October 6, 2016 / 7:36 AM / a year ago

UPDATE 3-Norway to spend more from its rainy day fund next year

* To spend 3.0 pct of wealth fund in 2017 vs 2.8 pct in 2016

* PM says Norway may tighten spending guidelines from fund

* Elections due in Sept. 2017 (Adds reaction, detail on wealth fund)

By Joachim Dagenborg

OSLO, Oct 6 (Reuters) - Norway will dip further into its sovereign wealth fund next year to support the recovering economy but ministers facing a tight race for September elections warned the end of oil’s “golden age” would mean spending curbs in future.

Prime Minister Erna Solberg and Finance Minister Siv Jensen said they aimed to spend 225.6 billion crowns ($28.1 billion) from the $888 billion fund in 2017, around 3 percent of its value. That is more than the 205.6 billion crowns, or 2.8 percent, proposed for this year.

“We must create new jobs, new opportunities. The golden age of the oil industry is over. It is challenging,” Jensen told public broadcaster NRK.

Plunging prices for crude oil -- Norway’s main export, earnings from which have built the world’s biggest sovereign wealth fund -- and a corresponding drop in investment by oil firms since 2014 have pushed economic growth to a seven-year low and unemployment to 20-year highs.

With a parliamentary election next September and opinion polls close, Solberg’s minority government will again have to negotiate over the budget with two centrist parties, the Liberals and the Christian Democrats.

They have made tougher-than-usual demands this year for spending to be limited and taxes raised on greenhouse gas emissions that cause climate change.

The Liberal party’s finance spokesman said negotiations would be “tough” and that significant changes would be required.

Solberg and Jensen said budget spending from the wealth fund aimed to boost mainland economic growth, which excludes the volatile energy and shipping sectors, by 0.4 percent in 2017, less than the 1.1 percent bump projected for this year.

“They expect the economy to improve and that growth will normalise at the end of next year, so the need for a fiscal policy stimulus is less,” said Kyrre Aamdal, a senior economist at bank DNB.

The mainland economy is expected to grow 1.0 percent in 2016, 1.7 percent in 2017 and 2.4 percent in 2018, the budget showed.


The government will make its first ever net withdrawal this year from the 20-year-old wealth fund, which has ballooned in size to more than twice Norway’s annual gross domestic product.

But Solberg said on Wednesday that guidelines for spending cash from the fund may be tightened in future.

“This is the big discussion we’re going to face: following up the question of a new, tighter rule in the time to come,” she told public broadcaster NRK.

Current rules say an average 4 percent of the fund’s value can be spent each year, but economists have warned that ultra-low global interest rates and other conditions mean it is unlikely the fund can earn returns of that magnitude in future.

Changing the rules, in place since 2001, would be a major policy departure and suggested adjustments have been rejected by successive prime ministers.

The government said on Thursday it would address the spending rule in a long-term policy document next Spring.

$1 = 8.0352 Norwegian crowns Reporting by Joachim Dagenborg, Terje Solsvik, Stine Jacobsen, Ole Petter Skonnord, Nerijus Adomaitis and Gwladys Fouche; Writing by Terje Solsvik and Gwladys Fouche; Editing by Catherine Evans

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