Norway taps its oil fund for the first time

Norway taps oil fund for the first time

The Norwegian government has defended its decision to withdraw money from the country's $819 billion dollar sovereign wealth fund.

In January the fund transferred $781 million dollars to the government -- the first such transfer since the fund was set up in 1996, according to the country's Ministry of Finance.

Norway's rainy-day pot of cash is the largest sovereign wealth fund in the world and is bolstered by revenue from sales of oil.

"It is, however, not surprising that oil revenues eventually would become lower than the real return on the Fund, resulting in a net transfer from the fund to the budget," confirmed state secretary Pall Bjørnestad in a statement to CNBC Monday.

Fiscal rules allow the government to draw down up to 4 percent each year, but January's was the first ever withdrawal.

Bjørnestad told CNBC that even with withdrawals, the oil fund will continue to get larger.

"As long as spending of oil revenues is within the expected real return on the Fund, the Fund will over time not be tapped in real terms," he said.

The administrators, Norges Bank, say on its website that the fund is invested in 9,000 companies across 75 countries.

Norway's sovereign wealth fund generated an annual return of 3.8 percent between 1998 and 2014, after accounting for management costs and inflation.

The savings are seen as vital to Norway for when oil runs out as well as a looming pension deficit as the population ages.

Sluggish Economy

Prime Minister Erna Solberg raised the possibility of a withdrawal during her budget speech last October as falling oil prices have slowed the economy.

The additional cash is needed for Norway's economy as income receipts from oil have plummeted.

Public spending in the country is the third largest in the OECD, accounting for almost 60 percent of GDP.

And Statistics Norway figures show unemployment in the country stood at 4.5 percent in December, trending higher than the long-term average.

On Monday, Solberg said the country must avoid a strengthening currency, describing it to Reuters as one of Norway's "most important challenges."

Norway's key policy rate stands at 0.75 percent but analysts are predicting the country will reduce rates at the next meeting on 17 March.