The international financial crisis and downturn in the global economy has made the Norwegian economy face great challenges. The authorities in many countries, met the crisis with comprehensive measures. Norway has responded with targeted and powerful action in financial markets
Condition of money and credit markets is significantly improved. There are also clear signs that economic activity is rising again, after a very weak growth at the end of 2008 and into 2009. For 2010 it is estimated a GDP growth for mainland Norway over 2 percent after a decline of 1 percent in this year. The Government has therefore added up to a slightly expansionary budget for 2010.
In Norway the government and Norges Bank took measures to stabilize financial markets. In addition, economic policy was revised in an expansionary direction. Norges Bank has reduced its key rate by a total of 4.5 percentage points to 1.25 percent, while fiscal policy in 2009 is the most expansive of over 30 years.
Government’s budget proposal for 2010 implies a structural, non-oil deficit of 148.5 billion kroner. This is about 44.6 billion kroner over the estimate for the expected real return on the Government Pension Fund The proposed increase in the use of oil revenues in 2010 equivalent to about ½ percent of trend GDP for mainland Norway.
The guideline for fiscal policy is a plan for a gradual increase in the use of oil revenues, roughly in line with movements in expected real return – estimated at 4 percent – of the Fund’s capital at the beginning of the year. At the same, it opens the way for the use of petroleum revenues each year in an amount to smooth out fluctuations in the economy. The financial crisis and the severe international recession has made it necessary to use this maneuver, so that fiscal policy has been able to contribute to stable developments in the Norwegian economy.
Main features of the budget proposal for 2010
The main features of the budget proposal for 2010 can be summarized as follows: (all amounts are stated in 2010-NOK):
• A structural, non-oil budget deficit of 148.5 billion dollars, which is 44.6 billion kroner higher than expected fund returns in 2010.
• The structural non oil deficit is projected to increase by 14.6 billion kroner from 2009 to 2010.
• The same tax level as in 2009.
• A real, underlying growth in government budget expenditure of around 1 ¾ per cent from 2009 to 2010.
• The oil budget deficit in 2010 is estimated at just under 154 billion, an increase of almost 36 billion from 2009. Lower tax revenues and increased spending on unemployment insurance as a result of weaker economic conditions (so-called automatic stabilizers) contributes 25 billion of this increase.
• Government net cash flow from petroleum activities is estimated at about 220 billion.
• Net sales in the Government Pension Fund – Global, which is transfered to the state budget to cover the oil deficit.
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