The Norwegian economy is performing well, generating inclusive growth, strong social mobility and low unemployment. But to ensure future prosperity, Norway must continue with growth-enhancing reforms while ensuring financial stability, according to the OECD’s latest Economic Survey of Norway. General Angel Gurría and Norway’s Finance Minister Siv Jensen, highlights how appropriate use of wealth from petroleum resources and counter-cyclical monetary policy insulated Norway from the worst of the financial crisis-induced recession and put it on a sound footing for recovery.
“Norway’s prosperous and well-managed economy is offering admirable levels of economic and social well-being to its citizens,” Mr Gurría said during the launch. “While petroleum resources offera huge advantage, it is not always easy to manage such wealth and keep the rest of the economy in balance. Norway’s Pension Fund helps protect the economy from the vagaries of commodity prices, spreads resource wealth across generations, and offers a roadmap for other countries seeking to maximise returns from their endowment of natural resources.”
The Survey discusses the challenges Norway faces in the years ahead. It recognizes the country’s determination to strengthen financial stability through the use of new policy tools to help policymakers prevent and manage financial crises, notably housing market-related risks. The OECD recommends continuing efforts to address the financial vulnerabilities resulting from high household indebtedness at floating interest rates, through further action on loan-to-value ratios and stress-testing of borrowers’ capacity to service debts.
The OECD says Norway should aim for a gradual reduction in the level of taxation, principally by constraining the growth of public spending to below that of national income. Norway can also seek to reduce distortions created by the tax system, notably those that offer advantages to owner-occupied housing.
Improving the efficiency of public spending is also important, particularly in new transport investments, where the focus should be primarily on cost efficiency in project choice, construction and maintenance, the OECD said.
Norway should consider a longer-term policy of keeping its non-petroleum budget deficit well below the 4% of GDP guideline in view of the stronger-than-expected increase in the assets of the Pension Fund, uncertainties in the future rate of return on the Fund, pressure of demand in the economy and fiscal challenges due to ageing.
The OECD suggests Norway do more to promote entrepreneurship, which offers a means of boosting productivity and supporting growth in living standards as petroleum production declines. Public support for innovation and strong competition policy will be key (OECD).