U.S. Markets

Norway says made first withdrawal from oil fund in January

Norway's Finance Minister Siv Jensen speaks to the media next to Prime Minister Erna Solberg (R) after a meeting with the central bank governor and others to discuss Norway's economic situation after the deep plunge in the oil price, in Oslo January 25, 2016. REUTERS/Haakon Mosvold Larsen/NTB Scanpix

OSLO (Reuters) - With its economy weakening, Norway’s government made its first withdrawal from the country’s $826 billion sovereign wealth fund in January, 20 years after first depositing cash from its vast oil sector into the account, the finance ministry said.

The finance ministry did not confirm details of the withdrawal, but newspaper Dagens Naeringsliv said 6.7 billion Norwegian crowns ($780 million) had been extracted to pay for public spending.

The government, led by Prime Minister Erna Solberg of the Conservatives and Finance Minister Siv Jensen of the smaller Progress Party, had flagged in its October budget that it might make the first withdrawal from the rainy-day fund this year.

Norway has sharply raised its annual budget spending to counter an economic downturn triggered by falling oil industry investments as the price of North Sea crude has fallen by 70 percent since mid-2014.

Managed by a unit of the Norwegian central bank the wealth fund - called the Government Pension Fund Global - is invested abroad in stocks, bonds and real estate with the purpose of sharing the wealth from oil and gas production with future generations.

Parliament’s fiscal rule says governments can spend the fund’s inflation-adjusted return, expected to average four percent per year, but until recently the state’s income from taxes and day-to-day oil output made withdrawals unnecessary.

“It should come as no big surprise that oil revenues at some point would fall,” Deputy Finance Minister Paal Bjoernestad told Reuters.

“When the fiscal policy framework was set up ... the purpose was to transform a large, temporary revenue stream from oil and gas extraction into a permanent source of income to the state in the form of returns from a fund,” he added.

($1 = 8.5759 Norwegian crowns)

Reporting by Terje Solsvik; Editing by Toby Chopra