The world’s strongest economy falls into deficit

Norway posted a deficit in public finances in the second quarter of 2020 for the first time due to the coronavirus crisis. The country suffered the perfect storm with a historic drop in oil price, its primary wealth source. However, the gap in public accounts is practically insignificant for Norway. The country registered almost 29,000 million of a budget surplus in 2018.

Oil does not save the country from coronavirus

The deficit in public finances is estimated at 83,000 million Norwegian kroner, which is more than 9,000 million dollars. It happened because of a fall in tax collection and income from oil. Besides, the investments of the Norwegian sovereign fund, the largest in the world, decreased. Simultaneously, public spending increased to protect the economy, according to the National Statistics Office of Norway, SSB, report on Wednesday.

The statement pointed out that capital transfers and subsidies increased notably due to State measures to counteract the pandemic’s harmful effects. This includes the reduction in the tax on labor and an expected loss in guarantees and compensation to companies. 

The SSB warned that the figures are not yet final and that they can be revised. However, if the probable deficit is confirmed, it would be for the first time recorded since 1994.

Oil is a vital national resource of Norway

Between 2002 and 2019, Norway, the leading exporter of gas and oil in Western Europe, had an average surplus in public finances of 10.7% of gross domestic product (GDP). Meanwhile, in the second quarter, there was a fall of 10,3%. In 2008, the country registered a historical surplus of more than 85,000 million dollars, almost 20% of GDP.

Norway has been an important country for the oil and gas industry. The country produced more than 1,6 million barrels per day in 2019.

Concerns remain that Norway’s economy is depended on its oil industry even though the country had recovered fast from the oil price collapse in 2014. One of the main reasons for Norway’s economic prosperity is petroleum. Besides this, the country owns one of the largest reserves of natural gas. Oil is considered to be a vital national resource. It is the backbone of the Norwegian economy. 

The country is not a member of the OPEC, and it sets the commodity prices based on the current market. However, since the OPEC has a monopoly on global pricing, the country remains subject to the group’s decisions.