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Ezequiel Cabezon and Christian Henn

340 percent of mainland GDP as of 2017, driven mainly by GPFG assets and the present value of remaining oil and gas deposits. 8. But, more surprisingly, Norway’s intertemporal financial net worth (IFNW) is negative . Non-oil fiscal deficits have been rising steadily over the past 15 years. While they were less than 2 percent of mainland GDP in the early 2000s, they now stand close to 8 percent of mainland GDP. The rise occurred during a period of positive aging trends—but aging costs will now start to mount. Therefore, in a passive baseline scenario wherein

International Monetary Fund. European Dept.

Context 1. Norway entered the Covid-19 crisis with ample policy buffers and steady growth . In 2019, robust mainland real GDP growth of 2.3 percent helped close the output gap, the current account was in surplus and the unemployment rate stood under 4 percent. Fiscal policy was in line with the fiscal rule and the balance of the sovereign wealth fund (GPFG) rose to USD1.2 trillion (3.3 times mainland GDP). Norges Bank hiked the policy rate to 1.5 percent during 2019, reflecting the strong economic backdrop and slightly above-target core inflation. Macro

Ezequiel Cabezon and Christian Henn
Based on a permanent income analysis, Gagnon (2018) has prominently suggested that Norway has saved too much, thereby free-riding on the rest of the world for demand. Our public sector balance sheet analysis comes to the opposite conclusion, chiefly because it also accounts for future aging costs. Unsurprisingly, we find that Norway’s current assets exceed its liabilities by some 340 percent of mainland GDP. But its nonoil fiscal deficits have grown very large (to almost 8 percent of mainland GDP) and aging pressures are only commencing. Therefore, Norway’s intertemporal financial net worth (IFNW) is negative, at about -240 percent of mainland GDP. As IFNW represents an intertemporal budget constraint, this implies that Norway’s savings are likely insufficient to address aging costs without additional fiscal action.
International Monetary Fund. European Dept.
This 2013 Article IV Consultation highlights that Norwegian economy has been performing well, with mainland GDP growing steadily. However, the continuing buildup of assets in the sovereign wealth fund and the increasing share of the mainland economy that is supplying goods and services to the oil sector are leading to competitiveness pressures in other industries exposed to international competition. The IMF staff report suggests that inflation is expected to be below target for some time and gradually rise to the target in the medium term.
International Monetary Fund. European Dept.

impediments to stronger long-term growth stemming primarily from worsening demographics, highlighting the need to boost labor force participation and improve spending efficiency, while building larger buffers. Authorities’ Views 9. The authorities broadly shared staff’s assessment. They expect strong mainland GDP growth to persist in the short term despite tighter global and domestic conditions and supply bottlenecks. They noted that the wage bargaining system has a disciplining role that makes a wage-inflation spiral less likely, however a tighter fiscal-monetary mix