News Column

Norway : Foreign exchange for the Government Pension Fund Global

August 1, 2014



The Norwegian government receives substantial revenues from petroleum activities, both as revenues in NOK from oil taxes and revenues in foreign currency from the government's own petroleum activities via the State's Direct Financial Interest (SDFI). The government spends a portion of total petroleum revenues every year via the central government budget. The remainder is transferred to the Government Pension Fund Global (GPFG) and is invested in foreign securities.

In recent years, the government's net revenues from the petroleum sector have declined somewhat. At the same time, slightly more petroleum revenues have been spent each year over the central government budget in line with the fiscal rule. As a result, the transfers to the GPFG have shown a decline. As gas and oil resources are depleted, it must be expected that the government's revenues from petroleum activities will decline. The fiscal rule has been designed to allow the real return on the GPFG to finance the structural non-oil fiscal deficit when petroleum revenues are no longer sufficient to cover the fiscal deficit.

Norges Bank makes the transfers to the GPFG on behalf of the government. Transfers take place each month in foreign currency. Norges Bank primarily procures the necessary foreign exchange by purchasing foreign exchange from the SDFI (the State's Direct Financial Interest). If additional foreign exchange is needed to cover the monthly transfers, Norges Bank purchases the remaining amount in the market. If foreign exchange from the SDFI exceeds the transfers to the GPFG, Norges Bank sells the surplus amount in the market.

The SDFI s foreign currency revenues are transferred every day via a foreign exchange portfolio in Norges Bank called the petroleum buffer , where they accumulate prior to final transfer to the GPFG once a month. Oil and gas companies pay oil tax in NOK and exchange their revenue for NOK before payment takes place. Dividend from Statoil is also paid in NOK. These payments of oil taxes and dividend to the Government, less the structural non-oil budget deficit (including the SDFI s investment and operating expenses), are transferred to the GPFG. Until 2014, Norges Bank has purchased foreign exchange equal to this NOK surplus . Thus, taxes in NOK from the oil and gas companies have been used to finance the non-oil budget deficit and to purchase foreign exchange for the GPFG. Somewhat further ahead, the taxes in NOK will not be sufficient to cover the spending of petroleum revenues. As a consequence, the government will additionally have to use some of the SDFI's revenues in foreign currency to cover spending. In the same way that Norges Bank has purchased foreign exchange to the GPFG, the Bank will be selling SDFI revenues in foreign currency on behalf of the government budget.


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Source: TendersInfo (India)


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