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2005-09-07

Øke Norges hjelp til fattige land 

Reading economic news from Norway is like reading fairy-tales. Good therapy in moments of depression. In a post titled "Last Rich Soviet State?", Swedish ex-PM and blogger Carl Bildt relates a recent first-page headline in the Stavanger Aftenblad: "Norway risks drowning in money". Even the cautious Norwegian central bank has a hard time trying to describe "challenges ahead":
High oil prices have a different impact in Norway than in oil-importing countries. When oil prices increase, the value of Norway’s national wealth rises. The idea behind the Petroleum Fund is that the cash flow from an increase in oil prices should accrue to the Fund and be invested abroad and should not be included directly in the government budget. As a result, the increase in the cash flow will not immediately affect the domestic economy. The effect of higher oil prices will gradually be seen when the real return on the Fund measured in NOK increases. Thus, the government authorities will be able to budget a higher deficit in the years ahead. Likewise, a fall in oil prices will not have an immediate impact on the domestic economy, but result in a lower accumulation of foreign assets.

Even though the Petroleum Fund and the fiscal rule shield the Norwegian economy to a certain extent from fluctuations in the oil market, the Norwegian economy will still be affected by developments in oil prices. If changes in oil prices influence growth in the global economy, this will in turn impact Norwegian exports of traditional goods and services. Petroleum investment on the Norwegian continental shelf is another important channel. Fluctuating oil prices contribute to wide variations in petroleum investment. This has spillover effects on the mainland economy.

The value of the Petroleum Fund, measured as a percentage of GDP, will rise in the years ahead. On the other hand, Norway, like many other countries, is facing substantial fiscal challenges. The expected dependency ratio, i.e. the ratio of persons over the age of 67 to persons aged 20 to 66, will rise sharply in the years ahead. The National Insurance Scheme’s spending on old age and disability pensions, based on current social security rules, is increasing.

The return on the Petroleum Fund can only cover a small portion of the higher pension expenditure. According to Ministry of Finance calculations, funding needs equivalent to 6 per cent of GDP will still be uncovered in 2060 given an oil price of NOK 230 (2005 prices) or around USD 35 per barrel. Oil futures six to seven years ahead are now higher than this. If oil prices remain as high for the foreseeable future, the funding requirement will be somewhat lower. To base decisions on this, however, would be a very risky strategy.

Even though Norway’s petroleum wealth is substantial, it is our human resources that account for most of our national wealth. Even a small increase in the “return” on human capital might generate considerable gains. The return on this capital partly depends on our pension schemes and the application of social security rules. These should be designed in such a way that they provide incentives and opportunities to work. Labour market legislation must also promote production and employment.
Mind you, all these predictions are based on a longterm average oil price of USD 35 per barrel. One of many good things about Norway is its politics, and I think Bildt misses the point when he goes on to criticise the willingness of Norway's left-wing parties in the current election campaign - Bildt says a red-green coalition is likely - to promise significant spending increases.

As the leftist 'Sosialistisk Venstreparti' puts it in a 2-page document [NO] summarising its policy priorities:
SV vil dele godene mer rettferdig, både i Norge og i resten av verden. Norge må bidra mer for utvikling i fattige land. ... 10 milliarder kroner skal settes av til å hjelpe folk i nød.
..which I translate based on my knowledge of German as "SV wants to distribute the public goods with more justice, both in Norway and in the rest of the world. Norway must contribute more for the development of poor ['fattige'? not greasy I hope] countries. ... 10 billion kroner [1.4 billion euro] shall be set up to help peoples in need." Got to love that language.


2 comments:

Interestingly, BBC has a report from its correspondent Lars Bevanger in Norway, much in the same vein: "Norway's formula for a happy life"
 

Thank you, I appreciate the link.
 
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