## 1norea2022001

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---

### Electricity cost support packages — design and components
- Direct household subsidy: covers 80/90 percent of electricity bills that exceed 7 euro/cent per Kwh during January 2022-March 2023.
- Reductions in the electrical power tax.
- Increased housing assistance and student support.
- Compensation to municipalities for additional welfare assistance.
- Additional efficient energy-use initiatives under Enova (government enterprise promoting environmentally friendly production and consumption of energy).

### Fiscal context and staff assessment (electricity measures)
- New measures announced in December 2021 amounted to 0.6 percent of GDP to deal with the increase in electricity prices; additional measures related to the war in Ukraine adopted in March amounted to 0.4 percent of GDP.
- The subsidy is largely covered by windfall profits of state-owned electricity companies that export excess electricity, and does not compensate for the full amount of an increase in prices.
- Staff view: the electricity subsidy should be more targeted toward lower income households.
- Fiscal impulse (measured by the change in the non-oil structural deficit net pandemic measures) remained accommodative — about 1.5 percent of mainland GDP.

### Macro developments related to energy and prices
- Headline inflation reached 5.3 percent by end-2021.
- In July 2022, core and headline inflation increased to 4.5 percent and 6.8 percent, respectively.
- Mainland real GDP grew 4.1 percent in 2021.
- Mainland real GDP growth is expected to be somewhat below 4 percent in 2022 and to continue to be driven primarily by strong domestic demand, especially private consumption.
- Current account surplus: surged from 1.1 percent in 2020 to 15 percent of total GDP in 2021 (pre-pandemic 10-year average: 9 percent), driven by high oil prices and primary income.
- Staff assesses the current account gap in 2021 to be around 0.7 percent of total GDP.
- Real effective exchange rate (REER) in 2021 was overvalued by 12 percent relative to the REER norm.

### Labor market and wage developments (implications for inflation and support)
- Unemployment declined to 4.4 percent in 2021 (from 4.6 in 2020).
- Registered unemployment was 1.7 percent in May 2022—the lowest rate recorded since before the 2008 global financial crisis.
- Wage agreements:
  - Manufacturing settled on a wage hike of 3.7 percent in early April 2022.
  - Wage growth of 3.8 percent agreed in most of the public sector.
- High labor demand and tight labor market conditions have driven higher wage expectations and may result in somewhat faster wage growth.

### Energy export and supply-side considerations
- Norway’s share of gas supply to Europe recently increased to 40 percent, as Russia’s share declined to 25 percent.
- A new pipeline is expected to become operational by end-2022.
- High oil prices will continue to support oil investment and energy exports.
- While household consumption could be affected by high global energy prices, compensatory electricity subsidies, together with the agreed wage increase, should help support real incomes and spending.

### Policy implications and recommendations (electricity/energy)
- Staff recommendation: the electricity subsidy should be more targeted toward lower income households to improve efficiency of fiscal support.
- Fiscal policies should aim at a reduction in the non-oil balance over time to prevent overheating given pent-up private consumption and large positive terms of trade shock.
- If downside risks materialize, fiscal and monetary policies should be flexibly adjusted.

### Related climate and fiscal measures (energy policy relevance)
- New government plans to bring the tax on non-Emission Trading System (ETS) emissions to NOK 2,000 (USD 221) per ton of CO2 by 2030.
- The 2022 budget increases the tax on non-ETS emissions by 28 percent, with offsetting tax cuts benefiting groups more impacted by the increase.
- Average price paid per ton of CO2-equivalents in 2020 (Statistics Norway): NOK 590 (about USD 70).
- Global average price per ton: USD 2.
- IMF-estimated necessary range to achieve Paris targets: USD 50-100 per ton.

### Fiscal outlook and reform scenarios
- With unchanged policies, real per capita GDP is expected to decline by almost 14 percent by 2070 (attributed to lower labor supply, lower investment, and capital accumulation).
- Staff estimates a required fiscal adjustment of about 7 percent of GDP over the next couple of decades to prevent deterioration in the general government net debt.
- GPFG value can fluctuate significantly because of changes in oil and asset prices, creating upside and downside risks affecting fiscal policy conduct.
- Consideration for an additional medium-term fiscal anchor:
  - a medium-term expenditure framework (OECD, 2022), and/or
  - an expenditure rule that caps the growth of aggregate spending,
  - to guide gradual phasing out of GPFG inflows.

### Public debt sustainability — underlying assumptions (percent)
- Baseline Scenario (2022–2027):
  - Real GDP growth: 3.6, 2.6, 2.2, 1.6, 1.3, 1.3
  - Inflation: 8.8, -0.1, -0.3, 0.2, 0.6, 0.9
  - Primary Balance: 19.4, 17.2, 14.7, 12.5, 11.0, 9.7
  - Effective interest rate: 1.2, 1.4, 1.5, 1.6, 1.7, 1.8
- Historical Scenario (2022–2027):
  - Real GDP growth: 3.6, 1.6, 1.6, 1.6, 1.6, 1.6
  - Inflation: 8.8, -0.1, -0.3, 0.2, 0.6, 0.9
  - Primary Balance: 19.4, 4.8, 4.8, 4.8, 4.8, 4.8
  - Effective interest rate: 1.2, 1.4, 1.5, 1.6, 1.8, 1.9
- Constant Primary Balance Scenario (2022–2027):
  - Real GDP growth: 3.6, 2.6, 2.2, 1.6, 1.3, 1.3
  - Inflation: 8.8, -0.1, -0.3, 0.2, 0.6, 0.9
  - Primary Balance: 19.4, 19.4, 19.4, 19.4, 19.4, 19.4
  - Effective interest rate: 1.2, 1.4, 1.5, 1.6, 1.7, 1.7

### Monetary policy — recent actions and assessment
- Norges Bank increases:
  - Raised policy rate by 0.25 percent three times to 0.75 percent by end-March 2022.
  - Further increased by 0.5 percentage points in June and August to 1.75 percent; further hikes expected.
- Monetary framework: flexible inflation targeting aiming to stabilize CPI inflation close to 2 percent over the medium term.
- Staff assessment: faster policy tightening is appropriate given prospects for a more prolonged period of high inflation.
- Financial specifics:
  - Flexible-rate mortgages: above 95 percent share with short lock-in periods, amplifying rate-hike effects.
  - Cash usage: fallen to 4 percent of payments.
  - Norges Bank CBDC testing announced April 2021 for tests over the next two years.
  - TIBER-NO: framework for cyber resilience testing in line with TIBER-EU; critical functions identified.

