Svein Gjedrem: Economic perspectives
Annual address by Mr Svein Gjedrem, Governor of Norges Bank (Central Bank of Norway),
at the meeting of the Supervisory Council of Norges Bank, Oslo, 11 February 2010.
* * *
This current global crisis had its origins in an abundant supply of credit, market participants
who took steadily higher risk and a lack of oversight on the part of banks, companies and
authorities.
This is reminiscent of a play by Bjørnstjerne Bjørnson's entitled "A Bankrupt". In a
conversation between the main character, Tjaelde, a businessman, and his daughter Valborg,
she says that no man of honour would keep his family or his creditors in ignorance of the
events that foreshadow a crisis. Her father rebukes her:1
"... you don't understand what a business-man's hope is from one day to the other - always
a renewed hope. That fact does not make him a swindler. He may be unduly sanguine,
perhaps - a poet, if you like, who lives in a world of dreams - or he may be a real genius,
who sees land ahead when no one else suspects it."
The conversation is also reminiscent of current discussions about accounting principles.
Then, as now, the mark-to-market value of assets was under debate.
Tjaelde says: "[...] values are fluctuating things; and [a businessman] may always have in
hand some venture which, though it cannot be specified, may alter the whole situation."
Valborg has little regard for ventures at creditors' expense. She thinks accounts should be
transparent. A businessman who owes more than he owns should be honest about it, she
says.
"... But what do you want [the businessman] to do?" asks Tjaelde. " To lay all his cards on the
table, and so ruin both himself and the others? ... In that case we should see a thousand
failures every year, and fortunes lost one after the other everywhere! No, you have a level
head, Valborg, but your ideas are narrow."
And this play by Bjørnson was written in 1875.
Three imbalances in the world economy
The financial crisis triggered the largest decline in output in advanced economies since the
Second World War.
The financial crisis erupted after a period of substantial debt accumulation among
households and banks, combined with a real estate boom in the US and in some European
countries. There were numerous examples of creative accounting as practised by Bjørnson's
businessman, Tjaelde.
The bubble burst, but extensive government measures helped put banking systems more or
less back on their feet. Interest rates are close to zero in advanced economies, and
governments have increased purchases of goods and services and reduced taxes. Many
emerging market economies are exhibiting vigorous growth. But imbalances are building up,
making the recovery fragile.
First, after the Asian crisis and the ensuing capital flight from the region in the 1990s, a number
of emerging market economies in Asia sought to build up larger currency reserves. Following
the earlier pattern of Japan and South Korea, emerging market economies pursued a policy of
export-driven growth based on a low cost level and a stable exchange rate. Combined with the
US market's willingness and capacity to import and consume, this led to substantial balance of
payments imbalances. And global capital markets failed to channel surplus savings in
emerging market economies into investment in wealthier countries.
Over the past year, falling demand for goods and services in western economies has
reduced US imports and Asian exports. However, unless Asian countries change course,
these imbalances may quickly reemerge as the US gradually manages to boost growth in its
economy.
Second, a number of countries are approaching or experiencing a sovereign financial crisis.
In addition to the cost of rescuing banking systems, tax revenues have decreased and social
welfare expenditure has increased. Large deficits are resulting in elevated government debt
levels, with rising interest payments adding to the deficits. Sovereign creditworthiness is
deteriorating and higher credit risk premiums are exacerbating the situation.
OECD government debt will grow for several years ahead and may increase from 80 per
cent of GDP in 2008 to almost 120 per cent later this decade. Cuts in social welfare
expenditure and public service production and higher taxes will be necessary for many years
ahead to bring debt down to a level that will restore governments' fiscal space. And should
the need arise, governments' capacity and appetite for intervening with new measures and
rescue operations will probably have diminished in the meantime.
Markets are now focusing on the four euro area countries Portugal, Ireland, Greece and
Spain. Ireland may have broken the circle - by reducing nominal wages and showing the
ability to cut government spending sharply. The other countries have not yet managed to
regain the confidence of funding markets. The challenge they face is not only high deficits
and substantial debt today, but also limited potential to grow out of their debt problems. The
only remedy in that case is spending cuts.
Icelandic banks were particularly vulnerable and their collapse had a severe impact on
Iceland's economy. The real economic environment in Iceland, with income levels now down
to UK and Swedish levels, is conducive to growth. However, the problems left by the banks
must be resolved before the economy can start to pick up.
