The International Monetary Fund came  6  BIS central bankers’ speeches  knocking at Norway’s door. Fiscal policy had to be tightened and many Norwegians experienced a decline in income. Norway was hit by oil price shocks in the following years and economic reforms were implemented in several areas. After some years, the deficits had been turned into surpluses and transfers could be made to the Petroleum Fund. Norway’s experience from its first 30 years as an oil-producing nation led to the introduction of the fiscal rule, which has been a key element of Norwegian economic policy for the past decade. In 2001, the Storting 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 in absolute terms. Norway will also be less vulnerable to fluctuations in current petroleum revenues. The government has stated that the expected annual return on the Fund will be close to 4 percent over time. In the initial years, the actual return, adjusted for inflation and costs, was close to 4 percent.
Well defined mandates and a clear delegation of responsibility in the field of monetary policy has worked well. Similarly, the legal authority to implement macroprudential measures to safeguard financial stability should be delegated. We can never fully insulate the financial system from shocks. But we can increase our resilience. One of the most important things we can do is to keep our own house in order – by preventing major imbalances from building up in the economy or in the financial system, and by ensuring that the financial system in general is robust. Thank you for your attention. BIS central bankers’ speeches  13