Norway budget revision emphasises fiscal restraint, not interest rate hike
Norway’s struggle to balance the need for more expensive loans to prick a house price asset bubble against its already expensive currency hitting exporting companies has led the government to announce it is focused on fiscal constraint in its latest budget revision.
The country’s Ministry of Finance says in its Revised National Budget 2012 that economic activity is holding up well, with low unemployment expected to remain through the year despite a broader global economic slowdown.
However, this in turn means it is focused on using fiscal tools to reduce the pressure on Norwegian exporters battling against a strong currency.
“Increasing interest rates with widening spreads could lead to a stronger krone exchange rate. That would be most unfortunate for industries exposed to international competition,” said Finance minister Sigbjørn Johnsen.
GDP growth is forecast to hit 2.75% this year, in line with historical averages, before picking up to a rate of 3% in 2013.
Tax revenues are running higher and expenditure lower than estimates provided last Autumn, the Ministry added.
Besides the strong economy generating tax revenues, the company’s oil and gas sector revenues are also climbing. By law these revenues must go to the Pension Fund Global, a sovereign wealth fund, and not be drawn down to fund annual budgets beyond a percentage measure agreed by all parties in the 1990s and reinforced in the early 2000s. The latest Ministry estimates are that the SWF will hit an estimated market value of NOK3.791trn (497bn) in 2012, against estimated future pension obligations under the National Insurance Scheme of NOK5.176trn (€678bn).
The central government financial balance overall is expected to hit a NOK406bn (€53bn) surplus this year.