Budget in accordance with fiscal policy guidelines

Nr.:

92/2001

Dato:

11.10.2001

Kontakt:

Kommunikasjonssjef Therese Riiser Wålen , Telefon 22 24 41 09 , Mobil 940 50 886

The Government keeps the structural, non-oil budget deficit at 4 per cent of the capital of the Petroleum Fund, in accordance with the adopted fiscal policy guidelines.

The Norwegian economy is expected to grow somewhat faster than estimated in the Government's Amended budget of November 2001. The upward revision from 1.6 per cent to 1.8 per cent in Mainland GDP in 2002 is mainly due to higher than expected private consumption and oil investments.

The labour market is still tight, and unemployment is expected to remain low both in 2002 and 2003. Agreements concluded for major areas indicate a higher than expected wage growth. Headline inflation is estimated at 1.4 per cent this year. Adjusted for excise duties and energy prices consumer prices are expected to increase by 2.4 per cent from 2001 to 2002.

Fiscal policy
The main features of fiscal policy in 2002 are:

  • A structural, non-oil fiscal deficit in 2002 of NOK 24.8 bn. The budget proposal is in accordance with the fiscal policy guidelines, i.e. the deficit is equal to 4 per cent of the estimated capital in the Government Petroleum Fund at the beginning of 2002. The deficit amounts to 2.2 per cent of GDP in 2002, an increase from 1.6 per cent last year.
  • A real underlying growth in fiscal budget expenditure of 2½ per cent from 2001 to 2002.
  • A reduction in paid taxes and excises in real terms of about NOK 7.6 bn. from 2001 to 2002. The accrued tax relief is nearly NOK 13 bn.
  • A non-oil fiscal budget deficit of NOK 38.6 bn. this year. A transfer from the Government Petroleum Fund will cover this deficit. The gap between the structural non-oil fiscal deficit and the non-oil fiscal deficit is mainly due to debt payments related to the transfer of the hospitals from county authorities to the Central Government.
  • Central Government net cash flow from the petroleum activities is estimated at about NOK 182.5 bn. in 2002. Estimated average oil price in 2002 is revised to NOK 200 from NOK 185 in the Amended Budget. The effects on petroleum revenues are however offset by a lower petroleum production and higher expenditures on direct government investments in the petroleum sector.
  • Total fiscal budget surplus, including net transfers and returns on accumulated capital in the Petroleum Fund, is estimated at NOK 164.6 bn. The total capital of the Fund at the end of 2002 is estimated at NOK 776 bn., approximating 52 per cent of GDP.

Monetary policy
According to the regulations of 29 March 2001 monetary policy shall aim at stability in the internal and external value of the krone, thus contributing to a stable exchange rate. Monetary policy shall also underpin fiscal policy by contributing to stable developments in output and employment. In accordance with this, Norges Bank's implementation of monetary policy shall be aimed at maintaining low and stable inflation. The operational target is defined as an annual increase in core inflation close to 2½ per cent.

Since December 2001 Norges Bank's deposit and lending rates have been at 6.5 per cent and 8.5 per cent, respectively. According to Norges Bank's latest assessment presented 10 April, assuming unchanged interest rates, it is equally likely that core inflation two years ahead will exceed 2½ per cent as it will be lower. The money market rate (3 months) for NOK has been stable at about 6¾ per cent the last two-three months, i.e. nearly 3½ percentage points above the corresponding rates of the Euro area.

General outlook
Macroeconomic projections for 2002 point to a modest pick-up in growth of the Norwegian economy. Higher private consumption and oil investments contribute to higher growth, whereas investments in manufacturing industries, electricity supply and some service sectors tend to be somewhat weaker than earlier expected;

  • Mainland GDP is estimated to grow by 1.8 per cent in 2002 compared to a 1.0 per cent growth last year (preliminary accounts). Total GDP, which also includes petroleum and shipping, is expected to increase by 2.0 per cent in 2002.
  • Private consumption is estimated to grow by 3.5 per cent this year, ¾ percentage points higher than estimated in the Amended 2002 budget. The upward revision is mainly due to higher wage growth. In addition, tax relieves contribute to the strong income growth in 2002.
  • The number of housing starts has increased markedly so far this year after a surprisingly weak development at the end of last year. The number of housing starts is seen to decrease somewhat during the year, still leaving the growth in residential investments at a high level.
  • Mainland business fixed investments are projected to fall by nearly 2 per cent in 2002, after taking a close to 5 per cent fall last year. The estimate for 2002 has been revised downwards since the Amended 2002 budget, mainly due to lower than expected investments in manufacturing industry, electricity supply and some service sectors.
  • Petroleum investments are projected to rise by 1 per cent in 2002 compared to a nearly 2½ per cent fall estimated in the Amended budget. The upward revision is mainly due to increased investments in producing oil fields and an acceleration of the Skarv field development.
  • Traditional merchandise exports are projected to grow by 1.6 per cent in 2002, after growing 3 per cent last year. Due to a deterioration of competitiveness Norwegian industries have lost market shares the last four years. The current account balance is estimated at NOK 188.5 bn. in 2002, down from NOK 216.5 bn. last year.
  • Employment growth is estimated at 0.6 per cent, ¼ percentage points higher than in 2001, thus keeping the Norwegian participation rate at a record level both historically and internationally. The unemployment rate is estimated to remain rather stable at 3.6 per cent.
  • Consumer price inflation is estimated to average 1.4 per cent in 2002. The low headline inflation this year is related to changes made to the VAT-system last year, reductions in excise duties in the 2002-budget and the development in energy prices. The strengthening of the krone also makes imported goods cheaper, thereby pulling inflation down. Inflation adjusted for excise duties and energy prices is estimated at 2.4 per cent.
  • Average wage growth is estimated at 5 per cent in 2002, excluding specific measures for schoolteachers already decided.

