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In line with the fiscal rule, this inflow is to be saved in the GPFG, while funds are withdrawn from the GPFG to finance the structural non-oil budget deficit.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
* 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
* 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
* 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** | |
| 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.
Holdings and inflows into the buffer portfolio are published in the quarterly report on the management of the Bank's foreign exchange reserves.
Footnotes:
- 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.
- 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:
- The petroleum fund mechanism and movements in the petroleum buffer portfolio (PBP) (Economic Commentaries 2/2017)
- The petroleum fund mechanism and Norges Bank's foreign exchange transactions (Economic Commentaries 1/2016)