. both oil price movements and the resource base are uncertain. returns on foreign financial investments also fluctuate. graph : oil price in 2014, we were once again reminded that future oil prices are uncertain. prices have roughly halved from the peaks reached in 2011 and 2012. still, prices are much higher than they were in the 1990s. in 1998, the nominal price dropped to usd 10 per barrel. a decade later, oil was trading at more than usd 100 per barrel. graph : the current account and value added in oil and gas extraction with oil prices closer to the historical average, current account surpluses have been reduced substantially in the past few years. in 2016, our surplus was less than 4 percent of gdp, including the return on the fund assets. trade was roughly in balance. the oil price has rebounded somewhat recently, but is not expected to reach the levels we saw a few years ago. thus, the high norwegian current account surpluses may belong to the past. given the uncertainties related to petroleum wealth, a spending rule more cautious than the permanent income rule seems to be a reasonable strategy. political feasibility allow me to round off this discussion with some reflections concerning practical policy. my point is that fiscal guidelines must be politically acceptable and understandable to the wider public. simplicity and robustness are important concerns. rules that are not adopted by policymakers carry little value. the norwegian fiscal rule was introduced in 2001, exactly 30 years after the first oil was extracted from the norwegian continental shelf. this illustrates that it was not straightforward to arrive at a strategy for how our natural resource wealth was going to be spent. the need to decouple current spending from current revenues was underscored early on, and potential mechanisms were discussed, but these concerns were not reflected in actual policy. in periods, all the oil and gas revenues and more were spent. the fund mechanism was established in 1990, during norway ’ s deepest recession in the postwar period. at the time, it was not obvious that the fund would gain much value. the government ran budget deficits in the following years. a first deposit was made in 1996, reflecting a net fiscal surplus. from then on, the value of the fund started to increase quite rapidly. higher oil revenues towards 2000 led to calls for higher spending. the fiscal rule was established in response to this development. a fiscal rule based on the permanent income from petroleum wealth would require agreement on what this number should be. since 2001 we have seen large revisions

80 per cent of norway ’ s national wealth ( present value of future labour ). income from oil and gas is transferred to financial assets through the government budget. these transfers are large in terms of gdp, but still minor compared with our human capital. oil and gas reserves account for about 7 percent of national wealth today, whereas in 2030 these reserves will be reduced to only 1 - 2 per cent. to meet these challenges, the norwegian government petroleum fund was established on 22 june 1990. its main objective is to manage assets and distribute wealth between generations. it also serves as a buffer against shocks : changes in petroleum revenues are absorbed by the fund, not by the domestic economy. this reduces the need for structural adjustments and thus promotes exchange rate stability. the fund invests only in foreign markets. investments are spread between equities and fixed income instruments, as well as across countries. the net annual inflow to the fund equals the net fiscal surplus plus the return on the fund ’ s capital. in march 2001, a broad majority in the norwegian parliament ( the storting ) adopted a new set of guidelines for fiscal and monetary policy. according to the new guideline for fiscal policy, petroleum revenues are to be phased in approximately in pace with the expected real return on the government petroleum fund. the guideline makes fiscal policy predictable and anchors it in a long - term strategy. it also makes policy robust to changes in oil prices and ensures that petroleum wealth will be of benefit both today and in the future. the guidelines imply that the structural non - oil budget deficit will equal 4 per cent of the total value of the fund. the non - oil deficit is thus financed by the return on the fund, ensuring both long - term fiscal balance and a continued phasing in of petroleum revenues. the use of petroleum revenues will accordingly increase as long as the petroleum fund is expanding. fiscal policy will contribute to stimulating aggregate demand in the norwegian economy every year. this annual expansionary fiscal impact poses a challenge to stabilisation policy in general and monetary policy in particular. underlying real expenditure growth has exceeded mainland gdp for the last 4 years. nominal growth in 2002 is 7 per cent. ( the deflator, mainly wages, is 4½ per cent ). measured as a share of gdp, public expenditure is growing rapidly. in 2002 alone, this share will increase by some 2½ percentage points. according to the revised national budget, an increase in expenditure of 7 per cent this year will lead