### Financial sector policies and stability
- Banks: resilient, solvent, and profitable; high digitalization and very high capital buffers.
- Liquidity: sufficient for short-lived inactivity; risks from international wholesale funding over longer horizons.
- Credit developments:
  - Banks kept up lending activity in 2021–22; credit to households increased at a moderate pace.
  - Household debt-to-income ratio: well above 200 percent in 2021.
  - Interest burden-to-income ratios fell to their lowest levels in 2020–21.
- Macroprudential measures and recommendations:
  - Consumer credit regulation (2019) and credit registries reduced consumer credit volume.
  - Staff recommends permanently preserving tighter mortgage regulation limits for Oslo.
  - Other recommended measures: ease restrictions on housing supply; alter regulations to boost construction efficiency; gradually phase out mortgage interest deductibility.
  - CCyB: raised in two steps (0.5 percent each) in 2021 to 2 percent by end-2022; will be 2.5 percent, effective March 2023.
  - Recommendation: expand regulatory toolkit for CRE vulnerabilities (sectoral capital tools) enabled by EU Capital Requirements Directive implementation in June 2022.
  - Improved CRE data collection: Norges Bank changed provider of rent statistics for prime office space.
- Stress scenarios: banks’ losses increase significantly driven by falls in residential and commercial property prices, but loss-absorbing capacity is fundamentally sound.
- AML/CFT:
  - Authorities strengthened risk-based approach and increased inspections; more active enforcement and penalties needed.
- Climate-related finance:
  - Norway endorses EU objectives to reorient capital to sustainable investment and manage climate-related financial risks.
  - Ministry of Finance established a sustainable finance reference group; Norges Bank and Finanstilsynet participate in NGFS.
  - Norges Bank initial studies on impact of higher carbon price and physical risks on banks.
  - Norwegian companies’ sustainability disclosures to become more compatible with EU regulation.

### Structural policies and recommendations
- Key priorities:
  - Improve insolvency regime: avoid over-penalizing failing businesses; reduce time to discharge; enhance insolvency prevention tools; special procedures for SMEs.
  - Continue efficiency improvements through digitalization and automated processes using public registries.
  - Relax land-use restrictions to facilitate more productive utilization.
  - Reduce participation in social benefit system:
    - Tighten eligibility and certification; enhance education and retraining; reduce benefit levels.
  - Diversify labor force and skills:
    - Prevent youth dropouts; enable lifelong learning.
    - Employment rate for men aged 25–54 below OECD average in 2019; vocational upper secondary completion rates at bottom of OECD group.
    - New Integration Act (in force January 2021) aims to improve immigrant labor market incorporation.
  - Close remaining digitalization gaps:
    - 1000Mbos fixed broadband take-up: almost 50 percent (Norway) vs 34 percent (EU).
    - e-Invoicing: 65 percent.
    - e-Commerce turnover as percent of SME turnover declined from 22 percent to 14 percent in 2020.
    - Norway ranks below EU average in Open data (51 vs 78 percent of maximum score).

### Climate commitments, initiatives, and risks
- COP-26 commitments:
  - Plans to double climate financing to more than USD 1.6 billion by 2026.
  - Will, as a minimum, triple financing for adaptation.
  - Launch a new Climate Investment Initiative to fund renewable energy in developing countries.
- GPFG objective: net-zero emissions from companies it invests in.
- Vehicle electrification: assumed that about half of passenger cars will be at zero emissions by 2030 (Climate plan, 2021–30).
- Policy suggestion: recalibrate tax incentives to incentivize replacement of most polluting conventional cars by electric vehicles in a revenue-neutral way.
- Climate risks to financial sector:
  - Climate policy to curb oil sector’s total output could reduce valuations of oil producers, implying portfolio effects for households and asset managers.
  - Norges Bank estimated effects on banks’ relative exposures from an emission price increase to NOK 2,000 (USD 221).
  - Banks have moderate loans to emission-intensive industries but exposure in some high-emission industries (especially shipping); sizeable loan exposures to commercial property; portions of commercial property collateral could lie in risk zones for sea level rise or flooding.
  - Sectoral vulnerability to carbon price increases: Agriculture, waste management and transportation most affected under reported scenarios ($75 and $150 Average Carbon Price and Parallel Increase scenarios).

### External sector assessment — key indicators and assessment
- External position 2021: broadly in line with medium-term fundamentals and desirable policies.
- NIIP: reached 359 percent of mainland GDP at end-2021 (from 320 percent in 2020).
- Gross Assets: 635 (percent mainland GDP, 2021).
- Reserve Assets: 22.8 (percent mainland GDP, 2021).
- Gross Liabilities: 274 (percent mainland GDP, 2021).
- Gross External Debt: 157 (percent mainland GDP, 2021).
- GPFG assets: under management reaching 3.6 times mainland GDP by end-2021.
- Assessment: NIIP expected to remain strong and stable; negative revaluation risks mitigated by asset diversification.
- Current account:
  - Averaged 5 percent of total GDP over 2015–20 due to large oil exports.
  - Total nominal trade balance increased to 12.3 percent of mainland GDP in 2021 (compared to -0.8 percent in 2020).
  - Current account increased to 15 percent of total GDP in 2021.
  - Cyclically adjusted 2021 CA per EBA: 14.1 percent of GDP; EBA regression-estimated norm: 15.1 percent of GDP (gap -1 percent); after correcting for short-term pandemic effects, estimated gap becomes -2.5 percent. Norway-specific biases exceed 3.1 percent of GDP bringing overall CA gap to 0.66 percent.

### Fund relations, data, and statistical issues
- Membership Status: Joined December 27, 1945; Article VIII.
- Quota and Fund positions (as of July 31, 2022):
  - Quota: 3,754.70 SDR Million (100.00 percent of quota).
  - Fund holdings of currency: 2,688.67 SDR Million (71.61 percent of quota).
  - Reserve tranche position: 1,066.04 SDR Million (28.39 percent of quota).
  - New Arrangements to Borrow: 26.31 SDR Million.
- SDR Department:
  - Net cumulative allocation: 5,161.78 SDR Million (100.00 percent of allocation).
  - Holdings: 5,355.39 SDR Million (103.75 percent of allocation).
- Projected Payments to the Fund (SDR Million): Charges/Interest: 0.07 (Forthcoming 2023), 0.07 (2024), 0.07 (2025), 0.07 (2026); Total: 0.07 (2023), 0.07 (2024), 0.07 (2025), 0.07 (2026).
- Exchange Arrangements: De jure and de facto freely floating; Norway accepted obligations under Article VIII.
- Article IV Consultation cycle: 12-month.
- FSAP Participation: 2020.
- Data adequacy: Data provision adequate; generally high quality, timely, and comprehensive.
- SDDS subscriber since 1996; uses flexibility option on timeliness of general government operations-financing.

