IMF Executive Board Concludes 2011 Article IV Consultation with Norway

Public Information Notice (PIN) No. 12/9
February 2, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2011 Article IV Consultation with the Norway is also available.

On January 27, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Norway.1


Norway’s economy has performed well amidst considerable global turbulence. Over the last two years, mainland GDP has grown steadily at an annual pace of 2-3 percent, supported by robust growth in consumer spending, a rebounding housing market, and favorable terms of trade developments. Output has now surpassed its pre-recession levels, and unemployment remains low at around 3¼ percent. This solid recovery has been aided by supportive policies, including low interest rates (the policy rate is currently 1¾ percent) and temporary fiscal stimulus employed during the recession. Financial sector performance has generally picked up along with economic activity over the last two years, with credit growing solidly and capital ratios increasing. However, progress on reducing liquidity risks has been mixed: the average maturity of wholesale liabilities has been lengthened, but the sector-wide deposit-to-loan ratio remains somewhat low and falling.

Going forward, moderately paced growth is expected to continue. Mainland GDP is projected to grow by around 2¼ percent in 2012. Expansion will be mostly propelled by domestic demand, given solid wage growth, continued near-term momentum in the housing market, and sluggish growth amongst major trading partners. The closing of the output gap, along with upward pressure on prices from solid wage growth, should slowly push up inflation from its current low rates (which partly reflect past krone appreciation) toward the 2½ percent target over the next two years. Over the medium term, growth is expected to stay near its potential rate of 2¾ percent, but gradually become more balanced as external demand slowly improves and as domestic demand eases due to tighter macroeconomic policies and eventual cooling of the housing market.

However, this relatively benign central scenario is subject to significant risks. One important risk is the possibility of intensified turmoil in the eurozone. Although Norway’s economy is better placed than many in Europe to weather such turmoil—given its low sovereign risk and the limited direct exposure of Norway’s banks to the most vulnerable eurozone countries—severe stress would undoubtedly affect Norway via shaken consumer confidence, lower oil prices and non-oil exports, and strains in international interbank markets, which are an important funding source for Norway’s largest banks. A key domestic risk is that buoyant house prices (Norway currently has the highest house price-to-rent ratio relative to its historical average amongst all OECD economies) may eventually reverse, with adverse consequences for consumption, residential investment, and financial stability, especially given very high levels of household debt.

Executive Board Assessment

Executive Directors welcomed Norway’s steady economic recovery, which has benefited from supportive policies. The challenge going forward will be to continue stable growth in the face of a difficult near-term global outlook while at the same time reducing vulnerabilities arising from long-run fiscal pressures and high levels of household debt and house prices.

To address the latter risks, Directors agreed on the need to tighten macroprudential policies. They welcomed efforts to tighten standards for mortgage lending, including through the use of recommended limits on loan-to-value and loan-to-income ratios. Further actions to reduce financial stability risks could include making these limits more binding; raising minimum risk weights on mortgages, in coordination with other Nordic countries to limit the scope for cross-border regulatory arbitrage; and reducing the degree to which the tax code provides incentives for households and corporations to leverage themselves. Banks should be encouraged to bolster their capital and liquidity buffers, including by exercising restraint on dividends and remuneration, and reducing reliance on short-term foreign wholesale funding. Directors also called for close monitoring of mortgage companies, which rely heavily on covered bond financing.

Directors welcomed the ongoing work on strengthening the institutional framework for macroprudential policy, with an enhanced role for the central bank. Issues to be addressed would include the coordination of macroprudential policy with liquidity management, payment systems oversight, and monetary policy; the adoption of a framework that encourages information-sharing across policymaking bodies, while fitting the national context; and the establishment of clear lines of responsibility.

Directors supported the broadly neutral fiscal stance in the short term. Provided that growth strengthens, fiscal tightening would be appropriate over the medium term to rebuild precautionary fiscal buffers and ensure that the fiscal guidelines are met on average over the cycle. It would also help reduce the long-run fiscal gap stemming from rising healthcare and pension costs and declining oil revenue. Directors welcomed the progress on entitlement reform. They encouraged the authorities to build broad public consensus for further reforms aimed at reducing costs, increasing efficiency, and bolstering employment, while maintaining a strong safety net for those in need.

Directors noted that the contractionary effects from macroprudential and medium-term fiscal tightening can be largely offset by keeping monetary policy looser than it would be otherwise. Such a policy mix will also reduce risks of excessive exchange rate appreciation and associated competitiveness problems. In this context, Directors generally agreed that the current monetary policy stance is appropriate and that monetary policy should be the first line of defense to address downside risks. A number of Directors observed that Norway also has room to delay fiscal tightening should large external risks materialize.

