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OSLO, Aug 29 (Reuters) - Norway’s central bank will in the future buy crowns for the government to use for its budget spending, reversing its past practice of selling the Norwegian currency, the central bank said on Friday.
The bank has in the past bought foreign currency on the market, converting the country’s vast oil tax income and giving the cash to its $890 billion sovereign wealth fund -- commonly known as the oil fund -- so it could buy stocks, bonds and real estate abroad.
But Norway’s local currency tax income will no longer cover budget spending and the government will have to dip into the foreign currency tax income collected by Petoro, the holding firm that manages the state’s direct financial interests (SDFI) in oil and gas licences.
The central bank will stay off the foreign exchange market in September.
“Somewhat further ahead, the taxes in Norwegian crowns will not be sufficient to cover the spending of petroleum revenues,” the bank said in a statement.
“In the same way that Norges Bank has purchased foreign exchange for the (oil fund), the bank will be selling SDFI revenues in foreign currency on behalf of the government to cover the non-oil deficit on the central government budget,” the bank said.
Norway’s government has been spending more and more of its saved up oil wealth even though the spending, as a percentage of the oil fund, it falling, as the fund is growing rapidly.
The state is allowed to spend up to 4 percent of the money saved up in the fund each year but the actual spending will be below 3 percent, even as it reaches a record high in nominal terms. (Reporting by Balazs Koranyi; Editing by Toby Chopra)