FRIDAY, 21/10/2022 - Scope Ratings GmbH
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      Scope affirms Norway’s AAA rating with Stable Outlook

      The ratings are supported by Norway’s economic resilience, its large savings accumulated in its sovereign wealth fund and strong macroeconomic governance. Challenges include financial imbalances and its long-run economic transition.

      For the updated report accompanying this review, click here.

      Rating action

      Scope Ratings GmbH (Scope) has today affirmed the Kingdom of Norway’s long-term local- and foreign-currency issuer and senior unsecured debt ratings at AAA. Scope has also affirmed the short-term issuer ratings at S-1+ in local and foreign currency. All Outlooks are Stable.

      Summary and Outlook

      Norway’s AAA rating is underpinned by the following credit strengths: i) the country’s economic resilience and expected continuous post-crisis fiscal surpluses; ii) a significant net public asset position rather than a net public debt position, driven by savings accumulated through its sovereign wealth fund, the Government Pension Fund Global (GPFG); and iii) strong fiscal, monetary and financial governance institutions. Norway also benefits from low central government debt, issued only to finance capital expenditure, and institutional strengths as a mature economy with one of the world’s highest per capita income levels. Challenges relate to: i) high household debt and imbalances in the residential and commercial property sectors; and ii) the long-run transition to a non-commodity-dependent economy.

      The Stable Outlook reflects Scope’s view that the risks to the ratings are balanced over the next 12 to 18 months.

      The ratings/Outlooks could be downgraded if, individually or collectively: i) a significant weakening in macroeconomic policy threatened Norway’s long-run net public and external asset positions; ii) a financial crisis, potentially exacerbated by domestic imbalances, materially damaged Norway’s public sector and financial system balance sheets; and/or iii) significant shortcomings in addressing climate transition risks arose, resulting in a rapid increase in stranded asset risks on the government’s balance sheet.

      Rating rationale

      The first driver supporting Norway’s AAA ratings is the country’s economic resilience, demonstrated during the pandemic and the current energy crisis. After a moderate 0.7% contraction in economic output in 2020, significantly less than the peer average of 3.5%, Norway’s economy rebounded rapidly in 2021 when GDP grew by 3.9%, driven by strong private consumption and exports. Robust growth momentum continued in 2022, resulting in a record-high employment rate, capacity constraints and labour shortages, although economic growth began to slow in Q2. Scope expects the slowdown in economic growth to continue as private consumption and investments weaken. Direct economic impacts from the Russia-Ukraine conflict are relatively small given Norway’s low trade exposure to both countries, but high inflation driven by soaring electricity prices is eroding households’ real disposable income and purchasing power, leading to a negative effect on private consumption. Real wages are projected to decline by approximately 2% in 2023, although large private savings accumulated during the pandemic are helping cushion the negative impact on consumption somewhat. Scope expects economic growth to be 2.8% this year and 1.6% in 2023 before stabilising near its medium-term potential of around 1.8%.

      The Norwegian labour market remains very tight, with employment levels at all-time highs of 70.2% in August 2022, reflecting higher participation among foreign and temporary workers. Job vacancies also reached their highest level on record while the unemployment rate stood at 3.1% in July 2022, down from 3.7% in March 2020 at the onset of the pandemic. Given strong demand for labour, Scope expects the unemployment rate to be 3.2% in 2022 before slightly increasing to 3.6% next year, reflecting the projected economic slowdown.

      CPI inflation stood at 6.9% in September 2022, driven by higher electricity prices and rising core inflation from higher prices for food and other imported goods. While elevated cost pressures are likely to continue for some time, the impact on consumer prices should gradually start to ease in 2023. Nominal wage growth increased from 3.5% in 2021 to 4% this year and is expected to reach 4.6% in 2023 as firms continue to face tight labour market conditions. Norges Bank was the first major Western central bank to raise policy rates following the pandemic (in September 2021). To prevent the risk of a wage-price spiral, the central bank further increased its policy rate from 1.75% to 2.25% in September. Scope expects the central bank to tighten monetary policy further, with the policy rate reaching 3% in 2023.

      Norway is benefitting from the strong increase in oil and gas prices in Europe. Prices are expected to remain high in 2022 and 2023 and will provide significant additional state revenues as net cash flow from oil operations is expected to increase fourfold, rising from NOK 288bn in 2021 (8.6% of mainland GDP) to NOK 1,169bn in 2022 (33.7% of mainland GDP) and NOK 1,384bn in 2023 (38.3% of GDP).

      Under Norway’s fiscal framework, revenues from the petroleum sector are saved in the GPFG, and the non-oil budget deficit shall over time correspond to the long-term real return on the GPFG, which is estimated at 3%. Since the inception of Norway’s sovereign wealth fund in 1990, transfers from the fund to the central government budget have only exceeded net petroleum revenues on two occasions – in 2016/17 during a slump in oil prices and in 2020/21 due to the increased spending needed to respond to the pandemic. According to the 2023 budget, the structural non-oil fiscal deficit amounted to NOK 350bn in 2021 (2.9% of 2021 GPFG assets), just below the 3% target due to Covid-related spending pressures. It is expected to fall gradually to NOK 324bn in 2022 (2.6% of GPFG assets) and NOK 317bn in 2023 (2.5% of GPFG assets). Spending from the fund as a share of mainland GDP, is expected to fall by 0.6 percentage points from 2022 to 2023.

