DOES NORWAY SAVE TOO MUCH?
GOVERNOR ØYSTEIN OLSEN
22 March 2018GDP per capita
2013 1970
0 25 50 75 100 125
Norway UK Italy France Germany Denmark Canada Sweden US
PPP. US = 100
2
0 25 50 75 100 125
Italy UK France Canada Germany Sweden Denmark US Norway
Source: OECD
The petroleum fund mechanism
Pension Fund Global
Transfer
Non-oil revenues
Expenditures
Statens pensjonsfond
utland Statsbudsjettet
Government Pension Fund Global (GPFG)
Fiscal rule
(spend the real return on the GPFG over time, estimated at 3%)
Central government budget
Petroleum revenues and return on investments
3
Outline
Why a surplus or deficit?
How much should oil producers save?
Reasons for high saving in Norway
Conclusion
Current account balance for Norway
-15 -10 -5 0 5 10 15 20
1960 1970 1980 1990 2000 2010 2020
Current account Average 1960-99 Average 2000-14
As a percentage of GDP
Source: Statistics Norway 5
Current account balances
-2 -1 0 1 2
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
US EU China Japan Norway Oil exporters EM Asia RoW World
Current accounts as a share of global GDP
Source: IMF 6
Labour market in a three-sector model
Non-tradable Oil
Manufacturing
w
LNon-traded
LTraded
LManuf.
A
Corden and Neary (1982)
7 Total labour supply
Wage level
“Spending effect”
Non-tradable Oil
Manufacturing
w w’
LNon-traded
LTraded
LManuf.
A
B
Corden and Neary (1982)
8 Total labour supply
Wage level
“Resource movement effect”
Non-tradable Oil
Manufacturing
w w’
w’’
LNon-traded
LTraded
LManuf.
A
B C
Corden and Neary (1982)
9 Total labour supply
Wage level
Oil and gas revenues and government spending
-5 0 5 10 15 20 25
1970 1980 1990 2000 2010 2020 2030 2040 2050 2060
Central government net cash flow
Government spending 3 percent return on the GPFG
As a percentage of trend GDP for mainland Norway
Source: Ministry of Finance 10
Arguments for higher saving
1. Resource movement effect 2. Intergenerational concerns 3. Uncertainty
4. Political feasibility
11
The Norwegian Troll A platform
and some other structures12
400m
300m
200m
100m
Troll A Empire State Building
Eiffel Tower
Demand from the oil and gas sector and government spending of oil/gas revenues
0 2 4 6 8 10 12 14 16
2000 2003 2006 2009 2012 2015 2018
Oil-sector demand Government spending Permanent income
As a percentage of mainland GDP
Sources: Ministry of Finance and Statistics Norway 13
Old-age dependency ratio
0 5 10 15 20
1850 1880 1910 1940 1970 2000 2030
1990-2009
Share of population aged 67 and older in Norway. Percent
Source: Statistics Norway 14
Oil price
0 20 40 60 80 100 120 140
1970 1980 1990 2000 2010 2020
Oil price
Average 1970-2017
2017-USD per barrel
Sources: BP and Thomson Reuters 15
The current account and value added in oil and gas extraction
-15 -10 -5 0 5 10 15 20 25 30
1970 1980 1990 2000 2010
Current account balance Value added in oil and natural gas extraction
Share of GDP. Percent
Source: Statistics Norway 16
