NORWAY – The Organisation for Economic Cooperation and Development has warned Norway to limit transfers from the Petroleum Fund.

The OECD said it was “essential” that next year’s budget avoid higher transfers from the NOK1.09trn (€134bn) fund, which was set up to put aside the country’s oil wealth for pensions.

At issue is the so-called fiscal rule, which states that only the real return on the fund, assumed to be 4% of its market value, can be used for general budgetary purposes. Deviations from this are allowable, though they were “substantially larger” than projected in 2002-2004.

And the OECD said the 2005 budget also implies a transfer considerably exceeding the fund’s value at the end of last year.

“It is therefore essential that the 2006 budget eschews higher transfers from the funds,” the organisation said in a policy brief accompanying its economic survey of Norway. It noted the pressure to spend more of the capital of the fund straight away.

“It is crucial that the Norwegian authorities explain clearly that while the fund revenue can be spent indefinitely, its capital can be spent only once, and that its capital is being consumed every year that the fiscal rule is over-ridden.”

The Paris-based group summed it up, saying: “The oil wealth and the sensible proposals for pension reform should not be allowed to obscure the basic fact that neither the one nor the other, nor even both in combination, will obviate the need for hard choices for public spending in the years to come.”

“The current public pension system is clearly unsustainable in the longer term, and even if proposed reforms are fully implemented, the increase in spending on pensions and health will outstrip any likely rise in revenue from the Petroleum Fund.”

The OECD said that rules allowing portability of occupational pensions between the public and private sectors should be considered.

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