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UPDATE 1-Norway govt to tap more oil cash in 2010 budget

Published 10/13/2009, 04:30 AM
Updated 10/13/2009, 04:33 AM
TGT
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* 2010 oil spending raised by 14.6 bln crowns to 148.5 bln

* Ups 2010 growth fcast to 2.1 pct from 0.75 pct in May

* Government says budget "slightly expansive"

(Adds more, details)

OSLO, Oct 13 (Reuters) - Norway's government unveiled on Tuesday a "slightly expansive" 2010 draft budget that aims to spend more of oil wealth next year compared to 2009 to help the economy regain speed after a mild recession.

The budget showed the structural deficit, a measure of how expansive the budget is, would increase by 0.5 percentage points in 2010. The government said the budget should be seen as "slightly expansive" for the economy.

The government, which won re-election in September, said the budget was lax because unemployment was still slated to rise.

To avoid overheating, Norway invests all of its oil and gas revenues in an offshore fund. In normal years, it spends only 4 percent of its value, but it has spent more in 2009 to avoid the worst of the global downturn.

"We're spending more oil cash than in a 'normal' year so that we can help the economy get back to normal speed faster than it would otherwise," a copy of the fiscal plan said.

It forecast growth in mainland gross domestic product, a measure which strips out offshore oil and gas, to increase to 2.1 percent in 2010 from 0.75 percent seen for next year in May. Norway's mainland GDP shrank for six months before unexpectedly growing 0.3 percent in April-June.

The budget put forward by the Labour-led coalition estimated the 2010 structural non-oil deficit at 148.5 billion Norwegian crowns ($26.35 billion), an increase of 14.6 billion from 2009.

This means spending 44.6 billion crowns extra from the oil fund compared to a "neutral year" for the economy, when it would spend about 4 percent of the oil revenues.

Norway runs large surpluses including petroleum revenues but deficits when oil and gas money is excluded. It invests the oil windfall into foreign stocks and bonds, but in "normal years" uses 4 percent of its wealth fund annually to plug budget holes.

When the fund's cash is taken into consideration, the budget of the world's number six oil exporter projected a 2010 surplus of 172 billion Norwegian crowns.

The centre-left coalition government in September won re-election on pledges to maintain its economic policy course. It has said it aims to maintain the limits on oil spending but first it must allow the economy to recover from recession.

Oil-rich Norway has lived through only a mild downturn during the global crisis, helped by large fiscal stimulus to keep activity up, unemployment low and record-low interest rates of 1.25 percent, down 4.5 percentage points from a year ago.

Norges Bank has signalled rates soon rise again as the economy regains steam, and most economists expect it to be the first among central banks to raise rates this month.

The government lowered its forecast for 2010 unemployment to 3.7 percent, down from 4.75 percent seen in May. Norway has among the lowest unemployment rates in Europe, which is currently around 3.0 percent.

Core inflation, a target which the central bank follows closely when setting rates and aims to keep around 2.5 percent in the medium term, was estimated at 1.5 percent in 2010.

($1=5.636 Norwegian Crown)

(Reporting by Oslo newsroom; Editing by Victoria Main)

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