Norway to cut wealth fund spending amid soaring costs, finance ministry says

OSLO, September 19 (Reuters)The Norwegian government will face higher budget spending next year, but will not use its sovereign wealth fund to cover the shortfall, as it could lead to higher inflation and interest rates, said said the Ministry of Finance.

Norway’s $1.2 trillion wealth fund, the largest in the world, invests the proceeds of Norway’s oil industry abroad, and the state aims to spend no more than 3% of its value during of an average year.

“Spending of oil revenues must be reduced out of concern for the economy and high inflation,” the finance ministry said in a statement late Sunday.

“Increased oil revenue spending would put additional upward pressure on inflation and the path of interest rates, which in turn could lead to higher unemployment.”

Costs related to hosting refugees, ongoing public construction projects, benefit payments and household electricity subsidies will increase by some 100 billion crowns ($9.78 billion) in 2023 compared to to the original budget for 2022, he said.

Government revenue from taxes and other revenue sources outside the oil industry will grow much less, leaving a gap of tens of billions of crowns, he added.

How this gap will be closed will be revealed when the government presents its 2023 budget on October 6, he added.

Norway’s centre-left minority government is to seek parliamentary support for its budget proposal from the Socialist Left Party, which favors tax hikes.

($1 = 10.2256 Norwegian kroner)

(Report by Terje Solsvik, edited by Gwladys Fouche)

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