NORWAY – Svein Gjedrem, the governor of the country’s central bank - Norges Bank, has suggested a link could be made between the stretched Norwegian pension system and the burgeoning revenues of the government’s NOK360bn (e44bn) petroleum fund.
In his annual speech to the supervisory council of Norges Bank, Gjedrem parallels the future growth in pension liabilities with the simultaneous growth of the state oil fund.
He argues that the petroleum fund’s objective is not clear enough and says the future use of the assets has not been highlighted sufficiently, with the capital yet to be earmarked for specific uses.
Gjedrem also assumes that increasing government social spending cannot be paid for by increasing taxes, because this would mean loss of credibility for the preservation of the welfare state.
“ The government thus has a clear motive for saving. At the same time, the high level of petroleum revenues provides scope for accumulating substantial government financial wealth,” says Gjedrem.
“ Investment must be based on the reason underlying government saving which, as I understand it, is to distribute petroleum wealth across generations and establish a foundation for maintaining important elements of the welfare state,” he adds.
A study is being planned to analyse aspects between the likely future developments of the two, says Gjedrem.
Last November, in another speech, Gjedrem based similar arguments on Norwegian labour force forecasts, which showed the number of people in the work force per pensioner set to drop from 2.5 to 1.8 by the year 2030.
Furthermore, government pension expenditure is likely to rise from 7.5% of gross domestic product (GDP) to 15%, while petroleum revenues are expected to drop to less than 4% of GDP.
The Norwegian Petroleumsfondet is built up through transfers of petroleum revenues from abroad, converting the value of the natural resource into a financial asset.
The fund, expected to rise to around NOK1.2trn by the year 2005, is owned by the ministry of finance, who has the responsibility for its management, which it has delegated to Norges Bank.
In an interview yesterday with the Norwegian newspaper Aftonbladet, Rögnvaldur Hannesson, a professor of economics at the Norwegian School of Economics and Business Administration argued that the fund should be changed outright to a pension plan.