Third, in the US, the euro area countries and the UK, there is again almost double-digit
unemployment. Unemployment is likely to become entrenched - particularly in Europe where
the labour market is less fluid and the ability to adapt weaker.
This can be illustrated by comparing unemployment developments in the 1980s with current
developments. Unemployment fell back fairly quickly in the US, while it remained high in the
UK and other European countries through the decade. Entire youth cohorts did not achieve
labour force attachment.
Small countries such as Norway are dependent on a growing global economy with free trade
and free capital movements. There is a risk of a renewed weakening in financial markets.
Some countries may be caught in a continuous downward spiral. But so far the IMF has been
able to provide support.
There is also a risk that countries experiencing deficits and substantial unemployment resort
to protectionism when their businesses are not sufficiently competitive. However, the rules of
the World Trade Organisation, the WTO, have generally been respected so far.
Mercantilist attitudes may also gain ground in surplus countries. Investment behaviour in
these countries may be motivated by broader strategic considerations, which may prompt
retaliatory measures and result in restrictions on cross-border capital flows.
The Norwegian economy - two golden decades
The downturn in Norway has proven to be mild.
Norway has not experienced a pronounced economic downturn since the crisis around 1990,
when a cost crisis, an employment crisis with a sharp increase in unemployment and a
decline in output, a currency crisis, a fall in property prices and a banking crisis all occurred
around the same time.
A long upturn followed in the period from 1992 to 2008. National income rose by an annual
5.4 per cent in this period, far higher than the rate of output growth in the mainland economy.
Income growth has been higher than in the 1950s and 1960s.
Behind these favourable developments were the major structural reforms of the 1980s and
1990s that resulted in higher production capacity in the Norwegian economy. The Norwegian
business sector experienced a long period of high productivity growth.
Shifting forces have otherwise driven the economy - during the crisis around 1990, labour
costs decreased to a low level compared with Norway's trading partners and wage
settlements were moderate. In 1995, the cost level was 10-12 per cent below Norway's
average for the oil age from 1970 to today.
In addition, real interest rates in Norway fell markedly through the 1990s from high levels.
This was because the fixed krone exchange rate regime maintained through the crisis period
managed to bring down inflation and inflation expectations.
Moreover, growth in public spending was rapidly reduced once business sector activity had
recovered.
Norway experienced an economic shift in the 2000s. The cost level began to rise, although
this was related to the sharp improvement in Norway's terms of trade at that time and a
gradual pickup in growth abroad. Prices for Norwegian exports such as oil, gas, metals,
minerals, fish and freight, rose markedly, while prices for imported goods fell. From 2003 to
2008, terms-of-trade gains alone pushed up national income by more than 20 per cent, or a
good 4 per cent per year.
Institutions and mechanisms had also been put in place to manage the sharp increase in
income. Norway's sovereign wealth fund, which is now called the Government Pension Fund
Global, and the fiscal guidelines were established with the express purpose of preventing
fluctuations in oil prices from feeding through to the mainland economy. Improved terms of
trade, higher revenues and increased government spending contributed to a shift in real
resources towards sheltered sectors and to a stronger krone, but at the same time the fiscal
rule provided a basis for growth in business sectors other than just the oil industry and the
public sector through the decade. Norway had a plentiful supply of labour from new EU
countries and experienced several years of high output growth. At the same time, the
inflation target for monetary policy provided a sound anchor for inflation expectations.
In 2008 the expansionary period was drawing to a close. Costs had risen sharply, credit
growth had been strong, the interest rate had been raised and house prices had started to
fall. Petroleum revenue spending over the central government budget had increased, but
employment in traditional industries was still high. Despite Norway's high cost level,
merchandise exports and supplies of goods and services to the oil industry held up due to
high demand.
Instead of a gradual slowdown, economic growth came to an abrupt halt in autumn 2008
when the global financial crisis came to a head. Demand for Norway's export goods fell
markedly. Norwegian banks proved to be highly vulnerable to the credit freeze in global
money markets and stopped providing new loans.2
However, Norwegian banks were not as exposed to loan losses - at home and abroad - as
banks in other countries. The downturn proved to be milder in Norway, but the banking
industry may also have performed its craft fairly well. Government and central bank liquidity
provision measures were effective. The liquidity crisis passed quickly and did not turn into a
solvency crisis in Norway's banking system.