### Authorities’ responses, actions, and statements
- Past recommendations and actions:
  - Temporary VAT rate cuts unwound; standard VAT rate is 25 percent. Room to simplify and broaden system remains.
  - Triple the carbon tax: tax increase announced; compensating measures (e.g., lower fuel taxation) criticized for misaligned incentives.
  - Expenditure review: business R&D and innovation support reviewed (2020-21); incoming government signaled a new review.
  - Mortgage regulation tightening: no progress on making permanent.
  - CRE data collection: some progress.
  - Reforms of sickness and disability schemes: no progress on many long-standing recommendations; Employment Commission delivered final report in 2021 with some aligned proposals.
  - Relaxing land-use restrictions: no progress.
  - Technological change and open data: some progress.
- Authorities’ statement highlights (Mika Pösö and Bjornar Slettvag, September 14, 2022):
  - Growth strong; registered unemployment at low levels; inflation highest since 1980s; core inflation highest since recordings began in 2001.
  - Gas production increased substantially due to Europe situation; gas production at maximum; years required to develop new fields.
  - Fiscal spending increased significantly in 2020 and 2021; revised 2022 budget proposed significant cutbacks to reduce the non-oil deficit in 2022.
  - Norwegian fiscal framework: all petroleum revenues transferred into GPFG; expected real return estimated at 3 percent.
  - Norges Bank policy rate developments: policy rate increased from 0 percent in late 2021; June 2022 increase of 0,5 percentage point to 1.25 percent; August 2022 raised to 1.75 percent; forecast implied further rise to around 3 percent by summer 2023.
  - Household vulnerability: high household debt and a large proportion of mortgages with floating interest rates.
  - Mortgage regulation expires end-2024; evaluation requested.
  - Pension reform: implemented to expand labor participation among elderly; proposal to link pension age-limits to longevity.

### Key statistics and indicators (selected)
- Norway plans to double climate financing to more than USD 1.6 billion by 2026.
- Vehicle electrification: about half of the passenger cars will be at zero emissions by 2030 (Climate plan, 2021–30).
- Population (2021): 5.4 million.
- Per capita GDP (2021): US$ 89,041.6.
- Literacy: 100 percent.
- Main products and exports: Oil, natural gas, fish (primarily salmon).
- Real GDP (change in percent) — 2019: 0.7; 2020: -0.7; 2021: 3.9; 2022: 3.6; 2023: 2.6; 2024: 2.2.
- Unemployment rate (percent of labor force) — 2019: 3.7; 2020: 4.6; 2021: 4.4; 2022: 3.9; 2023: 3.8; 2024: 3.7.
- CPI (end of period) — 2019: 1.4; 2020: 1.4; 2021: 5.3; 2022: 4.7; 2023: 3.5; 2024: 2.5.
- Central government non-oil balance (percent of mainland GDP) — 2019: -7.4; 2020: -12.2; 2021: -11.3; 2022: -8.6; 2023: -8.4; 2024: -8.4.
- Government Pension Fund Global (percent of mainland GDP) — 2019: 329.2; 2020: 358.5; 2021: 377.7; 2022: 352.2; 2023: 357.0; 2024: 363.5.

*Source: IMF staff report and informational annex for Norway (selected sections).*

### 1. Electricity Cost Support Packages _____________________________________________________________ 10

### 1. Electricity Cost Support Packages

### Package design and components
- Direct household subsidy will cover 80/90 percent of electricity bills that exceed 7 euro/cent per Kwh during January 2022-March 2023.
- Reductions in the electrical power tax.
- Increased housing assistance and student support.
- Compensation to municipalities for additional welfare assistance.
- Additional efficient energy-use initiatives under the auspices of Enova, a government enterprise responsible for promotion of environmentally friendly production and consumption of energy.

### Fiscal context and staff assessment
- New measures announced in December 2021 amounted to 0.6 percent of GDP to deal with the increase in electricity prices; additional measures related to the war in Ukraine adopted in March amounted to 0.4 percent of GDP.
- The subsidy is largely covered by windfall profits of state-owned electricity companies, which export excess electricity, and does not compensate for the full amount of an increase in prices.
- Staff view: the electricity subsidy should be more targeted toward lower income households.
- Fiscal impulse (measured by the change in the non-oil structural deficit net pandemic measures) remained accommodative — about 1.5 percent of mainland GDP.

### Macro developments related to energy and prices
- Headline inflation reached 5.3 percent by end-2021, reflecting very high energy prices.
- In July 2022, core and headline inflation increased to 4.5 percent and 6.8 percent, respectively.
- Mainland real GDP grew 4.1 percent in 2021.
- Mainland real GDP growth is expected to be somewhat below 4 percent in 2022 and to continue to be driven primarily by strong domestic demand, especially private consumption.
- Norway’s current account surplus surged from 1.1 percent in 2020 to 15 percent of total GDP in 2021 (compared to the pre-pandemic 10-year average of 9 percent), driven by high oil prices and primary income.
- Staff assesses the current account gap in 2021 to be around 0.7 percent of total GDP.
- The real effective exchange rate (REER) in 2021 was overvalued by 12 percent relative to the REER norm.

### Labor market and wage developments (implications for inflation and support)
- Unemployment declined to 4.4 percent in 2021 (from 4.6 in 2020).
- Registered unemployment was 1.7 percent in May 2022—the lowest rate recorded since before the 2008 global financial crisis.
- A wage agreement among social partners (manufacturing) settled on a wage hike of 3.7 percent in early April 2022.
- Wage growth of 3.8 percent has been agreed on in most of the public sector.
- High labor demand and tight labor market conditions have driven higher wage expectations and may result in somewhat faster wage growth.

### Energy export and supply-side considerations
- Norway’s share of gas supply to Europe recently increased to 40 percent, as Russia’s share declined to 25 percent.
- A new pipeline is expected to become operational by end-2022.
- High oil prices will continue to support oil investment and energy exports.
- While household consumption could be affected by high global energy prices, compensatory electricity subsidies, together with the agreed wage increase, should help support real incomes and spending.

### Policy implications and recommendations
- Staff recommendation: the electricity subsidy should be more targeted toward lower income households to improve efficiency of fiscal support.
- Fiscal policies should aim at a reduction in the non-oil balance over time to prevent overheating given pent-up private consumption and large positive terms of trade shock.
- If downside risks materialize, fiscal and monetary policies should be flexibly adjusted.

