COMMENTARY – The head of the Norwegian central bank, Svein Gjedrem, appears to have dropped a hint about the future of the Petroleum Fund.
In typical central banker-speak, he’s let slip that short-term considerations should be part of the decision-making for petroleum revenues.
The remarks could be a sign that Norway’s commitment to putting the petroleum assets away for the benefit of future generations may be weakening amid pressure to spend the fund’s capital.
“Weight must not only be given to long-term considerations and the distribution of wealth across generations, but also to developments in the real exchange rate and the competitiveness of the exposed sector over the short and medium term,” Gjedrem told an energy conference last week.
This is at odds with this statement, on Norges Bank’s own website: “The Petroleum Fund helps to maintain a balance by distributing the petroleum wealth across generations.
“Although Norway's petroleum wealth is being depleted, the return on the invested capital will benefit many future generations.”
Gjedrem’s latest comments come amid higher than anticipated transfers from the €150bn fund to the central budget – a state of affairs that has been flagged up by the OECD.
The OECD said this month that it “essential” that the 2006 budget avoid higher transfers from the fund.
Under the so-called fiscal rule, no more than 4% (the fund’s expected long-term return) can be diverted to regular budgetary uses.
But this rule can be broken, provided the transfers return to the 4% level. But transfers are currently running well ahead of that figure.
The OECD pointed out that while the fund’s revenue can be spent indefinitely, its capital can be spent only once. “It’s capital is being consumed every year that the fiscal rule is over-ridden.”
All this comes as the current public pension system is, in the OECD’s words “clearly unsustainable”.
By appearing to endorse a short-term view, Gjedrem – who after all oversees NBIM which manages the Petroleum Fund – may be yielding to the clamour to spend the family silver to meet current spending needs.
At the very least, the comments undermine the very concept of putting petroleum wealth aside for the future.
Gjedrem made much in his speech about the stabilizing effect the Petroleum Fund has on the exchange rate.
But observers may well wonder if his remarks may also signal a shift in thinking at the political and a retreat from the idea of cross-generation wealth preservation.