The rapid rebound in oil prices and a weaker krone provided a boost to the economy. The
interest rate was lowered and public spending markedly increased. The downturn turned out
to be milder than we had expected when the interest rate was reduced to a low level - partly
because oil prices proved to be higher than expected and partly because the measures
implemented were more effective than we had dared to assume. We therefore now expect to
be able to raise the interest rate again at a gradual pace to more normal levels.
The emerging economies were hardest hit by the previous global crisis in the late 1990s.
This time OECD countries were the most severely affected. But Norway seems to have
largely escaped the crisis. Overall, output has fallen to a lesser extent in Norway than in
other countries and it recovered more quickly. Unemployment has remained low. One might
almost believe that Norway was immune to crises and that the country is unique.
But this is not the case. It is dangerous to believe that we will be able to manage every crisis
as successfully.
Norway is not unique.
We cannot expect driving forces to be as beneficial in the future. Real interest rates cannot
be expected to fall. Another sharp boost to export prices is not likely. In addition, Norway's
economy is now vulnerable. Norwegian labour has never been as costly as it is today.
Norwegian businesses may be at a disadvantage in tenders and competitions given the
current high level of spare capacity in other countries. Moreover, it has never been more
profitable to relocate activities abroad.
During the upturn, Norwegian firms fared well in spite of high costs thanks to efficiency gains,
high turnover volumes and price increases. The cost of Norwegian labour has been very
high, but there has been full employment. Markets will be more demanding ahead. Despite
Norway's floating exchange rate, our cost level cannot be expected to fall to any great extent
as economic conditions are even weaker in other European countries.
The industry structure in Norway's small economy is different from that of other advanced
economies. The emergence of new Asian market economies is beneficial for Norway owing
to its sizeable commodity exports and freight transport. This is also reflected in Norway's
equity market.
The value of Norwegian listed companies correlates closely with the value of companies in
emerging market economies. Norway is vulnerable to a slowdown in growth in Asia.
Commodity prices may then fall and the terms of trade may deteriorate. Norway's high cost
level may at the same time make it difficult for the business sector to shift to new markets.
High house prices and substantial household debt add to the economy's vulnerability. The
downturn abroad was triggered and amplified by the drop in house prices and deleveraging.
House price inflation and household debt growth have been sharper in Norway than in
several of the hardest-hit economies.
Tighter banking regulation and a better tax system
Credit growth tends to be self-reinforcing. During an upturn, banks' loans losses are low and
profits increase. Capital is in ample supply. This leads to strong growth in lending and higher
house and property prices. Borrowers' collateral increases, which triggers new rounds of
borrowing and price rises. With a few taps on the keyboard, people can make home equity
withdrawals that are deposited in an online bank and are used to finance new purchases and
current consumption. During a downturn bank earnings fall, losses rise and banks tighten
lending. This can trigger several rounds of decline. This is the mechanism whereby
fluctuations in the economy are amplified.
The global banking crisis shows that credit cycles and property market bubbles that burst
represent one of the greatest challenges to economic policy. They can build up over a long
period. They are difficult to identify in real time and even after they burst there is doubt as to
the causes. The fall in prices is abrupt and costly.
It is particularly important to develop structures and mechanisms that better enable the
economy to regulate itself.
New equity capital and liquidity requirements for banks can promote financial stability. The
requirements should probably be tighter in Norway than the minimum requirements that are
likely to be agreed internationally. Norway's economy is small, with concentrated risk for the
banks. It is also important to cooperate with the other Nordic countries to avoid a situation
where more lightly regulated banks aggressively market loans in Norway.
Owing to flaws and major shortcomings, the tax treatment of capital and property in Norway
amplifies credit cycles and house price fluctuations.
The 1992 reform resulted in a tax system for Norway that is based on sound principles. The
basis for calculating income tax was expanded, rates were reduced and corporate and
personal income taxation was better integrated. Distortions were remedied, bringing
business and economic returns more closely into line in the case of business investment.
More neutral tax rules reduced the scope for companies and industries to obtain special tax
advantages. The reform contributed to solid economic growth in the 1990s and a substantial
increase in government tax revenues even with appreciably lower tax rates.
But the wave of reform ebbed out before the work was completed. There is now a striking
contrast in the quality of various components of our tax system.
There are major weaknesses in the taxation of wealth and property.
