Norway WT/TPR/S/15
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I. THE ECONOMIC ENVIRONMENT
(1) Overview
1. Atthetimeoftheprevious Trade Policy Review ofNorway in1991, theeconomy appeared
toberecovering slowly fromasevere recession. Thishasbeenborne outsince, byrealgrowth averaging
some 3.5percentoverthelastfiveyears, withapeakof5.7percentbeing reached in1994. Percapita
income reached US$32,984 in1995(Table I.1).Therecent expansion wasaresponse tomacroeconomic
policies aswellasincreased oilandgasproduction andafirming upofoilprices; however, growth
wasnotconfined tothehydrocarbons (offshore) sector. Consumer priceinflation remained moderate,
dropping to1.4percentin1994, although itincreased again to2.4percentin1995, partly reflecting
increases inindirect taxation (Table I.2). Unemployment stood at4.9percentin1995; afurther
1.9percentofthework-force participated injob-creation programmes. Thecurrent account surplus
hasgrown inthelastthree years, driven bythegrowth ofoilandgasexports.
Table I.1
Major features oftheeconomy, 1992-95
(Percent)
1992 1993 1994 1995a
Population (million)b4.29 4.31 4.34 4.36
Growth ofpopulation (annual percentage change) 0.6 0.6 0.6 0.6
GNP percapita (US$) 28,811 26,811 27,784 32,984
Share ofGDP (percent)
Agriculture, forestry andfishing 2.6 2.7 2.6 2.3
Oil 11.9 12.4 13.1 13.3
Mining 0.2 0.2 0.2 0.2
Manufacturing 11.3 11.3 11.3 11.7
Services 61.9 61.1 60.5 60.4
Taxes 12.1 12.1 12.2 12.0
Statistical discrepancy 0.0 0.2 0.1 0.1
a Firstsixmonths.
b On1January.
Source: Statistics Norway, Economic Survey (various editions).
2. There wasaserious banking crisis intheearly1990s, following aperiod withstrong domestic
demandandcreditgrowth.Consequently,theNorwegianBanking,InsuranceandSecuritiesCommission
hasbeenconsiderably strengthened during thepastfouryears. Thecrisis came toanendin1993.
Asaconsequence ofthecrisis theGovernment became themajor shareholder inthecommercial banks.
TheGovernment intends tokeepamajority oftheshares inthetwolargest commercial banks under
State control forthetimebeing. Thebanking crisis isdiscussed inmore detail inChapter IV.WT/TPR/S/15
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Table I.2
Recent economic performance, 1990-95
(Percentage change andpercent)
1990 1991 1992 1993 1994 1995
Percentage change
RealGDP 1.6 2.9 3.3 2.1 5.7 3.7
Private consumption 0.7 1.5 2.2 2.1 4.6 2.7
Government consumption 4.1 3.9 5.5 1.0 1.1 0.6
Gross capital formation -7.9 -4.4 -3.9 6.1 9.2 9.6
Exports ofgoods andnon-factor services 8.6 6.1 5.2 2.0 8.5 3.7
Imports ofgoods andnon-factor
services2.5 0.2 0.7 4.0 6.6 4.1
Consumer prices (CPI) 4.1 3.4 2.3 2.3 1.4 2.4
Realearnings 1.2 1.8 1.3 0.6 1.4 0.6
Labour productivitya3.1 3.7 2.0 2.6 3.8 1.6
Unitlabour costsb-2.8 1.7 -3.6 -0.9 2.1 4.8
Percent
Unemploymentc5.2 5.5 5.9 6.0 5.4 4.9
Participation injob-creation programmes 1.9 2.1 2.2 2.5 2.4 1.9
Money supply (M2)d6.0 10.6 7.3 0.5 6.6 4.8
Interest rate(percent)e11.54 10.56 11.83 7.25 5.85
Share ofGDP (percent)
Central Government budget
Revenue 9.6 3.3 -0.5 3.1 7.2 ...
Expenditure 8.8 7.1 6.4 3.6 2.5 ...
Balance (percentofGDP) 2.1 0.5 -2.6 -2.8 -0.8 1.8
... Notavailable.
a Mainland Norway.
b Percentoflabour force.
c Three months NIBOR (Norwegian Interbank Offered Rate).
d Thegrowth rateofM2isthe12-month growth ratefrom December toDecember.
e Unemployment isdefined according tointernational standards. Thisisnotconsistent withthenumber ofpersons onjob-creation
schemes. Registered unemployment for1990-95 was,respectively, 4.3,4.7,5.4,5.5,5.2and4.7percent.
