Source: http://www.norges-bank.no/en/Liquidity-and-markets/Foreign-exchange-purchases-for-GPFG/
Timestamp: 2017-05-23 10:48:56
Document Index: 51985797

Matched Legal Cases: ['art 1', 'art 1', 'art 1', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2', 'art 2']

Liquidity and markets Norges Bank’s foreign...
In recent years, the government's net revenues from the petroleum sector have declined. At the same time, more petroleum revenues have been spent each year over the central government budget in line with the fiscal rule[1]. As illustrated in Chart 1, the transfers to the GPFG have declined since 2012. As gas and oil resources are depleted, it must be expected that the government's revenues from petroleum activities will decline further. The fiscal rule has been designed to allow the real return on the GPFG to finance the non-oil fiscal deficit when petroleum revenues are no longer sufficient to finance the fiscal deficit. Beginning in 2016, the government's revenues from the petroleum sector have not been sufficient to finance the non-oil deficit, and some of the return on the GPFG has been transferred to be spent over the central government budget (Chart 1).
Chart 1. Key figures from the central government accounts 2011-2015 and the central government budget for 2016. In billions of NOK.
Norges Bank has been tasked by the Ministry of Finance with the responsibility for undertaking the necessary conversions of foreign exchange associated with the petroleum fund mechanism[2]. The petroleum fund mechanism is illustrated in Chart 2. The SDFI's foreign currency revenues are transferred on an ongoing basis via a foreign exchange portfolio in Norges Bank called the "petroleum buffer"[3]. Transfers to and from the GPFG take place on the last business day of the month. Oil and gas companies pay oil tax in NOK and exchange their revenue for NOK before payment takes place.[4],[5] Dividend from Statoil is also paid in NOK.
Until 2014, revenues in NOK from petroleum activities were larger than the non-oil deficit. Norges Bank therefore sold NOK and purchased foreign exchange equal to the difference and transferred that amount of foreign exchange to the GPFG (Chart 2.1). Taxes in NOK from the oil and gas companies were then used to finance the non-oil budget deficit and to purchase foreign exchange for the GPFG. Through most of 2014, the government's revenues in NOK were approximately as large as the non-oil budget deficit, and Norges Bank did not carry out any foreign exchange transactions on behalf of the government. From October 2014, the taxes in NOK were no longer sufficient to finance the spending of petroleum revenues, and the government had to draw on some of the SDFI's revenues in foreign currency in addition (Chart 2.2). Since 2016, the non-oil budget deficit has exceeded the government's net cash flow from petroleum activities in both NOK and foreign currency. This difference has been covered by a transfer of foreign exchange from the GPFG. To finance the non-oil budget deficit, Norges Bank has therefore sold all the revenue in foreign currency from the SDFI, in addition to the foreign exchange transfers from the GPFG (Chart 2.3).
The charts below show the petroleum fund mechanism.*
Chart 2.1 The government's revenues in NOK from petroleum activities are higher than the non-oil budget deficit = Norges Bank sells NOK and purchases foreign exchange for the GPFG
Chart 2.2 The government's revenues in NOK from petroleum activities are lower than the non-oil budget deficit = Norges Bank purchases NOK and sells foreign exchange from the SDFI
Chart 2.3 The government's revenues in NOK and foreign currency from petroleum activities are lower than the non-oil budget deficit = Norges Bank purchases NOK and foreign exchange from the GPFG and SDFI
See Economic Commentaries 2/2014 for further information about the petroleum fund mechanism and Norges Bank’s sale of foreign exchange from the SDFI.
Norges Bank's foreign exchange transactions associated with the GPFG are planned and smoothed over the year and pre-announced each month so that market operators know the amounts to be converted.
The petroleum buffer portfolio (PBP) allows Norges Bank's foreign exchange transactions to be smoothed over the year despite variations in oil taxes, SDFI foreign exchange revenues and changes in monthly transfers to the GPFG. The estimates for government revenues from the petroleum sector and the non-oil budget deficit can change considerably through the year. The changes will influence the transfers to the GPFG and Norges Bank's foreign exchange transactions for the GPFG. This will also affect the size of the PBP. The PBP was larger than necessary at the end of 2014 because the transfers to the GPFG were for a period smaller than expected. Norges Bank therefore reduced the size of the PBP through 2015 by selling foreign exchange in the market.
Foreign exchange purchases from the SDFI
Foreign exchange purchases in the market
Transferred to/from the GPFG
Market value at end of quarter**
-61 568
-49 511
-59 395
-55 787
-46 007
-46 211
-40 622
-39 881
-13 757 -25 100
-41 211
48 233 2 299 -61 900 18 015 2013 Q3
The fiscal rule states that over time, the structural non-oil deficit on the central government budget shall not exceed the real return on the capital in the GPFG, which is estimated at 4 percent.
Transfers are made in practice as follows: Norges Bank purchases SDFI's gross foreign exchange revenues and pays with NOK, which is transferred to government's account in Norges Bank. The SDFI's operating and investment expenses are appropriated via the central government budget, and are financed primarily by drawing on the government's account with Norges Bank.
Most of oil and gas companies' net income is transferred to the government in the form of taxes. Oil and gas companies' profits after tax represent only a small portion of income. Oil and gas companies have substantial gross revenues in foreign currency and gross expenses in NOK, which entail an exchange need in addition to tax payments, but this is not a part of the exchange of foreign currency associated with the petroleum fund mechanism.
Amounts of oil tax payable by oil and gas companies are transferred from these companies' accounts in Norwegian banks to the government's account with Norges Bank. Oil tax is payable six times a year: 1 February, 1 April, 1 June, 1 August, 1 October and 1 December. Dividend payment from Statoil is a direct transfer in NOK from Statoil's account in one of the Norwegian banks to the government account with Norges Bank.
- 900**
* Up to and including 11 December 2015** Up to and including 16 December 2016
Published 12 May 2017 10:00