29 to the Storting of 2001 laid down guidelines for the phasing-in of petroleum revenues into the Norwegian economy, establishing two main principles: economic policy must contribute to stable economic developments and be sustainable over time. By linking petroleum revenue spending to the expected real return on the Fund – and not to current petroleum revenues – the fiscal rule provided for a gradual and sustainable phasingin of the revenues. If we can restrict spending to the return, the Fund will never shrink. Norway will also be less vulnerable to fluctuations in current petroleum revenues. (Chart 8: Effect on the size of GPFG of change in oil price and return) In the first ten years after the establishment of the fiscal rule, the pace of the Fund’s growth was determined by oil prices. Prospects in 2001 indicated that a 25 percent higher oil price over a 10-year period would increase the size of the Fund by almost NOK 800 billion. Uncertainty with regard to the return on the Fund was far less important for growth. This situation will change as the Fund grows and oil and gas production declines. From 2020 to 2030, the oil price will play a less prominent role for the size of the Fund, while the return on the Fund will be all the more important. In the initial years, the actual return, adjusted for inflation and costs, was close to 4 percent.
Yet at the same time, he saw possibilities: “Successfully solving them in a satisfactory manner will undoubtedly have far-reaching consequences in the economic and financial spheres, and the year might end better than it began.” While times are difficult abroad in our day too, there are bright spots. Growth in Asia remains robust and some figures for the US economy have been positive recently. Europe is facing the challenge of remedying economic imbalances in the face of weak growth prospects. For many countries, demographic developments will in a few years add to the pressure on fiscal budgets. While austerity measures will improve government finances, in the short term they will stifle activity and delay a recovery. This is a very difficult balancing act. But euro area countries have no choice. There is a need to agree on measures to restore confidence in financial markets. Just like 80 years ago, it is difficult to predict where we are heading. The Norwegian economy should be able to hold a steady course. But we will have to take into account that the return on the Fund’s investments may be lower than expected a decade ago. And wage and price inflation is likely to be low for some time to come. Rygg’s hopes were partly realised. In Europe the crisis bottomed out in 1932. Cycles and confidence may shift rapidly and when we least expect it. After hard times come good times. Come what may.