Norway: Selected Economic and Social Indicators, 2004–12
2004 2005 2006 2007 2008 2009 2010 2011 2012

Real economy (change in percent)


Real GDP

4.0 2.6 2.4 2.7 0.0 -1.6 0.7 1.7 1.7

Real mainland GDP

4.1 3.8 4.6 6.8 1.4 -1.6 1.8 2.6 2.2

Domestic demand

7.1 5.4 6.4 5.9 1.3 -4.1 3.2 3.0 2.9

Private consumption

5.2 4.9 5.1 5.4 1.7 0.0 3.6 3.1 3.0

Private mainland fixed investment

12.7 15.1 10.7 14.6 -2.4 -18.4 -1.0 6.1 5.4

Government consumption

0.7 1.9 1.9 2.7 2.6 4.3 1.7 2.5 2.5

Unemployment rate (percent of labor force)

4.5 4.6 3.4 2.5 2.6 3.2 3.6 3.6 3.6

Output gap (mainland economy, - implies output below potential)

-0.9 -0.6 0.7 2.4 1.5 -0.7 -1.0 0.0 -0.2

CPI (average)

0.5 1.5 2.3 0.7 3.8 2.2 2.4 1.4 2.0

CPI (end of period)

1.1 1.8 2.2 2.8 2.1 2.0 2.8 1.6 2.2

Gross national saving (percent of GDP)

32.5 37.2 38.9 37.2 39.0 31.5 33.9 35.8 35.2

Gross domestic investment (percent of GDP)

20.3 21.5 23.0 25.8 24.5 22.5 22.4 22.1 22.8

Public finance


Central government (fiscal accounts basis)


Overall balance (percent of mainland GDP) 1/

9.2 14.5 19.7 18.3 22.3 10.0 8.9 11.5 10.8

Structural nonoil balance (percent of mainland trend GDP) 2/

-3.4 -3.4 -2.9 -2.8 -3.3 -5.3 -5.4 -5.2 -5.5

in percent of Pension Fund Global capital 3/

-5.6 -4.9 -3.4 -2.7 -3.0 -4.4 -4.1 -3.5 -3.9

General government (national accounts basis, percent of GDP)


Overall balance

11.1 15.0 18.2 17.2 18.8 10.6 10.5 13.2 11.6

Net financial assets

103.7 120.6 133.8 139.2 123.8 157.0 164.0 168.1 175.1

of which: capital of Government Pension Fund Global

57.9 71.4 81.7 87.4 88.8 111.9 121.8 128.6 137.0

Money and credit (end of period, 12-month percent change)


Broad money, M2

7.5 11.7 13.7 16.7 3.8 2.3 5.4

Domestic credit, C2

8.6 13.2 14.3 14.0 12.0 2.9 6.1

Interest rates (year average, in percent)


Three-month interbank rate

2.0 2.2 3.1 5.0 6.2 2.5 2.5 2.8

Ten-year government bond yield

4.4 3.7 4.1 4.8 4.5 4.0 3.5 3.8

Balance of payments (percent of mainland GDP)


Current account balance

16.2 21.6 23.2 18.2 23.8 14.7 14.6 17.8 15.9

Balance of goods and services

17.2 21.7 23.4 17.9 23.7 14.3 15.7 18.3 16.2

Mainland trade balance of goods

-8.0 -7.9 -8.1 -8.4 -8.0 -6.9 -6.7 -6.5 -6.8

Offshore trade balance of goods

24.1 28.5 30.5 26.2 31.6 20.8 22.2 24.5 22.8

Exports of goods and services (volume change in percent)

1.1 0.4 -0.9 1.4 0.7 -4.6 1.1 0.4 0.3

Imports of goods and services (volume change in percent)

9.7 7.8 9.2 10.1 4.1 -12.7 9.3 4.0 3.7

Terms of trade (change in percent)

7.7 15.6 11.9 -2.5 13.1 -13.9 6.2

International reserves (end of period, in billions of US dollars)

44.3 47.0 56.8 60.8 50.9 48.9 52.9

Fund position


Holdings of currency (percent of quota)

66.5 87.4 91.8 93.3 88.4 80.6 76.6

Holdings of SDR (percent of allocation)

138.5 128.1 179.5 138.6 169.0 102.4 102.0

Quota (SDR millions)

1,672 1,672 1,672 1,672 1,672 1,672 1,672

Exchange rates (end of period)


Exchange rate regime

Free float


Bilateral rate (NOK/USD), end-of-period

6.0 6.8 6.3 5.4 7.0 6.2 5.8 6.0

Nominal effective rate (2005=100)

99.0 99.5 99.0 103.4 88.7 101.2 101.3

Real effective rate (2005=100)

98.8 99.3 98.9 102.7 88.7 102.0 102.5

Sources: Ministry of Finance; Norges Bank; Statistics Norway; International Financial Statistics; and IMF staff estimates and projections.

1/ Projections based on authorities' 2012 budget.

2/ Authorities' key fiscal policy variable; excludes oil-related revenue and expenditure, GPF-G income, as well as cyclical effects.

3/ Over-the-cycle deficit target: 4 percent. 

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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