### Related climate and fiscal measures (relevance for energy policy)
- The new government plans to bring the tax on non-Emission Trading System (ETS) emissions to NOK 2,000 (USD 221) per ton of CO2 by 2030.
- The 2022 budget increases the tax on non-ETS emissions by 28 percent, with offsetting tax cuts benefiting groups more impacted by the increase.
- According to Statistics Norway, the average price paid per ton of CO2-equivalents in 2020 was NOK 590 (about USD 70).
- The global average price per ton was USD 2; the IMF-estimated necessary range to achieve Paris targets is USD 50-100 per ton.

*Source: IMF staff report (Norway). The summary is based only on the provided content unit titled "1. Electricity Cost Support Packages".*

### 16.      Staff has examined possible reforms that could reduce pressure on public finances in

### 16.      Staff has examined possible reforms that could reduce pressure on public finances in

### Fiscal outlook and reform scenarios
- With unchanged policies, the real per capita GDP is expected to decline by almost 14 percent by 2070.
- The decline is attributed to lower labor supply resulting in lower investment and accumulation of capital stock.
- Staff estimates a required fiscal adjustment of about 7 percent of GDP over the next couple of decades to prevent deterioration in the general government net debt.
- The value of the GPFG can fluctuate significantly because of changes in oil and asset prices, creating upside and downside risks that can affect fiscal policy conduct.
- Consideration could be given to adopting an additional medium-term fiscal anchor, such as:
  - a medium-term expenditure framework (OECD, 2022), and/or
  - an expenditure rule that caps the growth of aggregate spending,
  - to guide a more gradual phasing out of the GPFG inflows.

### Key fiscal-impact findings (figures summarized in text)
- Impact on Real GDP per Capita: "No Policy" vs "With reforms" shows a difference of almost 14 percent by 2070 (decline under no policy).
- Impact on General Government Net Debt: Staff scenarios show large swings (percent of GDP) depending on reforms versus no policy.
- Aging-related costs by decade (Percent of mainland GDP): pension, health care, long-term care rising over 2020–2070 horizon.
- Historical and forecasted GPFG asset stock (Percent of mainland trend GDP, at Jan.1st of each year) show variability over 2000–2021 and expectations thereafter.
- Fiscal rule in Norway and Oil Revenues and Spending from the GPFG illustrated historical and projected interactions (structural non-oil deficit; expected return on fund at 3% and 4%; net cash flows from petroleum activities).

*Authorities’ views (fiscal)*
- Authorities broadly agreed with staff’s assessment; medium-term consolidation remains a primary objective.
- Concern exists about budget dependence on financing from the wealth fund and exposure to asset price volatility.
- Advisory Panel on Fiscal Policy Analysis, with expanded mandate, has recommended changes to make transfers from the fund more stable; discussions on design improvements are at an initial stage.

### Monetary policy
- Norges Bank increased the policy rate by 0.25 percent three times (to 0.75 percent) by end-March 2022 in response to increasing wage pressures and capacity utilization.
- The policy rate was further increased by 0.5 percentage points in June and August to 1.75 percent, faster than previously communicated; further hikes are expected.
- Monetary policy framework: flexible inflation targeting with aim of stabilizing CPI inflation close to the 2 percent target over the medium term.
- Staff assessment: faster policy tightening is appropriate given the increased prospects for a more prolonged period of high inflation.
- Financial specifics and transmission:
  - High share of flexible rate mortgages (above 95 percent) with short lock-in periods amplifies the effect of rate hikes.
  - Residential mortgage rates have been increasing and are expected to dampen house price inflation and credit growth.
- Cash and digital currency:
  - Cash usage has fallen to only 4 percent of payments.
  - Norges Bank has started testing various technical options for a central bank digital currency (CBDC); in April 2021 it announced CBDC tests over the next two years upon recommendations from an internal working group.
  - Finanstilsynet and Norges Bank have drawn up a framework for testing cyber resilience in accordance with TIBER-EU; an implementation guide (TIBER-NO) has been developed and critical functions identified for testing.

*Authorities’ views (monetary)*
- Authorities broadly concurred: Norges Bank is concerned about inflation moving higher amid little spare capacity, sustained global inflationary pressures, and a weaker krone.
- There is also a risk that rapid tightening abroad could lead to an abrupt slowdown in growth if global inflation pressures ease faster than assumed.
- Acceleration of rate hikes now would reduce the risk of inflation remaining high and the need for sharper tightening later.

### Financial sector policies and stability
- Banks have remained resilient, solvent, and profitable, aided by high digitalization and very high capital buffers.
- Liquidity has been sufficient for short-lived inactivity, but risks rise over longer horizons due to dependence on international wholesale funding.
- Credit developments:
  - Banks kept up lending activity in 2021–22; credit to households increased at a moderate pace.
  - Household debt-to-income ratio stood well above 200 percent in 2021.
  - Interest burden-to-income ratios fell to their lowest levels in 2020–21.
- Macroprudential measures and recommendations:
  - Consumer credit regulation (2019) and credit registries reduced consumer credit volume and fewer borrowers have very high consumer debt.
  - Staff recommends permanently preserving tighter mortgage regulation limits for Oslo given sustained recovery and still high house price growth in the capital.
  - Other recommended measures: ease restrictions on housing supply, alter regulations to boost construction efficiency, gradually phase out mortgage interest deductibility.
  - Norges Bank granted decision-making responsibility for setting the countercyclical capital buffer (CCyB), set four times a year, and advisory responsibility for the systemic risk buffer.
    - CCyB was raised in two steps (0.5 percent each) in 2021 to 2 percent by end-2022 and will be 2.5 percent, effective March 2023.
  - Staff long-standing recommendation: expand regulatory toolkit for mitigating CRE vulnerabilities (including sectoral capital tools); Norway’s implementation of European Capital Requirements Directive in June 2022 would make expanding the tool possible.
  - Improved CRE data collection: Norges Bank changed the provider of rent statistics for prime office space to better monitor risks.
- Stress and resilience:
  - In stress scenarios, banks’ losses increase significantly—driven largely by falls in residential and commercial property prices—but banks’ loss-absorbing capacity is fundamentally sound.
  - The expiration of pandemic-related relaxation of borrower-based requirements, monetary policy normalization, and planned CCyB increases should help curb CRE price growth (half of banks' corporate assets comprise lending to CRE).
- AML/CFT and enforcement:
  - Authorities have strengthened a risk-based approach and increased frequency of AML/CFT inspections, but on-site inspections were limited during the pandemic and implementation costs of the new AML law are high.
  - A more active enforcement approach, including application of penalties, is needed.
  - Norway has volunteered for assessment regarding transnational aspects of corruption as part of its next AIV consultation.
- Climate-related finance:
  - Norway endorses EU objectives to reorient capital toward sustainable investment, manage climate-related financial risks, and foster transparency.
  - Ministry of Finance established a sustainable finance reference group; Norges Bank and Finanstilsynet participate in the Network for Greening the Financial System.
  - Norges Bank has conducted initial studies estimating the impact of a higher carbon price and physical risks on banks.
  - Norwegian companies’ sustainability and climate risk disclosures are expected to become more compatible with EU regulation; companies will disclose how they are affected by and manage climate risk and the impact of their activities on climate and environment.

