NORWAY - Growing pension costs are the "major threat" to long-term fiscal sustainability in Norway, according to the International Monetary Fund (IMF).
Concluding its 2005 consultation with Norway, the IMF said pension reform measures beyond those adopted recently by parliament would be needed to ensure long-term sustainability.
The IMF commended Norway’s strong fiscal and monetary policy framework but warned of the need for “continued fiscal restraint”, particularly in the run-up to the elections later this year, to deal with the projected costs of population ageing.
“Noting that rising pension costs are the major threat to long-term fiscal sustainability in Norway, directors welcomed the recent decision by parliament to adopt much of the government’s reform package, which should help to contain costs and improve work incentives,” the IMF said.
“They urged that the flexible retirement age provisions of the package also be adopted, and agreed that the Government Petroleum Fund - which will be linked to pensions in the government’s reform - should continue to be invested abroad. Finally, directors noted that further measures beyond the current proposal will be needed to ensure long-term sustainability.”
Finance minister Per-Kristian Foss said all of the IMF’s recommendations would be “considered carefully”.
The IMF agreed that the fiscal guidelines, which require that the non-oil central government structural budget deficit be set equal to the long-run real return on the assets of the petroleum fund, assumed to be 4%, have helped to sustain broadly prudent fiscal policy.
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