Source: Statistics Norway; IMF.
3. Fiscal policy wasexpansionary in1992-93, togiveastimulus totheeconomy. However,
since1994,undertheLong-TermProgrammefor1994-97,ithasbeentightened,includingbyanincrease
inindirect taxation in1995. Thishasproduced asurplus inthecentral Government budget, estimated
at1.8percentofGDP in1995. Overall, monetary policy hasbeenessentially geared tomaintain
relative stability oftheNorwegian krone against other European currencies, andthishasalsohelped
promote price stability. Therealeffective exchange ratedeclined through 1993, increasing the
competitiveness ofnon-petroleum exports andhelping tostimulate anexport-led recovery, butithas
beenallowed toappreciate slightly since then(Table I.3).Norway WT/TPR/S/15
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Table I.3
Balance ofpayments 1990-95
(US$ million)
1990 1991 1992 1993 1994 1995a
Merchandise trade balance 7,761 8,696 9,303 7,995 8,321 8,270
Exports 34,313 34,212 35,162 31,989 34,922 41,952
Imports 26,552 25,516 25,860 23,995 26,601 33,682
Services credits 12,765 13,330 13,642 12,744 13,105 13,680
Services debits 12,358 12,701 14,789 13,848 14,392 13,149
Income credits 3,896 3,540 3,040 2,448 2,810 ...
Income debits 6,596 6,293 6,457 5,785 4,579 ...
Balance ongoods, services and
income5,468 6,573 4,739 3,553 5,265 ...
Other current nettransfers 1,470 1,541 1,757 1,401 1,620 ...
Current account 3,992 5,032 2,982 2,152 3,645 ...
Direct investment abroad -1,470 -1,782 -411 -877 -1,628 ...
Direct investment inNorway 1,003 -398 716 2,003 623 ...
Portfolio Inv.assets -987 -2,523 -192 853 750 ...
Portfolio Inv.liabilities 1,548 -585 1,054 -1,188 -599 ...
Other Inv.assets -1,502 -326 -1,068 2,146 1,501 ...
Other Inv.liabilities 648 1,968 -474 344 1,968 ...
Other 31 17 -21 14 -19 ...
Capital Account 730 -7,564 -396 3,294 -1,340 ...
NetErrors andOmissions -2,848 -219 -3,442 -1,309 -854 ...
Overall balance 414 -2,751 -855 4,138 1,451 ...
Memorandum items
Nominal exchange rate,
krone perU.S. Dollarb6.25 6.49 6.21 7.11 7.03 6.3
Realeffective exchange rate
(1990 =100)100.0 97.0 96.6 98.5 93.3 97.8
Terms oftrade
(1987 =100)106.5 103.7 97.2 96.9 ...
... Notavailable.
a Datafor1995supplied byNorwegian authorities. Norwegian national dataformerchandise tradeandservices areslightly different
from IMFIFSwhich areadjusted tointernational definitions.
b Average exchange rate.
Source: IMF(1996), International Financial Statistics, January.
4. There havebeennosignificant changes intheoverall structure oftheNorwegian economy
sincetheprevious review, except thattheshare ofoilproduction increased slightly from11.9percent
in1992to13.3percentin1995. Services accounts forover60percentofGDP, while manufacturingWT/TPR/S/15
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contributes some 11percent. Theshare ofagriculture, fishing andforestry was2.3percentin1995,
having fallen slightly from previous years.
5. Theoffshore oilandgassector remains thebackbone oftheeconomy, withimportant linkages
through tothemainland. Estimates ofproven reserves havebeencontinually revised upwards.1The
Norwegian economy isconsidered tobemore resilient topossible oilandgaspricefallsthantenyears
ago,largely because ofareduction inproduction costs through improvements intechnology. The
recent acceleration ofproduction maybeseenasanattempt toreduce theimpact offuture price
uncertainties. Should thisbepossible without substantial negative effects onprices, thenthere would
befurther benefits forthecurrent account andincreased surpluses intheGovernment budget.
