Editorial: When A Shield Is Not Defense Enough
In the Oslo Summer sun, oil-rich Norway’s crown may be slipping. The Scandinavian state, so often cited as the exemplar of an oil nation in word and deed, may have also been slashed by the scythe of the oil price downturn.
The world’s fifth largest oil exporter, $40 billion of annual oil revenue has been sensibly and stoically managed to transform pre-hydrocarbons Norway from the poorer relative of the Swedes and Danes, to a country with one of the highest rates of income equality in the world.
Ranked sixth on the list of nations by gross domestic product (GDP) per capita, the ace up the Norway’s impeccably-fitted sleeve is the Government Pension Fund Global (GPFG) - the benevolent society rebranding of the former Government Petroleum Fund (GPF).
Founded in 1990, this sovereign wealth fund has amassed $890 billion in a quarter of a century at the rate of $35.6 billion a year. The financial fundament of a European state with a low birth rate and 16 per cent of the population over the age of 65, it allowed Norway to ride out the 2008 financial crisis relatively unscathed.
Seven years on and the story is not so positive. An oil price that has halved since 2014 in lagged concomitance with a drop in production on the Norwegian Continental Shelf, has prompted oil-money spending to surpass the inflow to the GPFG for the first time in a generation.
From its establishment, the avowed aim of the GPFG has been to give the Norwegian government: "room for manoeuvring in fiscal policy should oil prices drop or the mainland economy contract." What is not implicit in this statement, is that oil-derived revenue now accounts for one third of the country’s GDP.
Whilst the socioeconomic foresight of the erstwhile GPF presaged the inevitabilities of senescence and commodity price uncertainty,there is only so much that a store of wealth can do for a nation whose dependence is so unitary.
After all, insulation is supposed to keep your house warm, not upright….
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