Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with Norway

June 12, 2019

On June 10, 2019, the Executive Board of the International Monetary Fund (IMF) concluded its
2019 Article IV consultation

with Norway.

Norway’s economic momentum remains strong, supported by higher oil prices,
competitiveness gains stemming from the weaker krone, and a robust labor
market. After growing by 2.2 percent in 2018, mainland economic activity is
expected to accelerate further and rise by about 2.5 percent this year, before growth slows to 2.1 percent in 2020.

Risks to this outlook are broadly balanced. Global trade tensions persist,
as does uncertainty about European growth. On the domestic side, risks from
residential house price growth have abated, but not disappeared, while
valuations in commercial real estate (CRE) prices are growing strongly and
appear stretched in some segments. On the upside, resilient oil prices
could lead to stronger-than-expected oil-related investment and exports.

The 2019 budget deficit is likely to be mildly expansionary, following the
better-than-expected outturn (and related small contraction) last year.
Overall, the structural non-oil deficit is expected to be broadly unchanged
over the 2017–19 period. This contrasts with the previous upswing, during
which the non-oil deficit grew fast in tandem with the sovereign wealth
fund and related space under the fiscal rule. The tax reform continues to
shift taxation away from direct taxes toward less-distortionary indirect

With both headline and core inflation now above target, Norges Bank has
started its process of normalizing policy. The main policy rate has been
raised by 50 basis points since August last year and is now at 1 percent.
The central bank’s forward guidance suggests further rate hikes ahead.

Banks remain liquid, profitable, and well-capitalized. A new anti-money
laundering, financing of terrorism law approved in parliament gives the
Financial Supervisory Authority greater sanctioning powers against breaches
by supervised banks.

An expert commission has recently issued proposals for reforming sickness
and disability schemes, within a broader remit on how to raise employment
levels. The social partners will convene to discuss the commission’s

Executive Board Assessment


Executive Directors welcomed Norway’s solid economic performance, supported
by stronger terms of trade, competitiveness gains, and a robust labor
market. Despite the positive near-term outlook, Directors noted that Norway
faces a challenging external environment, as well as longer-term headwinds
from demographic pressures and a declining contribution from oil to the
economy. They encouraged the authorities to use the current favorable
environment to implement further reforms, which will be important to
sustaining prosperity, managing transition to a less oil dependent economy,
and increasing productivity.

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Directors commended the broadly neutral fiscal policy in recent years and
welcomed the move away from the earlier pro-cyclical fiscal policy stance.
They encouraged the authorities to target a modest consolidation next year
to minimize risks of overheating, be consistent with the ongoing monetary
policy normalization, and help build additional buffers to respond to
future shocks.

Directors noted that spending pressures from worsening demographics
together with slower growth of the sovereign wealth fund would reduce space
under the fiscal rule in the medium term, requiring expenditure savings or
new sources of revenue to accommodate new policy initiatives. They welcomed
the authorities’ strategies to address these issues and encouraged measures
to make the tax system more efficient, in particular, lowering tax
incentives on housing and broadening the VAT base. They also highlighted
the importance of reforming the sickness and disability schemes. Directors
noted that these measures may have to be offset with well targeted
transfers, to protect the most vulnerable.

Directors supported the ongoing normalization of monetary policy as it
strikes the right balance between containing inflation and minimizing risks
of a self-induced slowdown. They noted that faster tightening would also
risk appreciating the krone, compounding downward pressures on inflation.
Directors advised the authorities to stand ready to adjust the pace of
normalization if circumstances require.

Directors noted that despite recent slowdown in credit growth, household
debt continues to rise. In this context, they encouraged the authorities to
exercise caution against loosening mortgage regulations when these are
reviewed at end 2019, barring unexpected changes in the second half of the
year. Directors also noted that commercial real estate valuations (CRE)
appear stretched in some segments and pose increasing risks. While monetary
policy normalization should help restrain price growth in the sector, they
supported the planned increase in the counter-cyclical buffer to increase
resilience to CRE risks. Directors encouraged the authorities to close
existing data gaps on CRE.

Directors underscored that full compliance with the new AML/CFT framework
is paramount given the regional context. They welcomed the broadening of
the FSA’s sanctioning powers under the new law, as well as the increase in
budgetary resources for supervision of AML/CFT compliance.

