Norway has had room for manoeuvre because solid state finances secure credibility and because inflation expectations are firmly anchored. Even though oil prices fell from close to USD 150 per barrel in summer 2008 to almost USD 30 at the end of the year, Norway’s state finances were not called into question. In addition, oil prices increased markedly as early as spring last year. The oil fund mechanism curbs the effects of oil price fluctuations on demand and output – as well as on inflation and the krone exchange rate. The Government Pension Fund Global is also an important source of funding for public spending in the next decades. Reductions in government welfare spending, which will probably be a matter of necessity with an increasingly ageing population, will be smaller than would have been the case without the fund. 10  BIS Review 69/2010  5. Challenges to the Norwegian economy  In the period 1992–2008 the Norwegian economy experienced a long upturn. In the 2000s, the cost level started to rise, partly reflecting a sharp improvement in our terms of trade. Prices for Norwegian goods, such as oil, gas, metals, minerals and fish increased sharply while import prices fell. Looking ahead, the impact of these driving forces cannot be expected to be as favourable. It is hardly likely that export prices will show a renewed surge. Moreover, our economy has become vulnerable. Norwegian labour has never been as costly as today.
The non-oil sector exports were valued at about $ billion in 2006 and constituted almost 6.0 percent of total GDP and 13.2 percent of non-oil GDP. During 2006, the national economy continued its remarkable growth for the fourth consecutive year, especially in the non-oil sector which grew by 6.2 percent following its growth rate of 5.2 percent in 2005. The non-oil industrial sector was the fastest growing sector of the economy recording a robust growth of 10.1 percent during the preceding year. The sector has continued its robust growth during the current year. Due to higher economic growth and receipt of higher than anticipated revenues, the fiscal position of the government has improved substantially in recent years. The budget surpluses since 2003 have enabled the government to reduce its domestic debt sharply and increase its expenditure on infrastructure and social sectors. The ratio of domestic debt to GDP has declined from 82 percent in 2003 to 27.9 percent in 2006 which was reflected positively on our public finance and macroeconomic stability. These trends are likely to continue against the oil revenue cushion and fiscal discipline along with continuous expansion of the economy. The foregoing policy initiatives, combined with the recent budgetary surpluses have enabled us to launch a number of key development projects that are designed to develop the county's physical and social infrastructure, especially spending on education and training, diversifying the economy, creating jobs and enhancing growth prospects.