Norway Buys Kroner for First Time From Oil Revenue Account

By Saleha Mohsin

Photographer: Kristian Helgesen/Bloomberg

Norway receives oil revenue in two ways. It gets income in kroner from taxes on... Read More

Norway will for the first time start converting some of the oil revenue it gets in foreign currency into kroner to cover increasing budget needs.
The Nordic country will buy 250 million in kroner a day ($39 million) in October, the Oslo-based central bank said today. It last purchased foreign currency a year ago and flagged earlier this year that it may need to start buying its own currency. The krone jumped 0.7 percent against the dollar.
“The amount that they will buy is even bigger than we expected,” said Kjersti Haugland, an analyst at DNB ASA. “It could imply that the spending of oil money has turned out to be actually bigger than budgeted.”
Krone buying marks an historic shift for western Europe’s biggest oil and gas exporter, which has built an $860 billion sovereign wealth fund from its
petroleum revenue over the past two decades. Slowing production and rising budget spending are now forcing the country to tap its foreign currency revenue.
Norway receives oil revenue in two ways. It gets income in kroner from taxes on production and dividends from Statoil ASA (STL), in which the state holds a 67 percent stake. It also receives foreign currency from its direct stake in offshore production from Petoro AS, a state-owned company.
The krone income had historically been enough to cover budget needs, meaning the central bank, which manages the revenue, now needs to siphon off foreign currency revenue before it’s passed on to the wealth fund.

Stigma Effect

The krone climbed 0.7 percent to 8.1238 per euro as of 10:29 a.m. It gained 0.6 percent to 6.4112 per dollar.
The krone’s strengthening is “more related to a stigma-effect -- that a central bank is buying its own currency,” Nils Kristian Knudsen, currency strategist at Svenska Handelsbanken AB, said by phone. “The effect will last for some time but it will gradually go back” to where it started, he said.
The purchase represents “a complete reversal of the central bank’s previous behavior,” Karl Steiner, senior currency strategist at SEB, wrote in a note before the announcement. “It historically has acted as a net market seller of krone against foreign currencies in order to transfer foreign currency to the government petroleum fund.”

Budget Spending

While the government has limited spending of oil revenue to 4 percent of the fund to plug budget deficits, its growing size is giving politicians more cash to spend every year. The Conservative-led minority administration in its May revised budget estimated it will use a record 140.9 billion kroner of Norway’s oil revenue to fill budget gaps. That was equal to about 2.8 percent of the nation’s wealth fund. Norwegian governments have kept oil money spending below the rule since 2009.
The central bank flagged a potential shift earlier this year, saying in May that it won’t sell kroner in the “coming months” and will begin buying its currency “somewhat further ahead.”
As recently as May last year it was buying 300 million kroner a day in foreign currency.