*Authorities’ views (financial sector)*
- Authorities broadly concurred with staff: banks’ strong capital buffers should provide safeguards against tightening-cycle impacts; in household-pressure scenarios, declines in consumption are more likely than outright defaults.
- Authorities consider the current extension of mortgage regulation limits a protective step; expanding housing supply faces regulatory and supply chain bottlenecks.

### Structural policies and recommendations
- Staff recommends decisive steps to address long-standing structural constraints to growth:
  - Encourage timely restructuring and resource reallocation:
    - Improve insolvency regime to avoid over-penalizing failing businesses; reduce time to discharge; enhance tools for insolvency prevention and set up special procedures for SMEs.
    - Continue efficiency improvements through digitalization, provisions to freeze assets and collect bank information, and automated processes using public registries.
    - Relax land-use restrictions to facilitate more productive utilization (staff long-standing recommendation).
  - Reduce participation in the social benefit system:
    - Pandemic increased young beneficiaries at risk of long-term labor force exclusion.
    - Previous recommendations: (i) tighten eligibility criteria and certification procedures; (ii) enhance education and retraining programs for beneficiaries; (iii) reduce benefit levels which are high compared to peer countries.
    - More spending on retraining has not produced a meaningful decline in benefit program participants to date.
  - Further diversify the labor force and its skills:
    - Norway’s labor force participation requires advanced technical skills; investments from an early age are needed.
    - Priorities: prevent youth from dropping out of upper secondary education; enable adults to engage in lifelong learning.
    - Employment rate for men aged 25–54 was below the OECD average in 2019; completion rates in vocational upper secondary programs are at the bottom of the OECD group.
    - New Integration Act (in force January 2021) aims to improve immigrant labor market incorporation.
  - Close remaining digitalization gaps:
    - Norway is highly digitalized but gaps persist.
    - 1000Mbos fixed broadband take-up by households has gone up to almost 50 percent versus the EU’s 34 percent.
    - e-Invoicing increased to 65 percent; e-Commerce turnover as percentage of SME turnover declined from 22 percent to 14 percent in 2020.
    - Share of enterprises providing ICT training and share of females employed in the sector have declined.
    - Norway ranks below the EU average in the Open data category (51 vs 78 percent of maximum score).

*Key structural-policy priority areas summarized*
- Insolvency regime and resource reallocation
- Social benefit participation reduction (eligibility, retraining, benefit levels)
- Labor force diversification and skill development (education completion, apprenticeships, integration)
- Digitalization and open-data improvements

*Authorities’ overall view on structural policies*
- Authorities broadly agreed with staff assessments and the need to protect the financial system while addressing constraints to housing supply and labor market participation.

*Source: NORWAY INTERNATIONAL MONETARY FUND.*

### 30.      At COP-26 Norway has restated commitment to its already ambitious climate agenda.

### 30.      At COP-26 Norway has restated commitment to its already ambitious climate agenda.

### Climate commitments and initiatives
- Plans to double its climate financing to more than USD 1.6 billion by 2026, contributing to reaching the USD 100 billion overall target set in Paris by developed countries.
- Will, as a minimum, triple its financing for adaptation.
- Plans to engage with development partners to help finance their transition to renewable energy and launch a new Climate Investment Initiative to fund renewable energy in developing countries.
- Aims to support investments that can help phase out coal and other fossil sources and develop and export new technology beyond its borders.
- Government view: research and innovation are key to becoming a low-emission society (The Long-Term Plan for Research and Higher Education 2019–28).
- Norway is well-positioned to lead in ocean-based solutions such as offshore wind; green shipping; carbon capture, utilisation, and storage; hydrogen; and electric mobility.
- One of GPFG’s long-term objectives is net-zero emissions from the companies it invests in.
- Norway is at the forefront of vehicle electrification; it is now assumed that about half of the passenger cars will be at zero emissions by 2030 (Climate plan, 2021–30).
- Policy suggestion: recalibrating the tax incentives in a way that would incentivize the replacement of the most polluting conventional cars by electric vehicles in a revenue-neutral way could significantly improve their environmental benefits and cost effectiveness.

### Authorities’ views on structural and labor issues
- Agreement with assessment of structural issues; priority placed on supporting youth, low-income, and foreign-born through effective education and training programs to facilitate labor force entry.
- Urgent need to dampen inflow into the sickness benefit scheme and the disability scheme; Norway has a higher number on such benefits than most other countries.
- Labor force participation has increased; tight labor market and record high number of vacancies seen as opportunity for discouraged workers.
- Concern over shortage of migrant labor in services and construction, initially due to limits in entry requirements; inflow has recently picked up but not to pre-pandemic levels.
- On climate policies, authorities agree broadly on progress but note recent energy sector developments may require accelerated implementation even though Norway is among the lowest emitters.

### Staff appraisal — macroeconomic outlook, policies, and risks
- Norway exited the pandemic with nearly no scarring due to strong fundamentals; risks are balanced in the short term.
- Ample policy space provides room to mitigate adverse shocks; growth prospects are favorable.
- Main long-term challenges: demographics, inclusion, and climate change; outlook subject to risks mostly from adverse external conditions.
- External position assessed to be broadly in line with fundamentals.

Fiscal policy
- Fiscal management has been strong and accommodative within the fiscal rules, but over the medium term a return to a neutral fiscal stance should be targeted.
- The 2022 budget aims at a reduction in deficit; however, a tighter fiscal policy is needed to counter risks of overheating.
- Expansion of green transition and technologies is welcome.
- Norway can provide support to households to compensate for high electricity prices, but support should be targeted rather than across-the-board.
- To contain spending going forward, further strengthening the fiscal framework could be considered by complementing it with a medium-term expenditure framework guided by an operational rule.
- Reforms that increase labor supply (including changes to sickness and disability benefit scheme) could improve the macroeconomic outlook; more is needed to improve long-term fiscal sustainability.
- Important to promote improvements in the quality and cost efficiency of public services delivery.

