Speech/statement | Date: 09/01/2014
There are always challenges in managing a nation's economy, not least when the natural resource base suddenly increases tremendously. History shows that the blessings of natural resources may turn into a curse for the countries involved. Securing a sound development of the mainland economy and enabling future generations to share in the benefits of the petroleum resources are key concerns for Norwegian economic policy.
There are always challenges in managing a nation's economy, not least when the natural resource base suddenly increases tremendously. History shows that the blessings of natural resources may turn into a curse for the countries involved. Securing a sound development of the mainland economy and enabling future generations to share in the benefits of the petroleum resources are key concerns for Norwegian economic policy. So far, we have managed reasonably well, and the figures look very different from Mr. Vitensberg's claims in his article in The Washington Times on December 25, 2013.
Public sector revenues from petroleum are large, variable and finite. They should also benefit future generations. The Government Pension Fund Global (GPFG) and the fiscal rule for the use of oil revenue address these challenges. The framework is designed to support a stable development of the Norwegian economy in both the short and long term. The Government Pension Fund Act stipulates that the entire public sector net cash flow from the petroleum industry should be transferred to the GPFG. The fiscal rule specifies that the transfers from the Fund back to the central government budget shall, over time, reflect the expected real return on the Fund, estimated at 4 per cent. This framework delinks the earning and spending of petroleum revenue, reducing the costs of future restructuring and the risk of a sharp decline in industries exposed to international competition.
The Fund helps us to convert a substantial, yet temporary and fluctuating income from the petroleum industry to more stable spending over public budgets. We may now conclude that Norway has managed the most intensive harvesting phase fairly successfully. At the end of 2012 Fund capital amounted to NOK 3 825 billion. Public sector net financial assets stood at NOK 4 871 billion (http://www.ssb.no/en/offentlig-sektor/statistikker/offogjeld) and Norway's total net foreign assets stood at NOK 2 905 billion (http://www.ssb.no/en/utenriksokonomi/statistikker/intinvpos/aar/2013-10-02). Mr. Vitenberg is correct in taking liabilities into account, but seems to have neglected other Norwegian foreign assets than the GPFG when calculating the nation's net foreign asset position.
A too high dependence on oil is a potential danger to a sound development in the Norwegian economy, as also Mr. Vitenberg points out. The transfer of petroleum resources to a diversified financial portfolio is one remedy. Another is to emphasize the development of the mainland economy in the formulation of fiscal policy. It is true that high labour costs are a challenge. However, the recommendation that the present spending of oil revenue should be multiplied, which Mr. Vitenberg refers to in his article, would only add to the trouble.
Norway's petroleum wealth presents particular challenges for fiscal policy in ensuring a stable economic development. Many countries have found that temporary large revenues from natural resource exploitation can produce strong, but relatively short-lived booms that are followed by difficult adjustments as production and revenues diminish. Their main mistake has been spending too much too quickly without taking account of the long-term consequences. Norway has set up a framework to avoid this fallacy.