Vulnerabilities and Opportunities
Edited by Harald Baldersheim and Michael Keating
Chapter 12: Small state, huge assets: the problem of fiscal discipline in an oil-rich country – the case of Norway
The larger the visible fortune becomes, the larger the risk that principles of sound management recede into the background. (Qvigstad 2012) Over the last decade and a half the State of Norway has accumulated one of the world’s largest sovereign funds based on oil revenues from the North Sea. The fund is invested in government bonds and equities in markets worldwide. By spring 2015 the combined market value of the fund equalled more than two years of the Norwegian GDP or more than five times the annual state budget, and the fund is still growing. The state is increasingly dependent upon income from the fund to balance the budget and in consequence subjected to the vicissitudes of international markets. The fund, which was intended as a buffer against the volatility of markets, increasingly looks like a source of vulnerability. What kind of vulnerability the fund entails has changed over time, however. One type of vulnerability springs from uncertainty about oil revenues; the second type is related to the spending of the oil dividend. This chapter deals mainly with the second type, but the first type sometimes impacts on the second. The situation of the Norwegian state and also that of Norwegian politics more and more resembles the proverbial tail wagging the dog: a small state with a large fortune, the management of which puts national politics into a conundrum.
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