The Organisation for Economic Co-operation and Development (OECD) on Monday praised Norway for sound management of its oil wealth, but urged the country to prepare for the day when its lucrative reserves are depleted.
"Norway possesses substantial scope for further gains from pro-competitive reforms, which will be critical in moving towards a post-oil economy," the OECD wrote.
Norway is the world's third-largest exporter of oil behind Saudi Arabia and Russia.
The OECD noted that oil was largely responsible for providing Norwegians with US-style incomes far above the European average, but warned that a strong work ethic was being eroded by high sickness rates.
"Mounting oil wealth has contributed to Norway's per capita income being on a par with that of the United States," it said.
"The short-term outlook for Norway is good. Helped by global recovery, growth could proceed at above potential rates for a while, especially as inflation is well below target and there is some cyclical slack in the labour market," it said.
Norway's economy is expected to grow by 2.8 percent in 2004 and by 2.0 percent the following year, after increasing by 0.6 percent in 2003, the OECD said as it reiterated its forecast from November.
Gross domestic product excluding oil, gas and shipping revenues is meanwhile expected to rise by 2.7 percent this year and by 2.2 percent in 2005. In 2003, it rose by 0.3 percent.
The Norwegian economy is expected to thus bear the fruit of its repeated interest rate cuts, after the central bank has successively lowered its folio rate from 7.00 percent in December 2002 to the current 2.00 percent.
The OECD recommended however that Norway tighten public spending, which is expected to soar amid an ageing Norwegian population, and tackle the problem of high sickness rates.
"It will be important to rein back spending over the next few years in order to get back onto the self-imposed track of permissible spending of oil revenues."
Since the early 1990s, the Norwegian government has transferred its oil revenues into a fund to be set aside for future generations and primarily used to finance pensions.
At the end of last year, the fund, which has been invested in international stocks and bonds, was valued at 845 billion kroner (97.6 billion euros).
Since 2001, the government has been allowed to withdraw up to four percent of the estimated value of the fund in order to balance the budget. But the Norwegian government has exceeded that limit the past two years.
"A faster return to the four percent spending rule path than currently envisaged is ... desirable," the OECD wrote.
Among other measures the body recommended were calls for Norway to open its economy further to competition and to be increasingly flexible in wage negotiations.
"State ownership and subsidies to agriculture should be reduced," it said.
The Norwegian government said it "largely agreed" with the OECD's conclusions, and Finance Minister Per-Kristian Foss said several of the recommendations were already being undertaken.
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