New central banker: Too much debt

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Norway’s new central banker made his formal debut this week, delivering his first annual address on the economy as head of Norges Bank. His audience was the traditional “who’s who” in business and government, and they were told Norwegians have too much debt.

Øystein Olsen held his first annual address as Norway's new central bank boss. PHOTO: Norges Bank

The prime minister, most of his cabinet, all the country’s party leaders, CEOs and financial gurus were assembled at Oslo’s Grand Hotel for the yearly lecture and dinner afterwards. Øystein Olsen, who took over as head of Norway’s central bank, made it clear that Norwegians may be borrowing too much.

Record-low interest rates, Olsen said, can be difficult “in an economy where borrowing desires are high, and where rising real estate prices can create balance problems.” If interest rates go up, many Norwegians may find themselves in a squeeze.

And most predictions have interest rate levels more than doubling over the next five years. Several economists and analysts at state statistics bureau SSB all think rates will go from current levels of around 3.5 percent to 7 percent or more. Pay levels will also rise, but not to the same degree.

Meanwhile, Olsen’s replacement at SSB warns that pay raises and consumer spending mean government officials should reduce their use of oil revenues, even to levels below the so-called handlingsregelen. It limits use of oil revenues to just 4 percent of the value of the Oil Fund, where the vast majority of oil revenues are saved for future generations.

Hans Henrik Scheel, who took over as SSB boss when Olsen left the position to move to Norges Bank, thinks tougher restrictions on oil money use are the only way to keep the Norwegian economy from overheating. It may be tempting to use the oil money that keeps pouring into Norway’s treasury, to build needed schools and nursing homes and roads, for example, but too much money in the economy can send inflation soaring. That in turn can boost interest rates and the value of Norway’s currency, and cost jobs.

Professor Hilde Bjørnland agrees. She thinks the state should use far less than 4 percent of oil revenues next year, because economic growth is already high. “We don’t need any more stimulus now,” Bjørnland told newspaper Dagens Næringsliv (DN) recently.

Prime Minister Jens Stoltenberg and his government used plenty of stimulus when the finance crisis hit. Now he and Finance Minister Sigbjørn Johnsen are signalling tighter state budgets and less use of oil money. Johnsen said his budget for next year will comply with the 4 percent limit again. He declined comment on whether he’ll heed SSB’s advice and use less than 4 percent.

Views and News from Norway/Nina Berglund
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