GAPP Principle 3

Where the SWF’s activities have significant direct domestic macroeconomic implications, those activities should be closely coordinated with the domestic fiscal and monetary authorities, so as to ensure consistency with the overall macroeconomic policies.

Status: Implemented

The income of the GPFG and the process for funding and withdrawal are outlined in the Government Pension Fund Act. Income of the Fund consists of the net cash flow from petroleum activities transferred from the central government budget, net financial transactions relating to petroleum activities and the return on the Fund’s investment, net of costs.

The capital in the GPFG may only be used for transfers to the central government budget by resolution of the Norwegian Parliament. Such transfers cover the oil-adjusted budget deficit. There is broad consensus in the Norwegian Parliament that the spending from the fund over time shall be equal to the expected real rate of return on the Fund (referred as a fiscal policy guideline). Economic policy is based on this fiscal policy guideline. The guideline is flexible, allowing for government spending to be contingent upon prevailing economic conditions.

The fiscal policy guideline supports preservation of wealth over time, thus serving to safeguard welfare for future generations. Whilst the capital of the GPFG can be spent only once, the real return may fund a permanently higher level of government expenditure. The fiscal policy guideline supports the longevity of the Fund.

The GPFG is invested outside of Norway in foreign currency only. The capital of the Fund is not earmarked for specific purposes. The allocation of capital to the Fund forms part of a transparent and integrated budget process. The Government Pension Fund Act states that the central government shall not fund central government budget expenditure by borrowing if there is capital in the Fund. As long as the State does not accumulate debt by borrowing to fund expenditure, accrual of capital in the Fund reflects true financial savings on part of the State.

Sources: Government Pension Fund Act, Ministry of Finance’s website.