6. Itisunderstood thatthebudgeted fiscal surplus of1.3percentofGDP in1996 istobeused
toactivate theStatePetroleum Fund, described intheprevious Trade Policy Review ofNorway. The
purpose oftheFund istodampen thevolatility ofrevenues (which canhaveastrong macroeconomic
impact) andtoreduce theirimpact onthecompetitiveness ofothersectors, forexample, through upward
pressure ontherealexchange rate. Although theFund wasestablished in1990, inpractice noreserves
havebeenaccumulated astheGovernment usedcurrent revenues toboost economic recovery. From
1996, thesurpluses placed intheFundwillbeinvested inaportfolio offoreign financial assets managed
bytheNorges Bank (theNorwegian Central Bank). Thisplanned build-up offinancial assets would
beexpected tohelpreduce thevulnerability oftheNorwegian economy tovolatility inoilandgas
revenues.
7. Population growth isverylow,at0.6percent. Incommon withmany industrialized countries,
thereisagrowing percentage ofolderpeople inthepopulation. Thisislikely tohavelong-term negative
effects onpublic finances through thedrawing down ofsocial security payments, which arequite
important inNorway. Thereform oftheNational Insurance Scheme isunder consideration inawelfare
White Paper, which recommends, interalia,raising theeffective retirement age.Overall, theproposals
represent arefinement ofthepresent system, rather thanradical reform.
8. There isnoindication thatrejection byreferendum inDecember 1994 ofmembership ofthe
European Union (EU)hashadanyserious, negative effects onNorway 'soverall economic performance.
Moreover, participation intheEuropean Economic Area(EEA) ensures thefreeflowofindustrial goods
andservices between Norway anditsEuropean partners (seeChapter II).
(2) Recent Economic Performance
9. In1991, theNorwegian economy hadbegan torecover fromasevere recession, during which
unemployment hadrisen from about 2percentofthelabour force inthemid-1980s tomore than
7percent, including those enrolled injob-creation programmes. Themodest expansion continued
in1992, driven byhigher output ofoff-shore petroleum. Boosting taxreceipts, theincrease inpetroleum
production alsoallowed theGovernment toincrease itsspending tostimulate theeconomy. Price
increases werebrought under control, dropping fromnearly 9percentin1987to3.4percentin1991
and2.3percentin1992. However, thedeepening banking crisis, rooted infalling assetvalues and
ahighlevelofbankruptcies, underlined thefragile stateofthemainland economy.
10. AlthoughrealGDPgrewby2.1percentin1993,unemploymentcontinuedtoincrease,reaching
6percent,plusafurther 2.5percentinjob-creation programmes. Inaddition, some industries faced
1Statistics Norway (1996).Norway WT/TPR/S/15
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amorechallenging environment asthecurrencies ofsome ofNorway 'smajor trading partners (Sweden,
theUnited Kingdom andtheUnited States) depreciated markedly. However, theperformance ofthe
financial sector improved significantly during 1993, aided bymajor reductions ininterest rates, which
prepared theground forabroad-based economic recovery. Inflation wasmaintained at2.3percent.
11. Thestrong economic performance in1994, when realGDProseby5.7percent,wasduenot
onlytobuoyant domestic demand, butalsosolidgrowth inexports ofbothpetroleum and"traditional"
Norwegian goods, andservices suchastourism. Theexpansion inemployment, thehighest annual
growth ratesince themid-1980s, hasalsohelped tocutunemployment, which stood atabout 5.4per
centofthelabour force in1994 (plus 2.4percentonjobcreation programmes). Despite thehigher
growth, price inflation wasfurther reduced toonly1.4percent.
12. In1995, growth moderated to3.7percent,despite anincrease ofsome 9.6percentingross
capital formation (Table I.2). Investment inthemainland economy increased by14percent, while
investment inpetroleum activities declined by12.2percent.2Thegrowth ofexports andimports of
goods andservices slowed to3.7and4.1percent,respectively. Reflecting continued fiscal restraint,
government consumption rosebyonly0.6percent. Although inflation increased to2.4percent,the
risecanbemainly attributed toanincrease inVAT. Excluding suchincreases, theunderlying rate
ofinflation wasbasically unchanged.3Employment increased by2.5percent, thelargest increase
inrecent years, while, correspondingly unemployment fellto4.9percent.
(3) Balance ofPayments
13. Overall, thecurrent account surplus hasexpanded strongly inrecent years, driven byoiland
gasexports, while there hasbeen considerable fluctuation inthecapital account. Thegrowth in
petroleum revenues isassociated withanincrease inthevolume ofexports andsomewhat firmer prices,
butoverall Norway hassuffered from declining terms oftrade since themid-1980s. Excluding
petroleum, thecurrent account deficit would betheequivalent ofsome 10percentofGDP.
