“I am pleased that the IMF broadly supports the economic policies implemented by the Norwegian government. The mission’s statement is an important contribution to our domestic debate on economic policies”, says Finance Minister Sigbjørn Johnsen.
The IMF concludes that the Norwegian economy continues to perform well amidst a turbulent global economy. Output is now higher than before the financial crisis in 2008 and unemployment remains low. Looking ahead, the IMF mission expects the moderately paced growth in the mainland economy to continue, driven mainly by domestic demand. The statement emphasizes that Norway is better placed than many in Europe to weather an intensification of eurozone stress. The Norwegian economy is nevertheless vulnerable to loss in confidence, lower export demand, reduced oil prices, and to strains in the international market for bank financing.
“Norway cannot insulate itself from what is happening abroad. The best protection is to keep our own house in order. I agree with the IMF that a tight fiscal stance will protect our competitiveness, and allow monetary policy to be our first line of defense if international conditions worsen, ” says Sigbjørn Johnsen.
In the statement, the IMF highlights the risks stemming from high household debt and elevated house prices. The mission argues that macroprudential policies should be employed to reduce these risks, and points to i.a. the Financial Supervisory Authority’s guidelines for mortgages, higher risk weights for bank’s mortgage portfolios, and strengthening of bank capital through restraining dividends and remuneration. The mission also gives advice on how the institutional framework for macroprudential policy may be organized in Norway.
“It is important to strengthen the surveillance of the whole financial system to promote financial stability. The Ministry of Finance aims to formalize Norway’s framework for macroprudential policies by mid-2012”, says Sigbjørn Johnsen.
The mission finds the broadly neutral fiscal stance in the 2012 budget proposal appropriate, given heightened global risks and conditional on macroprudential tightening. The IMF also notes that Norway faces long run fiscal challenges, due to increasing spending on healthcare, as well as age and disability pensions. This underlines the need for further entitlement reforms aimed at bolstering 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.