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PREVIEW-Norway to tighten revised 2010 budget

WHAT: Norway's 2010 budget revision WHEN: May 11, 0815 GMT REUTERS FORECASTS: The Norwegian government is expected to tighten its 2010 budget in its mid-year revision to a structural non-oil deficit of 125-135 billion crowns ($21.2-22.9 billion) from 148.5 billion set in October, according to analysts polled by Reuters. FACTORS TO WATCH Analysts said that the tightening results from an upward revision in tax revenues, which retroactively narrowed last year's non-oil deficit to 109.96 billion from an earlier 129.9 billion in 2009 crowns, according to data released on April 30. These higher tax inflows are expected to continue in 2010. "The tightening will result from more tax inflows being registered as structural," said Knut Anton Mork, chief economist at Handelsbanken. "The government is likely to add spending in infrastructure and maintenance (of public buildings)." Norway runs huge budget surpluses including revenue from oil and gas activities but structural deficits without the oil cash, which is mostly siphoned away to an offshore investment fund to prevent the Norwegian economy from overheating. Analysts say they will be looking for signals about when Norway can again lower its spending of oil cash to 4 percent of the value of its offshore wealth fund, now worth $458 billion. Norway breached the oil spending rule in 2009 as it unveiled fiscal stimulus to keep some air in the North Sea state's economy during the global crisis. "We think they will be back at the oil rule in 2013, maybe even before that," said DnB NOR Markets analyst Kyrre Aamdal. "The budget will tighten most in 2012 because we have a municipal election in 2011." Norges Bank has said it expects the government to return to the oil rule in 2012 or 2013 at the latest. The OECD and IMF have also cautioned Norway on overly loose budgets. MARKET IMPACT: The Norwegian markets have in past days been mostly reacting to foreign factors, such as the eurozone rescue package and before that a wild swing on Wall St., so analysts are cautious about predicting specific market reaction to the revision. "Normally, these revisions don't have much impact on the market," said Katrine Godding Boye, analyst at Nordea Markets. Analysts said that a much looser than expected revised budget could push up the crown if it piled pressure on the central bank to continue to increase borrowing costs. (Reporting by Camilla Bergsli and Wojciech Moskwa) ($1=5.897 Norwegian Crown) Keywords: NORWAY BUDGET/ (+47 22 42 50 41, oslo.newsroom@reuters.com) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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