14. InMay1994, anewregulation fortheexchange raterégime wasadopted byRoyal Decree.
Theoperative guideline forNorges Bank isthatmonetary policy shallbeaimed atmaintaining astable
exchange rateagainst European currencies, atabout thevalue prevailing sinceDecember 1992. Should
significant changes inthekrone exchange rateoccur, monetary policy instruments willbeoriented
withaview toreturning theexchange rateovertimetoitsinitial level. Recent movements inthe
exchange ratevis-à-vis theU.S.dollar andrealexchange ratesareshown inTable I.3.
(i) Trade
(a) Commodity composition oftrade
15. Withoilproductionexpandingbymorethan50percentsince1991,Norwayisatpresentamong
theworld 'sleading producers andexporters ofcrude oil.Fuels, including natural gasandpetroleum
products account forabout 50percentofNorway 'sexport earnings (Chart I.1).Thechemical industry
alsoexports plastic products, derived from petroleum, invarious forms inaddition tothemain
2Statistics Norway (1996).
3Statistics Norway (1996).WT/TPR/S/15
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"traditional"chemicalexport:manufacturedfertilizer.Othermajorexportingindustriesoflongstanding
arebased ontransformation ofnatural resources suchasforests, hydro-electric power andfish.
16. Exported products ofthewood processing industry include newsprint, kraftpaper andboard,
andchemical wood pulp,while energy islargely transformed intonon-ferrous metals suchasaluminium,
ferro-alloys, nickel andzinc,mostly exported asstaple goods. Fishexports havegrown rapidly with
theexpansion offishfarming, notably ofsalmon, andcurrently account forabout onesixthofNorway 's
non-fuel exports.
17. Although products withalowdegree ofprocessing dominate Norway 'sexports, thecountry
alsohasimportant production andexport ofsophisticated machinery andequipment, particularly linked
tomaritime services andcommunication technology.
18. Norway hassubstantial services exports, particularly intheareas ofshipping andtourism (see
Chapter IV). Overall there hasbeenasmall netdeficit onservices trade inrecent years, according
totheIMF(Table I.3). However, Norwegian national datashow asmall surplus, amounting tosome
US$500 million in1995.
19. Thestructure ofNorway 'simports ofgoods tosome extent reflects therelatively small size
ofthedomestic market andthecorresponding tendency toimport goods inwhose production significant
economies ofscale exist(examples include motor vehicles, specialized machinery andawiderangeNorway WT/TPR/S/15
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ofconsumer goods). Norway 'sclimate alsolimits orprecludes production ofmany fooditems; imports
ofwheat, sugar, vegetable oils,tropical products andseasonal imports ofvegetables andfruitcanthus
besubstantial.
(b) Direction oftrade
20. Thedirection ofNorwegian trade has,byandlarge, remained stable since 1991 (Chart I.2).
TradewiththeEuropeanUnionhas,however,intensified,includingasaresultoftherecentenlargement;
withtheaccession ofAustria, Finland andSweden -allformer partners intheEuropean FreeTrade
Association (EFTA) -theEUisnowtheorigin ofnearly 70percentofNorway 'simports andthe
destination ofmore thanthree quarters ofitsexports.
21. ParticipationintheEEAisexpectedtohaveconsiderablequantitativesignificanceforNorwegian
trade, leading toevengreater intensification oftwo-way trade. Inthelonger term, higher growth is
linked tothepossibility ofdeepening trade relations withthefaster growing markets ofAsia.4
22. Theshare ofimports fromdeveloping countries hasfallen, butthisisessentially linked tothe
intensification oftrade withtheEU,andtoalesser extent withthecentral andeastern European
countries, rather thananabsolute decline inimports from thedeveloping countries.
(ii) Investment
23. Netforeign direct investment (FDI) inNorway wassubstantial inthe1970s, when heavy
investments werebeing made intheemerging offshore oilandgassectors. However, investment tapered
offinthe1980s, withnetoutflows in1984 and1985. Since themid-1980s, annual netinflows have
varied, duetotheimpact oflarge individual operations (Table I.3).5
24. Chart I.3gives anindication ofthegeographical breakdown ofinvestment flows intoNorway
intheperiod 1987-94. FDIismainly concentrated inoilandgas,finance andwholesale andretail
trade.6TheUnited States isthemajor source, accounting for42.8percentofinvestment flows in
1987-94.7Sweden wasthesecond largest, with34.3percent,andDenmark wasthesource of7.3per
centofinvestment inthisperiod. Important investments havealsobeenmade byGermany andby
Switzerland (included inOther Europe inthechart).
