NORWAY - The return on the NOK1183bn Petroleum Fund will not be enough to cover future spending on old age and disability pensions, according to governor Svein Gjedrem (pictured) of Norges Bank.
In a speech due to be given today on monetary policy and the outlook for the Norwegian economy, Gjedrem is expected to cite Ministry of Finance calculations which state a funding requirement equivalent to 6% of GDP will still not be covered in 2060 given an oil price of NOK 230 (at constant prices) or around US$35 per barrel.
Gjedrem’s speech notes that: “This is a relatively high estimate in terms of average prices in the last ten years, but at the same time oil futures are now far higher than this.”
This is just one of the fiscal challenges lying ahead for Norway, Gjedrem’s speech argues. According to Gjedrem, the expected dependency ratio of persons over the age of 67 to persons aged 20 to 66 will rise sharply in the years ahead.
He adds that The National Insurance Scheme’s spending on old age and disability pensions, based on current social security rules, is increasing and that the return on the Petroleum Fund can only cover a small portion of higher pension expenditure.
Gjedrem is expected to warn that: “Increased saving today may be a way to address this challenge, but this is not enough in itself. In the long term, the most important factor will be how we manage our national wealth.”
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