IMF, Ministry of Finance | The fund calls for cuts to disability benefits and sick pay

The International Monetary Fund (IMF) today presented its annual report on the Norwegian economy to State Secretary Erlend Grimstad (SP).

Another international actor – the OECD – is only 10 days away from issuing its advice, which points out that Norway spends more money on the public sector than anyone else.

Read on

The OECD views Norway's public spending with concern

Key Findings

According to the Monetary Fund (IMF), Norway's growth slowed last year, and the first half of this year is heading towards stabilization. The labor market is relatively good, inflation is above the two percent target, and the IMF estimates growth in Norway's GDP at 0.8 percent, according to the presentation.

Cuts in public spending

This is a summary of the IMF report:

Economic Development: Norway's economy experienced a significant decline in GDP growth in 2023, due to tight financial conditions that reduced private consumption and investment. The labor market remains resilient despite a small increase in unemployment. Growth is expected to strengthen gradually from year-end, supported by higher real incomes.
Inflammation: Inflation and inflation expectations are high but falling. The IMF recommends that monetary policy should remain tight to ensure that inflation returns to target in a sustainable manner.
Financial Structure: Despite systemic vulnerabilities, the financial system is stable, supported by strong banking buffers. Macroprudential policy should be tight to minimize systemic risks.
Fiscal Policy: The IMF recommends removing fiscal stimulus to reduce the risk of miscalculations between monetary and fiscal policy. A neutral fiscal stance would support inflation and improve the coordination of macroeconomic activity.
Structural reforms: A comprehensive reform agenda should be adopted to tackle generous disability and sickness benefit schemes, boost productivity growth and mitigate the effects of economic recession. These reforms are necessary to increase labor force participation, control public spending, and preserve Norway's high standard of living for future generations.

details:

Economic Background: Mainland GDP growth slows to 0.7 percent in 2023 due to reduced private consumption and construction investment. The labor market remains strong despite rising unemployment. Inflation is still above the 2 percent target, driven by steady service inflation.
Monetary Policy: Tight monetary policy is necessary to bring inflation to target. Norges Bank should be prepared to adjust monetary policy based on incoming data.
Macro: Stringent measures till 2022-23 have strengthened the financial system. Home credit has stabilized, but continued high interest rates or increased unemployment could put financial strain on some households.
Fiscal Policy: The IMF recommends a neutral fiscal stance to support inflation. Future budgets should be carefully set, and discretionary stimulus should be targeted and temporary.
Reforms in Sickness Benefit and Disability Benefit: Norway has a high proportion of the population on disability benefits. Reform of these programs is critical to increase workforce and reduce public spending. Measures include reintroducing benefit caps, tightening requirements for participation in plans and reducing incentives for early retirement.
Productivity growth and geo-economic fragmentation: Reforms are needed to boost productivity growth and counter the effects of geo-economic fragmentation to maintain strong economic performance and high living standards. These include strategic measures to strengthen supply chain resilience, increase economic diversification and enhance economic alliances.

The summary is written using artificial intelligence, but controlled by a reporter.

Growth will increase slightly

The IMF believes Norway's growth will pick up slightly at the end of the year as a result of increased purchasing power among most people. The Fund's advice is to have a tighter monetary policy, which means holding interest rates long enough to keep price inflation at the two percent target.

In addition, IMF fiscal policy recommends that the government rein in its own spending and abandon disability and sick pay programs in order to put more people into work.