4Statistics Norway (1996).
5OECD (1995).
6OECD (1995).
7OECD (1995).WT/TPR/S/15
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Norway WT/TPR/S/15
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25. Since theprevious Trade Policy Review ofNorway, therehasbeenanopening upoftheforeign
investment régime. Forexample, tomeettheterms oftheEEAagreement, inDecember 1994, the
Norwegian Parliament enacted anewgeneral lawreplacing theprevious application procedures by
auniform notification andscreening system forintended investments byforeigners andNorwegian
nationals.8TheActestablishes areporting requirement forindividual investors oragroup ofinvestors
purchasing shares orassets resulting inownership ofmore thanonethird, onehalfortwothirds of
abusiness undertaking oracompany 'sshare capital.9However, theActdoesnotspecify anyequity
participation limits andapplies equally toNorwegian andforeign investors. Thenewsystem isalso
considered toreduce thediscretionary powers oftheauthorities.10
26. Under thenewlegislation, some areas havebeenexcluded fromliberalization under theEEA
Treaty, notably agriculture andfleet-based fishing. Moreover, theActdoesnotcover theacquisition
ofshares incompanies solely engaged inshipping, oildrilling andaviation, oracquisition ofshares
infinancial institutions, which areregulated byspecial legislation. Intheareaofpetroleum, theState
8ActNo.79of23December 1994 relating totheAcquisition ofBusiness Undertakings.
9Affected bytherequirement arecompanies withanannual turnover ofminimum NKr50million orastaff
of50employees ormore, orenterprises which havereceived government support forresearch anddevelopment
amounting toNKr5million ormore overthepasteight years.
10OECD (1995).WT/TPR/S/15
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oilcompany, Statoil nowparticipates onacommercial basis. Infuture licensing rounds, Statoil will
havetocompete forproduction licences along withother companies; previously, acertain share of
oilandgaslicences wereallocated toStatoil. After 1985, partoftheStateparticipation wasallocated
totheState Direct Financial Interest (SDFI) inorder tochannel agreater partofthepetroleum rent
totheStateandreduce Statoil 'ssize. Statoil hasgradually beengiven more scope toactonapurely
commercial basis. TheState reserves therights tounder-sea (orsubmarine) petroleum deposits.11
27. Theextraction ofminerals requires aconcession, granted onanon-discriminatory basis, to
allow theGovernment tocontrol anyundesirable social orenvironmental effects. Only Norwegian
citizens andnationals ofanEEAStatewhoarepermanent residents ofoneofthese States areallowed
toexplore theground forminerals without aconcession. Thesame applies tocorporations established
inNorway orinanEEAState. Nationals ofanon-EEA Stateorcorporations established outside the
EEA require aconcession.12
28. Theacquisition ofwaterfalls orcompanies holding rights toexploit waterfalls, considered part
ofthenational patrimony, issubject toanon-discriminatory concession system, regulated inaccordance
withtheprovisionsoftheIndustrialConcessionsActandtheActconcerningtheRegulationofWaterfalls,
bothdating from1917. Theprocedure doesnotdistinguish between EEAandnon-EEA nationals or
enterprises. Anapplication foraconcession isforwarded totheNorwegian Water Resources andEnergy
Administration (NVE) forpublication.13TheNVE alsorequests theopinion ofthelocalauthorities
(county ormunicipality). Having taken these comments intoconsideration, theNVE makes a
recommendation totheMinistry ofIndustry andEnergy. Therecommendation isonceagain circulated
tothelocalauthorities andtoother ministries forcomment.14Finally, theMinistry 'srecommendation
isforwarded totheCabinet or,inimportant cases, toParliament forapproval. Aconcession, granted
byRoyal Decree, isinprinciple valid foramaximum of60years. Areversion clause, applied to
allprivate companies, ismaintained toensure "socially beneficial use"ofanimportant source ofenergy.
29. Aconcession toacquire fishing vessels orshares inacompany which owns suchvessels is
granted onlytoNorwegian nationals orjoint-stock companies having theirregistered office inNorway.
