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Withdrawals from the Government Pension Fund Global and potential trade-offs

We outline a simulation model of the Norwegian economy and the Government Pension Fund Global. We explore the trade-off between spending from the fund in line with expected returns, and spending counter-cyclically in Norway. We analyse the cyclical properties and sustainability of a range of alternative rules for guiding withdrawals from the fund.

23 August 2023


  • The Norwegian fiscal policy framework describes a spending rule that guides withdrawals from the Government Pension Fund Global (GPFG). Withdrawals are guided by the expected return on the fund, while also accommodating counter-cyclical fiscal deficits in Norway. In recent years, these withdrawals have financed growing fiscal deficits and a significant proportion of total fiscal expenditure.
  • In this note, we extend an asset price simulation model presented in Discussion Note #1|2023 to include the Norwegian economy. The extended model includes equity and fixed income returns, the Norwegian fiscal budget, the Norwegian Krone exchange rate, and petroleum revenues. We simulate the evolution of GPFG and the Norwegian fiscal budget given today’s level of expected returns and fiscal deficits. We generate distributions of the real value of the fund and paths for fund withdrawals, based on different spending rules.
  • We use the model to understand trade-offs when spending from the fund, over short and long horizons. We highlight a long-term trade-off between spending sustainably and spending cyclically from the fund. Sustainable fund withdrawals need to be set in line with expected returns, but this can imply deficit reductions during economic downturns in Norway. On the other hand, when spending counter-cyclically in response to downturns, the probability of depleting the real value of the fund grows over time. 
  • We analyse commonly proposed rules for guiding fund withdrawals, such as spending cash flows the fund generates, or smoothing spending over time. These rules tend to stabilise spending and achieve a reasonable level of fund preservation, but imply spending patterns that do not align with cyclical fiscal spending needs. 
  • We outline a rule that attempts to strike a balance between spending cyclically and sustainably. This rule sets withdrawals directly in line with cyclical spending, but targets reductions in the fiscal deficit over time. These gradual reductions in deficits help to improve the distribution of fund over the longer term, and can offset the increased risk of depletion associated with counter-cyclical spending.

Download the discussion note (pdf)