Monetary and financial stability
- Monetary policy should continue to balance overheating risks and financial stability; the policy rate has been raised in a timely manner to address the risks.
- High uncertainty calls for continued flexibility in decision making accompanied by clear communication.
- Providing the Norges Bank with new policy setting powers on CCyB are a welcome addition to its regulatory toolkit.
- Norway’s advances in testing the CBDC are in line with global trends.
- Risks to financial stability appear broadly manageable; a sharp tightening of global financial conditions will put pressure on balance sheets.
- Banking system is well capitalized and should withstand potential shocks despite high household debt and exposure to commercial real estate (CRE).
- Continued efforts to improve data collection are commendable; more could be done to broaden the toolkit for mitigating CRE vulnerabilities.
- While house price growth moderated and likely to recede with interest rate increases, efforts should continue to alleviate constraints on supply of new housing.
- Consideration should be given to a gradual phase out of mortgage interest deductibility.
- Room remains to enhance the framework to facilitate the exit for businesses, especially SMEs.
- Application of the new AML/CFT law is welcome, including increased frequency and coverage of inspections.
- To mitigate cybersecurity risks, authorities are testing critical infrastructure and working with the private sector to boost cyber security capabilities.

Structural reform priorities
- Wide-ranging agenda recommended: boost and diversify labor force participation, including among vulnerable groups; raise non-oil productivity by reducing school dropouts, upskilling, and changing the sickness and disability benefit system.
- Implement provisions under the new Integration Act to give more opportunities to immigrants.
- Close remaining digitalization gaps to further improve productivity.

Climate policy assessment
- Norway actively promotes climate adaptation and mitigation strategies, including globally.
- Support for innovation and digitalization for increased climate-smart productivity within agriculture; strengthen ability of low-income countries to adapt to climate change and manage climate-related risks; fund research, technology, and innovation by involving Norwegian and international research communities are welcome.
- Current efforts to achieve climate mitigation objectives through 2030 are centered on carbon taxation and initiatives such as research and development of carbon capture options.
- Norway endorsed the EU’s objectives of reorienting financial capital towards sustainable investment, managing financial risks stemming from climate change, and fostering transparency in financial and economic activity.

### Key statistics and indicators (selected)
- Norway plans to double climate financing to more than USD 1.6 billion by 2026.
- Contribution target: USD 100 billion overall target set in Paris by developed countries.
- Vehicle electrification: about half of the passenger cars will be at zero emissions by 2030 (Climate plan, 2021–30).
- Population (2021): 5.4 million.
- Per capita GDP (2021): US$ 89,041.6.
- Literacy: 100 percent.
- Main products and exports: Oil, natural gas, fish (primarily salmon).
- Real GDP (change in percent) — 2019: 0.7; 2020: -0.7; 2021: 3.9; 2022: 3.6; 2023: 2.6; 2024: 2.2 (Table 1).
- Unemployment rate (percent of labor force) — 2019: 3.7; 2020: 4.6; 2021: 4.4; 2022: 3.9; 2023: 3.8; 2024: 3.7 (Table 1).
- CPI (end of period) — 2019: 1.4; 2020: 1.4; 2021: 5.3; 2022: 4.7; 2023: 3.5; 2024: 2.5 (Table 1).
- Central government non-oil balance (percent of mainland GDP) — 2019: -7.4; 2020: -12.2; 2021: -11.3; 2022: -8.6; 2023: -8.4; 2024: -8.4 (Table 1).
- Government Pension Fund Global (percent of mainland GDP) — 2019: 329.2; 2020: 358.5; 2021: 377.7; 2022: 352.2; 2023: 357.0; 2024: 363.5 (Table 1).

### Proposed follow-up
- It is proposed that the next Article IV consultation with Norway be held on the standard 12-month cycle.

*Source: IMF staff report excerpt for Norway (selected sections).*

### Annex I.  External Sector Assessment

### Annex I.  External Sector Assessment

### Overall assessment
- The external position of Norway in 2021 was broadly in line with what is implied by medium-term fundamentals and desirable policies, based on both the current account and REER assessments.
- Norway has sizable external buffers with a NIIP of more than 3.5 times mainland GDP.
- Potential policy responses:
  - External buffers provide significant time to address competitiveness issues as Norway gradually shifts away from its offshore activities.
  - Fiscal and structural policies should aim to foster productivity growth, higher labor market participation, and wage moderation to enhance non-oil sector competitiveness.
  - There is scope for greener and growth-enhancing private and public investments to facilitate structural transformation of the economy.

### Foreign assets and liabilities: position and trajectory
- NIIP reached 359 percent of mainland GDP at end-2021, increasing from 320 percent in 2020.
- Gross Assets: 635 (percent mainland GDP, 2021).
- Reserve Assets: 22.8 (percent mainland GDP, 2021).
- Gross Liabilities: 274 (percent mainland GDP, 2021).
- Gross External Debt: 157 (percent mainland GDP, 2021).
- The general government is the main external creditor with net external assets of 358 percent of mainland GDP, notably the Government Pension Fund Global (GPFG), with assets under management reaching 3.6 times mainland GDP by end-2021.
- The financial sector remains the largest net external debtor given reliance on wholesale funding, at over 30 percent of GDP.
- International reserves have remained stable at a comfortable 22.8 percent of mainland GDP.
- Assessment: The NIIP position is expected to remain strong and stable due to the sound management of GPFG’s assets. Negative revaluation risks are mitigated by asset diversification.

### Current account
- Background facts:
  - Driven by large oil exports, the CA averaged 5 percent of total GDP over 2015–20.
  - Mainland trade balance averaged near -11 percent of mainland GDP over 2015–20, despite positive real growth of non-oil exports (near 1 percent average) over the same period.
  - In 2021, net real mainland exports grew by 41.6 percent (primarily due to the negative impact of Covid-19 pandemic on imports of tourism and travel services).
  - Total nominal trade balance increased to 12.3 percent of mainland GDP in 2021, compared to -0.8 percent in 2020.
  - Overall, the current account increased to 15 percent of total GDP in 2021 due to a large rebound in oil prices, helped also by an increase in the primary income balance (reflecting lower flows abroad due to postponed dividend and interest payments).
- Assessment:
  - The current account is assessed to be broadly in line with what is implied by fundamentals and desirable policies.
  - Cyclically adjusted 2021 CA per EBA calculations was 14.1 percent of GDP; EBA regression-estimated norm is 15.1 percent of GDP, suggesting a gap of -1 percent.
  - After correcting for short-term pandemic effects, the estimated gap becomes -2.5 percent.
  - Staff notes Norway-specific biases: the estimated bias exceeds 3.1 percent of GDP, bringing the overall CA gap to 0.66 percent.
  - Staff assesses that a larger share of recent dynamics is temporary and a return to lower oil prices and resumption of travel activities is likely to bring the trade balance closer to its historical pattern.

