Norway receives clear recommendations. The country must cut spending and reform its benefits system
The International Monetary Fund (IMF) is calling on Norway to reduce public spending. The organization indicates that Jonas Gahr Støre’s government should pursue a more neutral fiscal policy if it wants to reduce the pressure to keep interest rates high. The IMF is also demanding changes to the benefits system, a reassessment of Norgespris, and the continuation of a restrictive monetary policy.
The IMF has called on Norway to reform its social welfare system.
Fot. stock.adobe.com/standardowa/VarnakovR
On Thursday, September 3, the IMF presented its own assessment of Norway’s economic situation. In this year’s report, the organization states that the key task remains restoring price stability without unnecessarily weakening economic activity and financial stability. The recommendations cover several areas.<br /><br />Monetary policy should remain restrictive. At the same time, fiscal policy should move towards a neutral stance, which, according to the IMF, would reduce the burden on monetary policy and the risk of keeping interest rates high for an extended period. The organization also draws attention to the situation in the labour market.
NAV reform is needed. The IMF points to specific changes
The IMF assesses that too many people in Norway remain outside the labour market. According to the organization, reform of employment-related benefits is needed to increase labour supply, reduce structural pressure on spending and maintain the current welfare-state model. Particular attention was given to younger workers. The IMF wants to limit the number of people entering long-term health-related benefits and provide more effective support for their return to work.<br /><br />The changes are to cover the sick-pay and disability benefit systems. The IMF also points to the need for better coordination between benefits, healthcare and services offered by the Norwegian Labour and Welfare Administration (NAV), as well as the creation of more effective pathways back into employment. The organization also proposes strengthening incentives to work. At the same time, the system is still meant to protect people who are unable to take up employment.
The IMF has called for NAV reform.Photo: MN/K. Lukina
Norgespris under scrutiny. The budget is to become more neutral
The IMF wants a reassessment of energy price support schemes, including Norgespris. According to the organization, these solutions protect households from price fluctuations, but at the same time weaken the signals encouraging energy saving and investment in energy efficiency and new sources of clean energy. The IMF also points to potentially high costs for the budget. It is also critical of the reduction in fuel taxes.<br /><br />The organization expects a more neutral budget for 2027. New permanent commitments and spending overruns should be covered by savings, reprioritization or efficiency improvements, rather than by increasing the overall level of spending. The IMF also recommends better targeting of broad support programmes. At the same time, it warns that Norway’s rule governing spending from the sovereign wealth fund does not in itself guarantee the sustainability of public finances.
The IMF also draws attention to interest-rate policy. In the organization’s view, rates should remain at a restrictive level until clear and broad signs emerge of a lasting decline in core inflation. The experts note, however, that decisions should depend on incoming data, as forecasts remain subject to considerable uncertainty.
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