Head of Norway's Central Bank demands that the government does not use any more oil money. - We have reached a peak, he says.
The golden days of the National Budget are over, Head of Central Bank Øystein Olsen said in his annual speech on Thursday evening.
"I have a clear recommendation that our use of the oil money should reach its peak this year" Olsen says.
Changing governments have enjoyed prosperous financial times the past years, and increased the use of oil money in the national budget. However, in his speech, Olsen warned the politicians to not increase spending from the oil fund, but rather use less and prepare for more challenging financial future.
"The Norwegian economy has to adjust to a decrease in demand from the oil industry," Olsen explains. This shift will have consequences for the increase in wages, and Norway will be in a situation where the supplier industry will decrease while other industries that are exposed to global competition will start to grow.
This can happen in two ways, says Olsen. Either by having a slower wage growth than abroad, or a weaker currency.
The use of oil money has increased at a faster rate than the mainland's economy since 2000. This year's national budget shows that the annual additonal money coming from the oil fund has exceeded NOK 70 billion in the past decade. Only this year an additional NOK 16 billion of "fresh" oil money was added to the national budget.
However, with a future oil price at between 50-60 USD, and a much lower anticipated return from the oil fund, Olsen asks the politcians to stop adding additional funds to the national budget.
"We knew that we would reach this peak at some point in the future, but it was far ahead, and the period of systematically reducing spending was far ahead. Now this peak may be just around the corner," Olsen says.
According to Olsen, having faith in higher oil prices and increased return from the oil fund does not change his perspective. "Common sense tells us that we should cut through that peak. If we hold back our spending now, it will reduce our need to cut our spending by a lot in the future," he explains.