### Real exchange rate and reserves
- The krone floats freely against other currencies. Norges Bank has not intervened in FX markets since 1999, with a brief exception in March 2020.
- At the end of 2021, Norges Bank reserves were at 22.8 percent of mainland GDP.
- Assessment:
  - Reserves are ample even considering the exposure of banks to wholesale funding and risks of regional macro-financial shocks (imports are less than 35 percent of total GDP and there is no GG short-term financing risk thanks to the large pension fund).
  - Norges Bank has expanded swap agreements with the Fed and Nordic central banks to bolster market confidence.
  - The central bank remains ready to intervene if the exchange rate deviates substantially from fundamentals.

### Capital and financial accounts: flows and vulnerabilities
- Background:
  - Flows, both outgoing and incoming, mainly span Nordic and EU countries.
  - Banks rely heavily on wholesale funding—accounting for about half of total banks’ funding—with about half of wholesale funding from foreign sources.
- Assessment:
  - Financial account vulnerability is low, but the banking sector’s reliance on external wholesale funding remains a source of vulnerability.
  - The increase of duration in part of the funding structure is a positive development.

*Italic: Source — Annex I. External Sector Assessment (Norway), IMF staff.*

### Annex III. Figure 2. Norway: Public Debt Sustainability Analysis —Composition of Public

### Annex III. Figure 2. Norway: Public Debt Sustainability Analysis —Composition of Public Debt and Alternative Scenarios

### Underlying assumptions (in percent)
- Baseline Scenario (2022–2027)
  - Real GDP growth: 3.6, 2.6, 2.2, 1.6, 1.3, 1.3
  - Inflation: 8.8, -0.1, -0.3, 0.2, 0.6, 0.9
  - Primary Balance: 19.4, 17.2, 14.7, 12.5, 11.0, 9.7
  - Effective interest rate: 1.2, 1.4, 1.5, 1.6, 1.7, 1.8

- Historical Scenario (2022–2027)
  - Real GDP growth: 3.6, 1.6, 1.6, 1.6, 1.6, 1.6
  - Inflation: 8.8, -0.1, -0.3, 0.2, 0.6, 0.9
  - Primary Balance: 19.4, 4.8, 4.8, 4.8, 4.8, 4.8
  - Effective interest rate: 1.2, 1.4, 1.5, 1.6, 1.8, 1.9

- Constant Primary Balance Scenario (2022–2027)
  - Real GDP growth: 3.6, 2.6, 2.2, 1.6, 1.3, 1.3
  - Inflation: 8.8, -0.1, -0.3, 0.2, 0.6, 0.9
  - Primary Balance: 19.4, 19.4, 19.4, 19.4, 19.4, 19.4
  - Effective interest rate: 1.2, 1.4, 1.5, 1.6, 1.7, 1.7

### Composition of public debt — key visuals described
- Gross Nominal Public Debt (projection, in percent of GDP)
  - Time series shown for 2020–2027 (baseline and alternative scenarios presented visually).
- Public Gross Financing Needs (projection, in percent of GDP)
  - Time series shown for 2020–2027 with positive and negative ranges plotted.
- By Maturity (projection, in percent of GDP)
  - Series by year for 2011, 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027 split into Medium and long-term and Short-term.
- By Currency (projection, in percent of GDP)
  - Series by year for 2011, 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027 split into Local currency-denominated and Foreign currency-denominated.

### Alternative scenarios presented
- Baseline
  - Uses the Baseline Scenario underlying assumptions listed above.
- Historical
  - Uses the Historical Scenario underlying assumptions listed above.
- Constant Primary Balance
  - Uses the Constant Primary Balance underlying assumptions listed above.

*Source: IMF staff calculations.*

### 0.9 percentage points. Lastly, the analysis suggests that climate policy to curb the oil sector’s total

### 1norea2022001 - 0.9 percentage points. Lastly, the analysis suggests that climate policy to curb the oil sector’s total

### Climate risks, carbon pricing, and bank balance sheets
- Climate policy to curb the oil sector’s total output could reduce valuations of oil producers, implying portfolio effects for Norwegian households and asset managers.
- Norges Bank estimated effects on banks’ relative exposures to an emission price increase from today’s level to NOK 2,000 (USD 221).
- Energy labeling of commercial property and physical risks (storm surges and flooding) were examined to show how banks’ property collateral could be affected by changes in sea level or flooding.
- On aggregate:
  - Banks have moderate loans to emission-intensive industries, but are exposed to some industries with high emissions, especially shipping.
  - Banks have sizeable loan exposures to commercial property.
  - For certain banks, a portion of current collateral values in commercial property could lie in the risk zones in the event of a rise in sea level or flooding.
- Overall conclusion: Forward-looking banks that actively consider climate change risk assessments should have ample scope to reduce current balance sheet risks.

### Sectoral vulnerability to carbon price increases (Annex V, Figure 2 summary)
- Agriculture, waste management and transportation are most affected under all scenarios.
- Scenarios reported:
  - $75 and $150 Average Carbon Price — Percentage of firms by sector which CIR drops from 2>ICR>1 to below 1.
  - $75 and $150 Average Carbon Price – Parallel Increase — Percentage of firms by sector which CIR drops from 2>ICR>1 to below 1.
- Sector key (as labeled in figure note): 
  - A = Agriculture, forestry and fishing;
  - B = Mining and Quarrying;
  - C = Manufacturing;
  - D = Electricity, gas, steam and air conditioning supply;
  - E = Water supply, sewerage, waste management and remediation activities;
  - F = Construction;
  - G = Wholesale and retail trade, repair of motor vehicles and motorcycles;
  - H = Transportation and storage;
  - I = Accommodation and food service activities;
  - J = Information and communication;
  - K = Financial and insurance activities;
  - L = Real estate activities;
  - M = Professional, scientific and technical activities;
  - N = Administrative and support service activities;
  - O = Public administration and defence, compulsory social security;
  - P = Education;
  - Q = Human health and social work activities;
  - R = Arts, entertainment and recreation;
  - S = Other service activities;
  - T = Activities of households as employers; undifferentiated goods- and services-producing activities of households for own use.