First, income and the value of various types of capital are taxed differently. The return on and
value of financial capital and business capital are fully taxed. Rental income is fully taxed,
while owner-occupied dwellings are exempt from a corresponding tax. Mortgage interest is
tax deductible while capital gains on dwellings and the benefit of home ownership are not
taxed. Housing is taxed as an asset, but not at its market value.
The table shows the distortionary effects of the tax system. Housing investment is
considerably more profitable than repaying debt or investing in a business. This is the case
for those who pay wealth tax and for those who are not liable to wealth tax.
Second, property is taxed differently across municipalities. Moreover, the valuation of
property as a basis for wealth tax has been completely arbitrary. The new property valuation
system is a small but is the right step towards applying market valuation as a basis for
housing taxation.
Third, property is an effective tax vehicle but property taxes are low. Property cannot be
relocated. Nor does property tax distort the use of resources in the way that taxation of
labour and entrepreneurship does.
An increase in property tax will dampen fluctuations in house prices and credit cycles,
reducing the magnitude of both gains and losses. Tax on capital gains on housing, and
deductibility of losses, would in particular make a considerable contribution to attenuating
price spirals in the housing market. The result would be a more stable economy.3
Driven by the tax system, housing accounts for a large share of household wealth. On an
uncertain basis, the value of housing capital can be estimated at over NOK 4.5 trillion, or
more than one and half times the size of Norway's sovereign wealth fund.4 The high degree
of concentration on housing investment crowds out business investment. Higher property
taxes would increase growth potential because business investment would become more
profitable.
Property taxes account for about two per cent of GDP in OECD countries. In Norway, the
share is slightly higher than a half per cent.5
It would be reasonable to introduce property tax rates and revenues on a par with that of
other countries.
This would generate additional annual tax revenues of around NOK 35 billion.6
5
The tax on housing can be regarded as neutral when the return on housing investment relative to other
investments is the same as it would have been without tax. In that case, mortgage interest deductibility must
be matched by taxation of ownership and use of a dwelling. With a tax rate of 28 per cent and a mortgage rate
of 7 per cent, this requires an annual tax that at the margin comes to about 2 per cent of the value of the
dwelling. Denmark has a property tax at about this level.
6
A fully neutral taxation of property in relation to other capital will generate considerably higher tax revenues,
cf. National Budget for 2010, Table 4.8, p. 124.
When evaluating the tax system, an increase in property taxes will be matched by a
reduction in the tax on labour and entrepreneurship. As shown in the menu of options in the
chart, an increase in property taxes will provide a basis for reducing the tax on ordinary
income. The cost in terms of reduced government revenues of lowering the rate by one
percentage point is NOK 10 billion, while the costs of increasing the basic allowance by NOK
1000 is NOK 0.6 billion. The tax rate for ordinary incomes can for example be reduced from
28 to 26 per cent, combined with an increase of NOK 25 000 in the basic allowance. Another
option would be to use the revenues to remove wealth tax and the surtax on higher incomes.
There would still be some room left for a reduction in the tax on ordinary income.
Monetary policy
It costs 34 øre to produce a 50 krone note. But we expect to exchange this piece of paper for
larger real values, for example a litre of milk or a loaf of bread. Most of the money we spend
is not paper money but online banking figures. We can exchange the electronic figures for
baskets of goods from the shop. Norges Bank issues paper money, but is also behind - as
the banks' bank - deposits on accounts in commercial and savings banks.
The value of money tends to be taken for granted when we pay our bills, receive wages and
plan trips and large purchases, draw up budgets and keep accounts. But if prices rise,
money loses value. If inflation varies, the purchasing power of money becomes arbitrary.
Moreover, decisions based on an arbitrary value of money cannot be sound, which is why
stable and low inflation is a precondition for solid growth in the economy. The profitability of
an investment project can only be calculated correctly when inflation is in line with
expectations. Accounts tend to be misleading and equity prices uncertain if the purchasing
power of money is not stable. The tax system, with its rates and thresholds in krone terms,
impairs the distribution of resources to a greater extent when inflation is high and variable.
The value of money and inflation have now been stable for almost 20 years. In earlier times,
the value of money was more variable, and periods of high inflation tended to be followed by
a fall in prices. The value of money fell sharply and permanently around the time of the two
World Wars and earlier wars. In the 1970s and 1980s, the value of money also fell rapidly,
but as a result of economic policy. The interest rate was kept at a low level and public
spending was high in an attempt to achieve very low unemployment.