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Noting the challenges arising from population aging and dwindling oil and
gas reserves, Directors called for enhancing both labor supply and overall
competitiveness. They considered reform of sickness and disability benefits
as the most pressing labor market reform. Directors underscored that
priority should be given to tighten eligibility and improve incentives to
work as well as to better education and training of beneficiaries and other
measures to boost their employment opportunities. They underscored the need
to carefully weigh the distributional consequences of these reforms.
Continued wage restraint is also needed to underpin competitiveness.

Norway: Selected Economic and Social Indicators,
Population (2018): 5.3 million
Per capita GDP (2018): US$ 81,848 Quota (3754.7 mil. SDR/0.78 percent of total)
Main products and exports: Oil, natural gas, fish
(primarily salmon)
Literacy: 100 percent
2018 2019 2020 2021 2022
Real economy (change in percent)
Real GDP 1/ 1.2 2.0 1.4 2.2 1.8
Real mainland GDP 1.1 2.0 2.2 2.5 2.1
Domestic demand 2.0 2.6 2.0 2.4 1.8
Unemployment rate (percent of labor force) 4.7 4.2 3.9 3.7 3.7
Output gap (mainland economy, -implies output below
-0.9 -0.6 -0.2 0.5 0.7
CPI (average) 3.6 1.9 2.8 2.3 1.7
Core inflation 3.1 1.4 1.5 1.9 1.9
Gross national saving (percent of GDP) 32.7 33.8 35.7 35.7 35.6
Gross domestic investment (percent of GDP) 28.7 28.2 27.6 28.3 28.6
Public finance
Central government
Non-oil balance (percent of mainland GDP) 2/ -7.7 -8.0 -7.5 -7.5 -7.0
Structural non-oil balance (percent of trend mainland
GDP) 3/
-7.4 -7.6 -7.2 -7.7 -7.7
Fiscal impulse 7.4 0.2 -0.4 0.5 0.0
in percent of Government Pension Fund Global 4/ -2.7 -2.9 -2.5 -2.9 -2.7
General government (percent of mainland GDP)
Overall balance 4.6 5.8 8.8 9.0 9.9
Net financial assets 326.1 350.9 329.4 346.1 348.4
of which: capital of Government Pension Fund Global
276.8 303.2 283.5 302.6 306.5
Money and credit (end of period, 12-month percent
Broad money, M2 5.1 6.0 5.3
Domestic credit, C2 4.6 6.4 4.8
Interest rates (year average, in percent)
Three-month interbank rate 1.1 0.9 1.1 1.6 2.1
Ten-year government bond yield 1.3 1.6 1.9 2.1 2.6
Balance of payments (percent of mainland GDP)
Current account balance 4.6 6.7 9.8 8.8 8.4
Current account balance (percent of GDP) 4.0 5.6 8.1 7.4 7.1
Exports of goods and services (volume change in
1.1 -0.2 -0.8 2.4 2.8
Imports of goods and services (volume change in
3.3 1.6 0.9 2.9 2.7
Terms of trade (change in percent) -9.9 4.9 1.1 0.8 -0.9
International reserves (end of period, in billions of
US dollars)
60.9 65.1 63.8 63.6 62.4
Crude Oil Price 42.8 52.8 68.3 59.2 59.0
Fund position
Holdings of currency (percent of quota) 93.9 93.5 88.0
Holdings of SDR (percent of allocation) 88.3 102.7 97.9
Quota (SDR millions) 3,755 3,755 3,755
Exchange rates (end of period)
Exchange rate regime Floating
Bilateral rate (NOK/USD), end-of-period 8.4 8.3 8.1
Real effective rate (2010=100) 86.6 87.4 87.4
Sources: Ministry of Finance, Norges Bank, Statistics
Norway, International Financial Statistics, United
Nations Development Programme, and Fund staff
1/ Based on market prices which include “taxes on
products, including VAT, less subsidies on products”.
2/ Projections based on the authorities’ revised
budget; excludes all oil-related revenues and
3/ The authorities’ key fiscal policy variable;
excludes oil-related revenue and expenditure, GPFG
income, as well as cyclical effects. Non-oil GDP trend
estimated by MOF.
4/ Over-the-cycle deficit target: 3 percent of
Government Pension Fund Global
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Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found


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