### Authorities’ responses to past IMF Article IV recommendations (summary of Annex VI)
- Fiscal policy recommendations and authorities’ actions:
  - Unwind temporary measures, simplify the VAT system:
    - The temporary rate cuts introduced during the crisis have been unwound. Some concessionary VAT rates have been raised, narrowing differences across goods and services. Norway’s standard VAT rate is 25 percent.
    - Assessment: Room to simplify and broaden the system considerably; longstanding recommendation remains.
  - Triple the carbon tax (with offsetting tax cuts to make the plan revenue neutral and to mitigate the social impact):
    - The tax increase has been announced.
    - Compensating measures to households (e.g., lower fuel taxation) seem to move incentives in the wrong direction, are not targeted to the most vulnerable, and retard replacement of the most polluting cars.
  - Consider an expenditure review with the aim of improving the cost-effectiveness of government spending:
    - The business R&D and innovation support was the subject of a public spending review (2020-21); the incoming government signaled a new review.
- Financial stability recommendations and actions:
  - Consider tightening mortgage regulations in line with FSA recommendations; make mortgage regulations permanent to contain risky mortgages:
    - No progress.
  - Step up effort to collect and disseminate CRE data for better monitoring of risks:
    - Some progress.
- Structural reform recommendations and actions:
  - Reforms of sickness and disability schemes to sustain high labor participation:
    - No progress on many long-standing staff recommendations; the Employment Commission delivered a final report in 2021 with only some aligned proposals.
  - Relaxing restrictions on land-use:
    - No progress.
  - Facilitating technological change, including a more developed open government data ecosystem:
    - Some progress.

### Fund relations, data, and statistical issues
- Membership Status: Joined: December 27, 1945; Article VIII.
- Quota and Fund positions (as of July 31, 2022):
  - Quota 3,754.70 SDR Million 100.00 percent of quota.
  - Fund holdings of currency 2,688.67 SDR Million 71.61 percent of quota.
  - Reserve tranche position 1,066.04 SDR Million 28.39 percent of quota.
  - New Arrangements to Borrow: 26.31 (SDR Million).
- SDR Department:
  - Net cumulative allocation 5,161.78 SDR Million 100.00 percent of allocation.
  - Holdings 5,355.39 SDR Million 103.75 percent of allocation.
- Projected Payments to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Charges/Interest: 0.07 (Forthcoming 2023), 0.07 (2024), 0.07 (2025), 0.07 (2026).
  - Total: 0.07 (2023), 0.07 (2024), 0.07 (2025), 0.07 (2026).
- Exchange Arrangements: De jure and de facto classified as freely floating. Norway accepted obligations under Article VIII.
- Article IV Consultation cycle: 12-month.
- FSAP Participation: 2020.
- Data adequacy for surveillance: Data provision is adequate. Data generally of high quality, timely, and comprehensive.
- Monetary and Financial Statistics: Compiled consistent with the 2016 Monetary and Financial Statistics Manual and Compilation Guide; room to improve timeliness of data on other financial corporations.
- Financial Soundness Indicators: All core FSIs for deposit takers reported quarterly; only one encouraged FSI for deposit takers is reported; many encouraged FSIs for other sectors provided.
- SDDS subscriber since 1996; uses flexibility option on timeliness of general government operations-financing. Data ROSC completed in 2003.

### Authorities’ statement highlights (Statement by Mika Pösö and Bjornar Slettvag, September 14, 2022)
- Economic conditions and labor market:
  - Economic growth is strong; registered unemployment not at lower levels for decades.
  - Inflation rates are the highest since the 1980s; core inflation not higher since recordings began in 2001.
  - Wage growth is picking up; indications of overheating and substantial risk of enduring high inflation.
  - Growth in the mainland economy (excluding petroleum production and shipping) strong since containment measures removed in February.
  - Ministry of Finance forecasts growth in the mainland economy to outpace trend both this and next year; unemployment expected to remain low.
- Energy production and transition:
  - Gas production has been increased substantially since last year due to Europe situation; increase partly due to shift from oil to gas and shortening maintenance shutdowns.
  - Gas production is at its maximum; years required to develop new fields.
  - Medium- to long-term challenge: managing a smooth transition to a less oil-dependent growth model.
- Fiscal policy and consolidation:
  - Fiscal spending increased significantly in 2020 and 2021 to counteract pandemic impacts.
  - Revised 2022 budget proposed significant cutbacks to reduce the non-oil deficit in 2022.
  - Current situation with high positive output gap and high inflation calls for fiscal restraint; spending should normalize to pre-pandemic levels.
  - Norwegian fiscal framework: all petroleum revenues transferred into the Government Pension Fund Global; spending guided by expected real return estimated at 3 percent.
  - Authorities emphasize no plans to alter the fiscal rule; transfers from the fund to the budget budgeted significantly below the 3-percent guideline.
  - Staff recommendation to expand the fiscal framework with a medium-term expenditure framework: authorities not convinced of added value.
- Monetary policy:
  - Norges Bank started increasing the policy rate from 0 percent in the second half of 2021.
  - In June 2022, policy rate increased by 0,5 percentage point to 1.25 percent; forecast implied a further rise to around 3 percent by summer 2023.
  - In August 2022, policy rate raised further to 1.75 percent; Committee assessed a markedly higher policy rate needed to ease pressures and bring inflation down toward target.
  - Risks noted: little spare capacity, persistent global price pressures could accelerate inflation; higher rates may cool housing market and curb household consumption faster than envisaged; risk of sharper slowdown in global growth.
  - Household vulnerability: High household debt and a large proportion of mortgages with floating interest rate make households sensitive to interest rate increases.
- Financial stability and housing market:
  - Mortgage regulation includes caps on loan-to-value and debt-to-income ratios; regulation expires end-2024 with evaluation this fall.
  - Ministry of Finance asked Financial Supervisory Authority to evaluate regulation and advise on need for changes, including scope extension to other loan types.
  - Authorities note staff recommendations: permanently preserve tighter mortgage regulation limits for Oslo; ease restrictions on supply of new housing; alter regulations to boost construction efficiency; curb demand through gradual phasing out of mortgage interest deductibility.
  - Banks’ exposure to commercial real estate remains an important vulnerability; current prudential toolkit considered comprehensive; high bank capital ratios mitigate risks.
- Public finances and long-term sustainability:
  - Norway faces fiscal challenges due to ageing population and lower revenues from oil and gas production.
  - Authorities’ strategies: expand labor force participation and improve value for money in the public sector without increasing taxation.
  - Employment rate increased significantly after the pandemic; now at highest level in ten years, but many remain outside labor force.
  - Pension reform implemented to expand labor participation among elderly workers; commission evaluation finds it works as planned and proposed linking all formal pension age-limits to longevity.
  - Efficiency initiatives: spending reviews introduced; further efforts aim to modernize public organizations and identify obsolete spending items.

*Source: IMF staff report and informational annex for Norway, Staff Report for the 2022 Article IV Consultation (as provided in the supplied content).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1norea2022001.pdf_