Not only in Norway, but worldwide, there was a crisis in the monetary system in the 1970s.
After the Second World War, the US dollar was pegged to gold while other countries held a
fixed but adjustable exchange rate against the dollar. But inflation gradually became too high
for the dollar to maintain its gold value and at the beginning of the 1970s the system
unravelled. Inflation increased and was unstable in most western countries until well into the
1980s.
For a 50 krone note in the 1970s, we could buy ten litres of milk and ten loaves of bread. The
value of money fell sharply when inflation surged and later in the 1990s - after the period of
inflation - we had to pay five 50 krone notes for the same goods.
The metal standard and fixed exchange rate regime were not able to safeguard the value of
money.
This is why most countries have given the central bank and the interest rate the role of
securing low and stable inflation. This ensures that money - which is so cheap to produce -
retains its value. In order to avoid setting aside the objective of price stability, the central
bank must be independent in interest rate setting as it may be tempting to seek new
objectives and tasks when inflation has been anchored for a time. It would not be the first
time that there would be excessive optimism with regard to managing the economy. In the
early 1970s - after 20 years of solid growth - we believed the ghost of unemployment had
definitively been laid to rest and new objectives were drawn up.
We cannot - as in the 1970s - allow the interest rate to remain low over a long period of time
in an attempt to achieve permanently higher output. This would lead to wide fluctuations and
high inflation.
Seldom are the considerations underlying interest rate setting pulling in such different
directions as today. In many quarters, it is now argued that the interest rate should be raised
rapidly to restrain house price inflation. This is understandable in the light of the severe
effects that house price inflation and high debt have had on many countries. In other
quarters, it is argued that the interest rate should be lowered to keep down the krone
exchange rate. This also seems well founded in view of the substantial challenges facing
Norwegian enterprises.
However, we cannot raise the interest rate and lower it at the same time.
The interest rate is set to secure low and stable inflation. With strong growth in spending on
goods and services or with falling demand, the interest rate can at the same time stabilise
developments in output and employment. In this case, there are no conflicting objectives.
When inflation expectations are firmly anchored, we can give weight to the path for output
and employment when we set the interest rate. In the assessment of the outlook for inflation
and output, we also look at house prices, total credit and the krone exchange rate. In this
respect, these variables are taken into account when we set the interest rate.
Norges Bank only has one instrument, and the interest rate alone is too crude an instrument.
Hence, financial regulation, the tax system and fiscal policy have to contribute more to
promote other economic policy objectives.
In the past year, very low key rates have been necessary to prevent inflation from falling too
far. Over the past decade, inflation has remained at around 2 per cent, or close to, but
somewhat below the target of 2.5 per cent.
Division of roles in economic policy
The division of roles in economic policy will now be put to the test:
•
Monetary policy steers inflation in the medium and long term and can contribute to
smoothing fluctuations in output and employment.
•
The central government budget - growth in public expenditure - influences the
krone and the size of the internationally exposed business sector in the medium
term. This is important because the growth capacity of the economy - the
fundament for learning, innovation and development - can be undermined if the
portion of the business sector exposed to intense international competition is
reduced.
• Wage formation and economic structures and incentives lay the basis for the
effective and efficient use of labour and other real economic resources, and for
economic growth.
With concurrently lower inflation and activity prospects, Keynesian demand management
was an appropriate policy response to the crisis in autumn 2008. Norway has room for
manoeuvre since there is confidence in state finances and inflation expectations are firmly
anchored. We have been able to draw lessons from both positive and negative outcomes of
such a policy in the 1970s and around 1990. There may be material here for a "handbook" of
effective Keynesian use of instruments.
First, when demand for goods and services and inflation prospects fall, the interest rate is
lowered. At the same time, the automatic stabilisers in the budgets will work when tax
revenues fall and benefit payments increase.
When the fall in demand for goods and services is so steep that an interest rate close to zero
is not sufficient, tax rates are reduced or government measures are applied. The measures
should not influence long-term public sector priorities such as the size of the welfare state or
the permanent tax level.
When the economy turns, as it now has in Norway, the rule is that fiscal policy should be
tightened fairly rapidly. This provides room for growth in the business sector. When public
expenditure has been reduced, the key rate can then be increased to a normal level.
