Norges Bank

Norges Bank’s foreign exchange transactions on behalf of the government

The Norwegian government receives revenues in both NOK and foreign currency from petroleum activities. Some of these revenues are used to finance a planned central government budget deficit. Norges Bank carries out the necessary foreign exchange transactions associated with petroleum revenue spending. These foreign exchange transactions are planned and smoothed over the year and are pre-announced each month.

Every year the government uses revenues from petroleum activities to finance a planned central government budget deficit, referred to as the non-oil budget deficit. This means that the central government budget is set up with a deficit with oil revenues excluded, and all government revenues from the petroleum sector are transferred for accounting purposes to the Government Pension Fund Global (GPFG). Subsequently, the deficit is financed by reversing funds from the GPFG. Petroleum revenue spending is governed by a "fiscal rule", according to which over time, oil revenue spending shall equal the expected real return on the GPFG, which is estimated at 3 percent [1].

Current revenues from petroleum activities are generally referred to as the government's net cash flow. The government receives NOK revenues from oil taxes and dividend from Equinor and foreign currency revenues from the government's own petroleum activities via the State's Direct Financial Interest (SDFI). In addition, the government earns substantial income in the form of interest and dividends from the GPFG. Since the capital in the GPFG is exclusively invested in instruments in foreign currency, the return on the GPFG is also in foreign currency.

In line with the fiscal rule, this inflow is to be saved in the GPFG, while funds are withdrawn from the GPFG to finance the structural non-oil budget deficit. The revenue and income streams are in both NOK and foreign currency, and they are spent in NOK via the government budget or saved in foreign currency in the GPFG. Norges Bank has been tasked by the Ministry of Finance to carry out the necessary currency transactions associated with the petroleum fund mechanism [2], to ensure enough NOK to spend and/or enough foreign exchange to transfer to the GPFG.

Until 2014, the revenues in NOK from petroleum activities exceeded 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 1). 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 the end of 2014 up to and including 2021, the non-oil budget deficit exceeded the revenues in NOK from petroleum activities, and some of the government's foreign currency revenue had to be converted to NOK in order to be spent via the budget (Charts 2 and 3).

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 1

* The red columns illustrate cash flows in foreign currency and the blue columns cash flows in NOK.

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

* The red columns illustrate cash flows in foreign currency and the blue columns cash flows in NOK.

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

Chart 3

* The red columns illustrate cash flows in foreign currency and the blue columns cash flows in NOK.

Norges Bank's foreign exchange transactions are planned and smoothed over the year and pre-announced in a press release each month so that market operators know the amounts to be converted.

These foreign exchange transactions are managed in a separate foreign exchange portfolio called the "petroleum buffer portfolio" (PBP). The 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 or from 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.

Quarterly inflows into and outflows from the petroleum buffer portfolio.*In millions NOK.

  Foreign exchange purchases from the SDFI Foreign exchange purchases in the market Transferred to/from the GPFG Market value at end of quarter**
2024 Q3 74 373 26 400 -99 000 54 193
2024 Q2 70 793 28 800 -91 600 51 723
2024 Q1 77 426 21 350 -96 168 44 308
2023 Q4 79 705 72 600 -176 900 37 691
2023 Q3 66 920 67 100 -139 000 63 320
2023 Q2 84 558 79 198 -171 300 69 565
2023 Q1 141 250 110 112 -217 274 71 303
2022 Q4 149 419 191 194 -423 100 31 966
2022 Q3 196 040 143 048 -306 000 124 550
2022 Q2 145 592 105 585 -215 200 76 327
2022 Q1 136 026 -5 253 -140 536 34 302
2021 Q4 109 557 -45 478 -74 824 46 842
2021 Q3 59 402 -112 207 52 000 57 241
2021 Q2 38 510 -104 041 69 000 57 299
2021 Q1 38 329 -87 381 83 305 53 690
2020 Q4 27 366 -66 666 25 200 20 025
2020 Q3 21 419 -143 537 105 000 36 375
2020 Q2 18 363 -124 205 105 000 53 368
2020 Q1 37 645 -42 998 66 782 57 640
2019 Q4 31 256 -37 792 -9 600 -3 492
2019 Q3 29 211 -39 499 5 200 12 861
2019 Q2 37 499 -34 208 -5 700 17 230
2019 Q1 44 432 -29 298 -3 256 19 592
2018 Q4 47 664 -21 554 -28 900 7 800
2018 Q3 42 118 -36 012 -12 450 9 907
2018 Q2 34 541 -46 953 1 550 16 159
2018 Q1 43 956  -52 988  10 728  26 471 
2017 Q4 36 279 -38 520 14 400 25 300
2017 Q3 29 372 -51 034 10 400 12 892
2017 Q2 35 790 -48 482 16 300 25 185
2017 Q1 39 098 -61 568 23 431 21 765
2016 Q4 28 927 -49 511 27 000 20 670
2016 Q3 26 158 -59 395 29 500 14 067
2016 Q2 29 712 -55 787 24 000 18 205
2016 Q1 33 572 -46 007 24 733 20 581
2015 Q4 38 940 -35 502 -13 000 8 665
2015 Q3 33 957 -46 211 -12 000 18 091
2015 Q2 37 540 -40 622 -12 000 39 839
2015 Q1 45 624 -39 881 -5 498 55 367
2014 Q4 49 399 -13 757  -25 100 54 252
2014 Q3 36 829 0 -36 500 37 344
2014 Q2 45 590 0 -44 300 36 591
2014 Q1 57 688 0 -41 211 34 172
 2013 Q4 48 233  2 299  -61 900  18 015 
2013 Q3 47 625 11 107 -58 500 29 021
2013 Q2 49 213 16 008 -58 400 28 226

*A positive number indicates a net inflow into and a negative number a net outflow from the petroleum buffer portfolio.

**Market value at the end of the quarter deviates somewhat from net cash flow because market values change over the course of the month. The market value may deviate from accounting values.

Holdings and inflows into the buffer portfolio are published in the quarterly report on the management of the Bank's foreign exchange reserves.

Footnotes:

  1. 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 3 percent.
  2. The petroleum fund mechanism is the system that channels government revenues from petroleum activities on the Norwegian continental shelf to spending via the central government budget and saving in the GPFG, with the capital in the GPFG being exclusively invested in instruments in foreign currency.

For more information about how Norges Bank estimates the necessary foreign exchange transactions and the use of the PBP, see:

Edited 30 March 2023 13:00

See also

Edited 30 March 2023 13:00