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The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of Norway 2005 published on 8 August 2005.
A robust recovery is under way
The Norwegian economy continues to recover strongly from its 2002-2003 slowdown. Low interest rates, competition-induced productivity gains, high investments by the booming oil sector, terms-of-trade gains and supportive macroeconomic policies are the main drivers. Inflation is low and labour inputs in terms of hours worked are rising briskly. Strong growth is likely for the remainder of this year and possibly during 2006.
Moving towards a neutral macro policy
Although inflation remains well under the target, and there is still a little slack in the economy, low inflation in part reflects low or falling import prices, not weak domestic demand. Robust growth could turn into overheating, especially if oil investments continue to rise strongly, though foreign demand presents a downside risk. It would therefore be appropriate for the Norges Bank to gradually move towards a more neutral stance. On the fiscal side, recent deviations from the 4% target of the fiscal rule are large. If the rule is to remain credible, and if the economy remains buoyant, transfers from the Petroleum Fund should not rise further in 2006, and could even fall.
Encouraging greater work effort
Although participation rates are relatively high, the numbers of Norwegians on sick leave or drawing disability pensions is also high, and their evolution does not seem to be directly related to measures of overall health status. Reforms should continue to tighten eligibility criteria for entry into the schemes, to encourage timely return to the workplace from sick leave, and to focus rehabilitation programmes on faster reinsertion in the workforce. The private early retirement scheme, AFP, is also a powerful mechanism for encouraging early withdrawal from the labour force, and there is no reason why public subsidies to such a generous scheme should continue within a reformed pension system, except for those with long work histories in arduous jobs.
Implementing pension reforms and planning for emerging fiscal pressures in other areas
Spending on pensions in the National Insurance System (NIS) is currently equivalent to 9 per cent of GDP and this could double by the middle of the century. Reforms proposed by the government to link pension income after retirement more closely with incomes over working lives should encourage later retirement. Nevertheless, spending could still rise by 7 percentage points of GDP. Revenues from the Petroleum Fund will be sufficient to finance only a minor part of foreseeable increases in public spending even with higher oil prices and full implementation of pension reforms. Hence there is a need to rein back the growth of public spending in other areas, especially those which blunt work incentives, or eventually raise taxes.
The Norwegian health sector delivers better services but is expensive
Recent reforms have led to increased levels of treatment, and citizens agree that service has improved. But the volumes of services have risen more than expected, and salaries for some parts of the medical profession rose steeply in the aftermath of the reforms. Centralisation and rationalisation of hospital activities have not yet resulted in significant economies, and health system cost consciousness is still weak. Consideration should be given to reversing the recent decision to raise the proportion of DRG finance, raising the levels of co-payments by patients, and strengthening incentives for generalists to refrain from prescribing expensive treatments.
Return to the Economic Survey of Norway 2005 homepage
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A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
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For further information please contact the Norway Desk at the OECD Economics Department at webmaster@oecd.org.
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