According to the fiscal policy guidelines, petroleum revenues should be phased in gradually
into the economy, approximately in pace with the expected real return on the Government
Pension Fund Global, which is estimated at 4 per cent. In periods of high or rapidly rising
unemployment, petroleum revenue spending can be increased, and inversely fiscal
retrenchment is needed during periods of high economic activity and resource shortages.7
It now appears that capacity utilisation in the Norwegian economy may return to a normal
level in one and a half to two years - and with a somewhat lower unemployment rate than
today. A different path can be met with an interest rate response. Our understanding of the
fiscal rule is that the government budget for 2012 or at the latest for 2013 should be planned
with a view to bringing down petroleum revenue spending to 4 per cent of the size of the
wealth fund.
This does not seem demanding compared with the situation in the years between 1994 and
1996. The tightening at that time started directly after the economy had turned and while
unemployment was still high. Should policy now be tightened to the same extent that history
in retrospect indicates was the case at that time, 4 per cent would be reached in the course
of one year.
It must, however, be added that in real time the tightening was not planned to be that strong.
After the tax reform, government revenues from the corporate sector were higher than
expected.8 But even measures on a par with those planned at that time would now rapidly
bring down petroleum revenue spending.
The rate of petroleum revenue spending - growth in public expenditure - is important for
developments in competitiveness, which is also referred to as the real krone exchange rate,
in the long term. But, in the short term the krone exchange rate can vary widely, and it
depreciated in autumn 2008 because capital sought safe havens. This helped Norwegian
manufacturing in the first phase of the downturn. Since then, the krone has appreciated
considerably.
In 2009 and 2010, government petroleum revenue spending shows a substantial increase
and foreign investment via the wealth fund a decrease. This increases commercial demand
for NOK, which directly contributes to an appreciation of the krone.
More fundamentally, the krone is influenced by the difference in activity at home and abroad
and how fast the interest rate has to be increased in Norway to keep inflation low and stable.
The economic geography of Norway will change over the next 10-15 years. The domestic
cost level and the real economy crisis abroad will bring pressure to bear on jobs and
businesses in manufacturing communities.
Job losses may have the most severe effects in areas where manufacturing has the highest
concentration. In the ten most typical manufacturing municipalities Vestre Toten in Oppland,
Lund in Rogaland, Fusa in Hordaland, Årdal in Sogn and Fjordane, Ulstein, Hareid,
Sykkylven, Stordal and Haram in Møre and Romsdal and Verran in Nord-Trøndelag, local
manufacturing accounts for more than a third of total employment. Times will become more
demanding for the clusters of oil suppliers in Sørlandet, Nord-Jaeren, Haugalandet and Stord
and for manufacturing in Kongsberg, Grenland, Helgeland, Salten and Ofoten.
Fortunately, manufacturing districts have shown the ability to adapt. Research shows that the
degree of geographical and occupational mobility is high for the Norwegian labour force. Few
people remain permanently outside the labour force after a period of restructuring.9 But the
communities are small and vulnerable and may disappear if the industry structure becomes
too narrow.
And as mentioned, the most important, perhaps the only, instrument available to the
authorities in addressing this challenge is to restrain petroleum revenue spending in the
Norwegian economy.
The management of petroleum revenues
It took a generation from the time the first oil field was discovered in the North Sea until the
government began to set aside economic rent. The Government Petroleum Fund was
established in 1990 and the first transfer to the wealth fund was made in 1996.
Each year since that time, as a savings plan, the government has transferred a portion of
current income from petroleum activities as deposits in the fund. Today, the value of the fund
is around NOK 2.6 trillion, or slightly higher than annual GDP in Norway. There are prospects
that new annual transfers to the fund will be made for perhaps a little longer than another
decade. The fund will in that case continue to grow and may reach twice its current size. The
actual building up of the fund may span a short generation.
The fund will thereafter enter into a new phase. With lower revenues from oil and gas
activities, the fund will no longer receive capital transfers from the government. When oil and
gas revenues no longer provide the government with economic rent, only the annual real
return on the fund can be used on a permanent basis.
In the mid-1990s, oil prices were around USD 20 per barrel and income was set aside. This
year the oil price must be over USD 50 to generate sufficient oil revenues to make transfers
to the fund. We must be prepared for wide variations in oil prices, and the first year without
transfers of oil revenues -