Itisrequired thatallmembers oftheboard insuchcompanies mustbeshareholders andNorwegian
citizens residing inNorway. Itisalsorequired thatatleast60percentoftheequity capital isowned
byNorwegian nationals. Itisprohibited forother thanNorwegian nationals orcompanies, asspecified
above, toprocess, packorreload fish,crustaceans andmolluscs orpartsandproducts ofthese, inside
thefishing limits ortheNorwegian Exclusive Economic Zone. Thisapplies tocatches from both
Norwegian andforeign vessels. Exceptions aregranted under special circumstances.15
11ActNo.11,of22March 1985, relating toPetroleum Deposits.
12OECD (1995).
13Inaddition totechnical details, theapplication must alsooutline possible damage totheenvironment. A
project withserious oruncertain environmental consequences must besupplemented byenvironmental impact
analyses.
14Therecommendation isapublic document; anyone, including non-governmental organizations, maythus
obtain itandcomment onit.
15RegulationofParticipationinFishingAct,16June1972;EconomicZoneAct,17Decemb er1976;Fishing
Limits Act,17June 1966.Norway WT/TPR/S/15
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30. Inmaritime transport, Norway hastwoshipregisters, theNorwegian ShipRegister (NOR),
which isopentoships satisfying Norwegian nationality conditions, andtheNorwegian International
ShipRegister (NIS). Thelatterwasdesigned tostopanoutflow ofshipstoforeign flags, andapparently
suchoutward investments havedropped, particularly in1987, when theregister wasestablished. The
maincondition forincorporation intheNOR is60percentownership byNorwegian natural orlegal
persons. There isnosuchlimitation forincorporation intheNIS, which mainly applies toships
operating outside Norwegian waters. Themaincondition isthattheshipbeoperated byaNorwegian
shipping company orbyaNorwegian management company withitsheadquarters inNorway (seealso
Chapter IV).
31. Some partsofthenewlegislation donotdistinguish between Norwegian residents andother
EEAnationals ontheonehand, andnationals ofother countries ontheother hand. Thisapplies notably
tofinancial services, industrial acquisitions andrealestate, withtheexception ofacquisition orleasing
ofsecondary residences bynon-residents, which issubject toaconcession. Regarding corporate
structure, themanager andatleastonehalfofthedirectors musthavebeenresidents ofNorway for
thelasttwoyears, orbeEEA nationals withpermanent residence inanEEA State. Intheareaof
transport, thenewrules apply onlytoEEA nationals. Norway hasannounced itsgeneral intention
toapply anyliberalization ofcapital movements, including FDI,required bytheEEATreaty without
discrimination among thirdcountries. Thishassofarbeenachieved inmany areas, butnotinall.
Norwegian investment abroad
32. Outward foreign direct investment byNorwegian residents hadincreased almost without
interruption aspercentage ofGDP inthetenyears prior tothelastTrade Policy Review ofNorway.
However, in1992, thetrend wassharply reversed, falling toUS$411 million (Table I.3). However,
outflows subsequently recovered toearlier levels.
33. Most Norwegian investment abroad isheldintheUnited States andtheEU.16Outward
investment flows intheperiod 1986-94, bydestination andsector, areshown inChart I.4.Inthis
period themajor destination wastheUnited Kingdom (25.4 percent), followed byDenmark
(20.4 percent)andtheUnited States (13.9 percent). More thanhalfofthestock ofNorwegian outward
investment isinmanufacturing, especially inthechemicals sector.17However, intheperiod 1986-94,
theshare ofNorwegian investment flows going intomanufacturing overseas wasbelow 30percent,
while investment infinancial services took21.2percent, transport 12.6percentandpetroleum and
mining 9percent.
(4) Outlook
34. Therecent impressive performance oftheNorwegian economy canbeattributed tofiscal and
monetary policies designed tofoster non-inflationary growth, andthisisexpected tocontinue inthe
absence ofexternal shocks. RealGDPgrowth, particularly inthenon-oil (mainland) sector, isprojected
tomoderate in1996-97, partly inresponse tocontinued budgetary restraint, while inflation isexpected
toremain low. However, thefiscal budget excluding oilandgasisexpected toremain indeficit.
Thisimplies thatthereisaneedtocontinue tostrengthen public finances against thelong-term decline
inpetroleum andgasrevenues, expected tooccur aftertheyear2000, aswellastocounter theeffects
ofanaging population onthefinancing ofsocial security. Theplantoactivate thePetroleum Fund
andtheproposals forreform oftheNational Insurance Scheme areindicative oftheintent toaddress
these issues.
16OECD (1995).
17OECD (1995).WT/TPR/S/15
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