The report was presented by an IMF mission in Oslo, as part of the regular article IV-consultation with Norway.
Mainland GDP grows steadily, and unemployment and inflation remain low. Looking ahead, the IMF mission expects the growth in the mainland economy to continue close to its historical average and mainland GDP to remain near potential. The statement, however, also points to possible risks to this scenario, both domestically and internationally. The Norwegian economy is vulnerable to lower export demand, to reduced oil prices, to strains in the international market for bank financing and to possible adverse effects on the demand for housing.
"Norway cannot isolate itself from what is happening abroad. The best protection is to keep our own house in order. I agree with the IMF-delegation that cautious spending of petroleum revenues may be of help to the exposed sectors of the economy. I appreciate the IMF’s support for our fiscal policy framework. I fully agree that it is important to avoid off-budget spending", says Minister of Finance Sigbjørn Johnsen.
In the statement, the IMF highlights the risks stemming from high household debt and elevated house prices. The delegation supports the proposed legislation to implement the Basel III/CRD IV capital requirements for banks somewhat faster in Norway than internationally. The IMF delegation also welcomes the newly released alternatives for strengthening risk weights for house loans and the proposed tax changes in the petroleum tax scheme and the proposal to limit the preferential tax treatment for non-owner occupied homes.
IMF further underlines the need for cooperation within the Nordic region on financial stability and macroprudential measures for banks.
"I welcome IMFs support for the important ongoing work to strengthen Nordic cooperation in order to ensure that also foreign-headquartered bank branches lend in line with national prudential policies," says Minister of Finance Sigbjørn Johnsen.
In the view of the IMF mission, both short term risks and future fiscal liabilities argue for a slower rate of spending than the strictest interpretations of the fiscal rule would suggest. A more conservative approach would not only guard against the risk to competitiveness from sharply rising transfers to the budget from the Government Pension Fund Global, but would also provision against long-run downside risks.
The IMF notes that Norway needs to further address the long run fiscal challenges of an ageing population. Besides prudent macroeconomic policies, this underlines the need for policies that ensure high labor participation and bolster employment.
In the coming months, the IMF staff will complete a more extensive report on the Norwegian economy and economic policy that will be presented to the IMF’s Executive Board next fall.