9  VOLATILITY IN THE VALUE OF THE SOVEREIGN WEALTH FUND MUST BE TAKEN INTO CONSIDERATION  NORGES BANK ECONOMIC PERSPECTIVES 17 FEBRUARY 2022  Alongside its central banking tasks, Norges Bank has another important mission, namely the management of Norway’s sovereign wealth held in the Government Pension Fund Global (GPFG). Since the first capital transfer in May 1996, the GPFG has grown larger than anyone had imagined (Chart 9). And the investments have paid off handsomely. Cumulatively over the entire period, we have now earned more on investments abroad than the transfers to the GPFG. We have more than doubled our money. Chart 9 The money is more than doubled GPFG. In billions of NOK 16000  16000  12000  12000  8000  8000  4000  4000  Total value Deposits Returns Petroleum revenue spending Exchange rate  0  0 –4000  –4000 1998  2001  2004  2007  2010  2013  2016  2019  Sources: Ministry of Finance and Norges Bank  The fiscal rule ties petroleum revenue spending to the value of the GPFG. As its value has increased sharply, petroleum revenue spending has followed suit (Chart 10). In the years prior to the pandemic, one krone in six of government expenditure was covered by the GPFG. Chart 10 The GPFG finances a large portion of government expenditure Structural non-oil deficit as a share of government expenditure.
The problem arises in the case of people who are unable to move forward at the speed of the market. They become laggards and are left out. Hence, there should be a special strategy to bring them to the mainstream of economic life. The normal strategy that had been adopted to address this issue has been the introduction of safety nets to capture them before they make a free fall to the ground. The safety nets so introduced have taken different forms depending on the era or the country. About five decades ago, the safety nets took the form of providing outright grants to the poor people. The objective of the grants was to provide some relief to them, so that they could at least meet their food requirements. The weaknesses in this type of strategies are well known. It encourages poor people to remain in the safety net forever. They have no incentive to move out of the net, because moving out would mean their having to work hard for a living. If at least the basic requirement of food is provided free of charge, then why would anyone want to work for the same? Economists have long named this problem “moral hazard” problem. This problem simply says that, when one helps another, the person being helped does not have the incentive to adopt even the minimum safety measures. As a result, he increases the chance of the occurrence of the event which the helper desires to prevent.