure the fund's longevity.
The new rule should take account of cash flow into the fund rather than a set limit of three percent. Instead, the government would draw funding from interest-bearing securities and dividends from companies that the fund holds shares in.
"This is certainly something that should be considered," Holden said of the proposed rule change.
In theory, this would protect the fund from instances where withdrawals from the fund are larger than the annual growth.
Finance Minister Trygve Slagsvold Vedum has said that the government has no intention of overhauling the current rules.
"I think it is very good that they come up with that type of input, because the point is how to finance basic welfare benefits for you and me now without increasing taxes. And how the next generation can do the same. And the generations after that," he told NRK.
He added that he disagreed with the idea that the spending limit should be capped.
"No, I completely disagree with that. Because the point is to give people prosperity. It is completely wrong if you only think about the next generation. We have to think about the generation that lives now," he said.
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Norway's fortunes changed in the late 60s and 70s when oil was discovered in its waters, with the "black gold" providing an important revenue stream for the Nordic country.
The government has three revenue streams from Norwegian oil.
Firstly, there is a surplus tax of 78 percent on all oil companies that operate in Norwegian waters. Secondly, the state earns dividends from government ownership in oil companies. Thirdly, the government earns money from the direct ownership of drilling rights in Norway's waters.
Given the country's position as Western Europe's largest oil and gas producer, these revenue streams translate into a massive windfall.
To ensure the money generated from the oil trade is spent wisely, the Government Pension Fund was created. The fund, also referred to as the oil fund, is the largest sovereign wealth fund in the world.
In simple terms, the Government Pension Fund, or oil fund, is a giant savings pot that makes its money by investing in more than 9,000 companies all over the globe.
READ MORE: What does Norway do with all its oil wealth?
Some 70 percent of its funds are invested in shares, and the oil fund holds, on average, 1.5 percent of listed companies worldwide.
The fund is valued at almost 15 trillion kroner or 1.3 trillion dollars. You can see the real-time value of the fund here on the Government Pension Fund's website.
Money from the pot is used to fund government spending. Professor Halvor Mehlum from the economics department at the University of Oslo has previously told The Local that the oil fund accounts for around 20 percent of government spending.
To prevent the fund from being depleted, the government can only spend 3 percent of its value each year.
However, experts are concerned that this means the fund could become depleted and that future generations in Norway could be left worse off.
"We must spend much less than the current 3 per cent of the fund each year if future generations are to benefit from it as we do. Maybe half," Knut Anton Mork, professor emeritus at the Norwegian University of Science and Technology, told public broadcaster NRK.
"I am really scared… about how indifferent leading Norwegian politicians are to the rules of action. They should take this very seriously. The sooner the better," he added.
Mork previously chaired a committee on how the fund should invest its money.
His concern is that the fund could be depleted within a few decades if the current spending cap isn't lowered.
READ ALSO: Norway just lost 374 billion kroner, but is it a big deal?
Former Oil Fund manager Knut Kjær also expressed concerns recently to the Norwegian business news publication Dagens Næringsliv (DN) that the fund could be depleted.
Professor Steinar Holden at the University of Oslo has suggested that the government adopt a new spending cap to ensure the fund's longevity.
The new rule should take account of cash flow into the fund rather than a set limit of three percent. Instead, the government would draw funding from interest-bearing securities and dividends from companies that the fund holds shares in.
"This is certainly something that should be considered," Holden said of the proposed rule change.
In theory, this would protect the fund from instances where withdrawals from the fund are larger than the annual growth.
Finance Minister Trygve Slagsvold Vedum has said that the government has no intention of overhauling the current rules.
"I think it is very good that they come up with that type of input, because the point is how to finance basic welfare benefits for you and me now without increasing taxes. And how the next generation can do the same. And the generations after that," he told NRK.
He added that he disagreed with the idea that the spending limit should be capped.
"No, I completely disagree with that. Because the point is to give people prosperity. It is completely wrong if you only think about the next generation. We have to think about the generation that lives now," he said.
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