Key projections for the Norwegian economy. Volume changes from previous year, pct.


 

2001
NOK bn

2001

2002


Private consumption

636.5

2.2

3.5

Public consumption

294.2

1.5

1.5

Gross fixed investments

279.6

-5.9

0.5

Petroleum

60.9

-3.1

1.0

Business sector, Mainland Norway

127.4

-4.8

-1.9

Exports

680.0

5.3

2.0

Crude oil and natural gas

301.0

7.3

2.9

Traditional goods

214.3

3.0

1.6

Imports

441.9

0.3

2.7

Traditional goods

285.9

3.1

3.2

Gross domestic product

1472.0

1.4

2.0

Mainland Norway

1107.4

1.0

1.8

Memorandum items:

 

 

 

Consumer price inflation

 

3.0

1.4

Wage growth

 

4.9

5

Employment growth

 

0.4

0.6

Unemployment rate (pct. of labour force)

 

3.6

3.6

Household savings rate, pct. of net disposable income

 

7.4

8.6

Current account balance NOK bn

 

216.5

188.6

As percentage of GDP

 

14.7

12.5


Sources: Statistics Norway and Ministry of Finance


Key figures for the petroleum sector


 

2002

2003

2006

Oil price sensitivity 2002


Assumptions:

 

 

 

 

Crude oil price. NOK per barrel

200

182

148

10

Production. Mill sm 3 oil equiv.

261

268

276

 

- Crude oil and NGL

193

196

189

 

- Natural gas

68

72

87

 

NOK bn.:

 

 

 

 

Export value 1)

289.2

272.8

229.6

12.0

Accrued taxes and royalties 2)

98.2

87.5

67.1

7.6

Paid taxes and royalties 2)

96.6

92.6

67.2

3.8

Net cash flow 3)

182.5

164.2

114.5

7.8


1)

Crude oil, natural gas and pipeline transport.

2)

Sum of accrued taxes, royalties, area fees and CO2 tax.

3)

Sum of paid taxes and royalties incl CO2 tax, dividends from Statoil and net payments from the State's Direct Financial Interest (SDFI). The sale of SDFI-stakes in 2002 is included.


Sources: Statistics Norway, Ministry of Petroleum and Energy and Ministry of Finance.

Central government net lending (surplus). NOK billion


 

2001

2002


Fiscal budget surplus

-1.2

0.0

+ Surplus in Government Petroleum Fund

260.1

164.6

+ Surplus in other Central government and social security accounts

5.0

8.2

+ Definitional diff. between fiscal budget and national accounts 1)

-5.6

6.3

+ Direct investment in state enterprises

-40.8

-9.5


= Central government net lending, accrued value

217.4

169.7


+ Local government surplus, accrued value

-5.4

10.3


= General government net lending

212.0

180.0


In per cent of GDP 2)

14.4

12.0


1) Including the difference between accrued and recorded taxes.
2) Comparable with the Maastricht criterion of 3 per cent deficit ceiling.

Sources: Statistics Norway and Ministry of Finance.


Key figures for the fiscal budget (incl social security) and Government Petroleum Fund before loan transactions. NOK billion


 

2001

Estimate for 2002


1. The fiscal budget

 

 

Total revenues

758.4

721.9

Revenues from petroleum activities

268.9

199.7

Revenues excl petroleum activities

489.5

522.1


Total expenditures

516.8

578.0

Expenditures on petroleum activities

25.7

17.3

Expenditures excl petroleum activities

491.2

560.8


Non-oil budget surplus

-1.6

-38.6

+ Transfer from the Petroleum Fund

0.4

38.6


= Fiscal budget surplus

-1.2

0.0


2. The Government Petroleum Fund

 

 

The fiscal budgets net revenues from petroleum activities are transferred to the Petroleum Fund

243.2

182.5

- Transfer to the fiscal budget

0.4

38.6

+ Dividends on the Petroleum Fund

17.2

20.8


= Surplus in the Petroleum Fund

260.1

164.6


3. Fiscal budget and the Petroleum Fund

 

 

Surplus

258.8

164.6


Source: Ministry of Finance