The Norwegian economy is in fine form at present. Per capita incomes are high, rising briskly, and evenly spread. Competition from abroad and at home is encouraging strong productivity gains and keeping inflation very low. The operations of the Petroleum Fund are insulating the exchange rate from swelling oil export revenues, and the associated fiscal rule is ensuring that most of them are saved. Although unemployment is falling only slowly from its comparatively low level, total hours worked have expanded.

Norway has very high per capita income and low income inequality. Good policy fundamentals and strong institutions have allowed the transformation of natural resource assets into high growth rather than into destructive rent-seeking. Still, policies need to address future risks to good performance and act to contain them. One such challenge is adapting to a major hike of the oil price without fuelling excessive domestic demand pressure, real exchange rate appreciation, and further crowding out of the exposed sector. So far, Norway has successfully avoided such a scenario by adherence to a prudent macro policy framework and pro-growth structural policy reforms, though there are pressures to spend more of the oil money on social programmes and investment.

Appropriate monetary and fiscal policy settings are important to ensure sustained low-inflation growth and the prudent management of large natural resource wealth. The economy has climbed out of recession, and the present recovery is becoming more self-sustained and broadly-based. Inflation is significantly below the Norges Bank target, reflecting low imported consumer goods inflation and wage moderation. Monetary policy faces the dilemma of allowing inflation to rise without triggering overheating and wage push, while households’ debt has risen sharply in response to prolonged low interest rates.

Norway will face a fast maturing old age pension scheme over the 30 next years whereas oil revenues will supply only a small part of implicit liabilities related to the present generation. The Norwegian government has recently proposed new measures to strengthen long term fiscal sustainability. They aim at raising the effective retirement age and promote a shift to a more actuarially fair pension system. The main objective was the creation of a system of contributions to notional accounts that give rights to actuarially fair and longevity-adjusted benefits at any age after 62.

Since the mid-1990’s, Norway has implemented a series of reforms with the objective of improving health care quality and responsiveness. Reforms have increased the quantity of services supplied and improved their quality in both primary and specialised care. Waiting times are being reduced. Efficiency of public hospitals has improved. The availability of pharmacies has risen. Human resource shortages are not a major matter of concern anymore. The cost of health services delivery, however, has risen faster than expected. The current financing system falls short of aligning incentives of health care providers and patients with social objectives. Downward pressure on prices and costs from greater competition is a missed opportunity in the hospital and pharmaceutical sectors.