The Organisation for Economic Co-operation and Development (OECD) has presented its economic survey of Norway for 2010, in which a further tightening of the Norwegian economy is recommended. (Photo: Finance Minister Sigbjørn Johnsen)
Assuming that the economic recovery and growth in the economy is continuing, it is the opnion of the OECD that time has come for a reduction in the use of public money:
- The Norwegian economy has been particularly resilient during the financial crisis with a relatively shallow recession and moderate increase in unemployment. As Norway moves into what is projected to be a strong recovery, the authorities need to plan how to unwind the extraordinary measures that were taken to confront the crisis. Interest rates have already been raised, the special liquidity measures have been progressively withdrawn and monetary policy will need to tighten further over the next two years. The appropriate pace of tightening will primarily depend on developments of the Norwegian economy and the outlook for inflation. Policymakers should also continue to pay attention to developments in the property market, which are fuelled by low interest rates, and trends in the foreign-exchange market, which could react to widening interest-rate differentials. An early consolidation of fiscal policy would reduce the need for monetary tightening and the related risk of exchange-rate appreciation, the report states.
The OECD report states that although its estimates are surrounded with uncertainty and rely on a number of stylized assumptions, taken at face value they imply that major policy changes are required, so as to avoid an undesirable increase in the tax pressure.
- Completing the pension reform and reforming the disability and sickness leave schemes, which are both crucial for achieving strong labour participation in the future, would make important contributions. In addition, this chapter argues that there is a large unexploited potential for providing effective public services at lower costs, notably in the areas of municipal services, such as education, health but also in tax expenditures, according tot he OECD.
Finance Minister Sigbjørn Johnsen says that OECD's assessment of the Norwegian economy serves to stimulate the debate on important economic policy isues:
- As noted by OECD, the Norwegian economy has been relatively mildly affected by the financial crisis and the contraction in world economic activity, and unemployment is low in an international perspective. Fiscal and monetary stimuli, as well as the measures taken towards the financial sector, have contributed to the favourable development. OECD emphasises that exit strategies are now a highly relevant issue for us. In fact, several of the measures to stabilize the financial markets have been withdrawn, and Norges Bank has increased the interest rate. The Government remains fully committed to bringing fiscal policy back to the 4-per cent path, in line with our fiscal policy framework", says finance minister Sigbjørn Johnsen.