“Norway will become poorer,” OECD says / Energy / The Foreigner

“Norway will become poorer,” OECD says. The Organisation for Economic Cooperation and Development lists challenges for the Scandinavian country in its 2016 Economic Survey of Norway. Recent economic developments, policies and prospects, as well as an insight in higher education, agriculture, and rural policy are examined in the report. OECD Director Bob Ford talked about the Sovereign Wealth Fund in his speech at the presentation of the report.

oil, gas, kroner, economy, norway



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“Norway will become poorer,” OECD says

Published on Wednesday, 20th January, 2016 at 12:29 under the energy category, by Sarah Bostock and Michael Sandelson   .
Last Updated on 20th January 2016 at 13:02.

The Organisation for Economic Cooperation and Development lists challenges for the Scandinavian country in its 2016 Economic Survey of Norway.

Handful of kroner
Handful of kroner
Photo: aslakr/Flickr


Recent economic developments, policies and prospects, as well as an insight in higher education, agriculture, and rural policy are examined in the report.

OECD Director Bob Ford talked about the Sovereign Wealth Fund in his speech at the presentation of the report.

He highlighted that the SWF has acted as a buffer against worse economic times and a falling oil price, reported NRK.

“But the oil price drop means that Norway will become poorer, and we will have structural budget challenges in the years ahead,” he said.

Oil prices have declined rapidly over a short period, as have additional tax revenues from the oil sector, with a decrease of over 38 per cent during the last twelve months. 

Since 2014, oil prices have constantly been on the decline, dropping from USD 110 per barrel to under USD 30 per barrel now – Friday evening’s listed price was USD 28.88 per barrel, with Brent Crude trading at USD 28.20 per barrel on NASDAQ at time of publication.

“Norway has very high material living standards and scores well on other aspects of wellbeing, thanks to a mix of natural resources wealth, good policy making and inclusive and egalitarian social values,” says the OECD.

“[…] However, the substantial oil-price falls since 2014 have been a reminder of Norway’s exposure to external risks and consequently the importance of a flexible and competitive mainland economy.”

An analysis conducted by business daily Dagens Næringsliv shows that Norway could lose two-thirds of her estimated oil wealth if per barrel prices hold at their current low levels.

Last autumn, the Ministry of Finance estimated that the value of oil not yet extracted was NOK 4,200bn (some USD 425bn at today’s ROE). 89 per cent of this (NOK 3,750bn/about USD 424.2bn) belongs to the State.

Officials’ oil wealth calculations are based on a per barrel oil price of NOK 440 in 2016 (which the Progress Party’s (FrP) Minister of Finance Siv Jensen laid forth in the draft National Budget 2016 proposal), NOK 465 in 2017, and NOK 540 from 2018 onwards (some USD 49.7, 52.5, and 61, respectively).

It is also estimated that the value of Norway’s oil wealth would be reduced from NOK 4,200bn to NOK 2,500bn (about USD 282.57bn) if: prices per barrel were NOK 100 (some USD 11.3) lower than thought, and gas prices were reduced accordingly, percentage-wise.

But the per barrel oil price is currently roughly NOK 160 (some USD 18) lower than the Ministry’s original calculations.

If this difference continued, Norway’s oil wealth would then shrink to NOK 1,480bn (about USD 167.28bn), with the State’s 89 per cent share being NOK 1,320bn (some USD 149.25bn) – one-third of what Finance Minister Jensen estimated last autumn.

Dagens Næringsliv points out that the type of analysis that they have carried out is subject to considerable uncertainty.

Moreover, the Ministry of Finance tells them that differences in the oil price and roughness of calculations are linked to a corresponding degree.

Deputy Minister of Finance Paal Bjørnestad commented, however, that “there is little doubt that sustained lower oil prices will eventually have consequences; we will be less rich than we thought.”

“This of course means that we will be putting smaller earnings into the [Sovereign Wealth] Fund and the growth in our expected real return will be smaller.”

The OECD 2016 Economic Survey of Norway was handed to Minister of Finance Siv Jensen on Monday.

“The Norwegian economy is heading towards a new normal. The economic prospects are different than we have been accustomed to over the last 10-15 years. The steep fall in oil prices reinforces the turnaround,” she remarked about the report.

The full survey can be found here.




Published on Wednesday, 20th January, 2016 at 12:29 under the energy category, by Sarah Bostock and Michael Sandelson   .
Last updated on 20th January 2016 at 13:02.

This post has the following tags: oil, gas, kroner, economy, norway.





  
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