4 ms·
Interesting. Why do they choose to keep this money in a sovereign wealth fund instead of choosing to pay off their debt?
by harryh 10y ago
Interesting. Why do they choose to keep this money in a sovereign wealth fund instead of choosing to pay off their debt?
- vertex-four 10y agoLikely because their debt comes on better terms than their income from their fund. Or their debt is structured in such a way that they can't pay it off until some time in the future.
- Alupis 10y agoBecause the debt doesn't necessarily harm their economy, and the fund can be put to better use than huge lump sum payments of a debt that doesn't impact Norway.
- 0x0 10y agoFrom a random webpage http://www.nationaldebtclocks.org/debtclock/norway http://www.nationaldebtclocks.org/debtclock/norway - "NOTE The Norwegian central government is in a net asset position, i.e. the government’s total financial assets exceed the total debt. They borrow cheap to then re invest."
- morgante 10y agoBecause their return on investments in the fund should be higher than their debt interest.
- bkanber 10y agoThe Norwegian 10Y treasury bond has a coupon rate of 1.3% (lower than the US T-Note! suffice to say, very cheap). The wealth fund has been growing around 8% per year. Borrow money at a rate of 1.3%, reinvest it and make 8%. It's one of the golden rules of banking: if you can borrow money for cheap, do so.
- Dolores12 10y agoThe fund generated an annual return of 5.5 percent between 1 January 1998 and the end of the second quarter of 2016. After management costs and inflation, the annual return was 3.6 percent. https://www.nbim.no/en/the-fund/return-on-the-fund/ https://www.nbim.no/en/the-fund/return-on-the-fund/
- kagamine 10y agoBut does that not include a sharp dive during 2 recessions in Europe?
- stephen_g 10y agoBonds and other Government debt tends to be very inexpensive to service. Unless a country's debt levels are extremely excessive, and assuming that it expects its economy to grow, then there isn't much reason to ever pay down debt, just keep servicing it through to maturity. Remember that a country doesn't have to retire, so its debt is quite different than a household's.
- cmdkeen 10y agoSome debt is also a good thing for a country to operate - it's populace, especially their pension schemes, will want to buy government bonds.