      Still, additional spending of around NOK 100bn (around 2.8% of mainland GDP) is expected in 2023 to fund the integration of Ukrainian refugees, national insurance, ongoing construction projects and the continuation of the electricity subsidy scheme for households. To avoid fuelling inflationary pressures, the government intends to keep transfers from the GPFG well below the 3% fiscal target. The funding gap will instead be covered by NOK 45bn in additional taxes, including on power production, and the reprioritisation of some capital expenditures, such as new major rail and road projects.

      The second driver supporting Norway’s AAA rating is the country’s significant net public asset position rather than a net public debt position, benefitting from savings accumulated through the GPFG. The country holds substantial net financial assets amounting to 354% of nominal GDP at the end of 2021. These financial assets consist mainly of deposits with Norges Bank, financial investments through the GPFG, equity holdings in domestic enterprises, and lending to or direct investments in state banks and state enterprises. This net asset ratio is by far the highest in a ‘aaa’ peer analysis.

      Since its launch in 1990, the GPFG has grown to its current size of about USD 1.1trn or around 350% of mainland GDP. Fund assets are invested abroad, and the divestment of oil and gas shares in recent years has helped diversify the country’s wealth away from the sector. The prudent investment of Norway’s oil wealth, combined with the fiscal rule targeting annual transfers to the budget of 3% of GPFG assets, is a significant credit strength. Rising interest rates, high inflation and the war in Ukraine – plus the subsequent freezing of Russian equities – have caused the fund’s value to fall by 5.5% (NOK 682bn) in H1 2022, or more than 15% if measured in USD due to the weakening of the krone. Using the fund to delink the generation and use of petroleum revenues bolsters fiscal and economic sustainability. It provides a formidable tool for business cycle smoothing, eases the effects of oil price volatility on the mainland economy, decreases the potential for short-term overspending and provides the foundation for long-term investments to benefit future generations.

      Despite these credit strengths, Norway’s ratings face several medium-term credit challenges.

      First, longstanding financial vulnerabilities related to high household debt and exposure to commercial real estate (CRE) have increased as a result of the pandemic and may crystalise due to rising interest rates. Average house prices have increased to all-time highs, rising by around 20% since the onset of the pandemic and more than doubling since the 2008 financial crisis. Despite rising interest rates, house price growth has been supported by high demand and new regulations on the sale of real estate property that took effect in January and reduced supply. Nevertheless, the housing market has started to cool in the second half of 2022, and prices are expected to decline further in 2023, driven by rising interest rates, high inflation, labour shortages and elevated building costs. To help address the risk of financial imbalances, the Financial Stability Committee confirmed the decision to increase the countercyclical capital buffer rate to 2.5%, effective March 2023.

      Real estate sector risks are intertwined with high and rising levels of household debt, which mostly consists of mortgage loans. Debt levels reached 223% of disposable income in Q2 2022. This is in line with pre-pandemic levels but significantly higher than the 185% recorded in Q2 2007, before the global financial crisis. Households’ debt service ratios have gradually increased over this period. With rising interest rates, the interest burden is expected to increase from 4% at the end of 2021 to around 8% of disposable income in 2023. This risk is compounded by Norwegian households’ high percentage of mortgages with floating interest rates. A deeper market correction represents a significant economic vulnerability that could adversely impact both the economy and financial stability. Corporate debt levels have decreased in recent quarters from 167% of GDP in Q4 2020 to around 129% in Q1 2022, although they remain in line with other Nordics, such as Denmark (126%) and Finland (113%).

      Banks’ high exposure to commercial real estate is another important vulnerability. CRE exposures are high at all large banks, accounting for around 50% of total corporate lending. Given CRE companies’ higher leverage compared to other firms and higher refinancing risks from the short maturities of new commercial property mortgages, losses in this sector could result in material negative impacts on banks’ balance sheets and cause substantial downturns in the financial market. Nevertheless, rapid price rises in recent years have not been coupled with higher borrowing by CRE firms. This has boosted their equity ratios and made them more resilient to price drops.

      The Norwegian banking sector proved resilient during the Covid-19 crisis and continues to show ample capacity to absorb losses thanks to strong levels of capitalisation, liquidity and profitability. As of Q4 2021, the average regulatory tier 1 ratio stood at 22.2%, well above the minimum requirements and higher than pre-pandemic levels. Meanwhile, the liquidity coverage ratio stood at 141.7% as of Q2 2022, and the NPL ratio remained stable at 0.7%. The risk of credit losses due to the Russia-Ukraine conflict is limited for Norwegian banks given their low exposure to both countries. Going forward, increasing interest rates could have a positive effect on net interest income. However, in combination with high inflation they can negatively impact borrowers’ finances, leading to an increase in their credit riskiness. Still, Scope assesses banks’ losses related to household debt to be moderate because of generous unemployment benefits and sufficient liquid asset buffers held by households.

      Second, Norway remains highly reliant on the oil and gas sector, exposing it to long-term transition challenges such as stranded asset risks as its main trading partners transition away from fossil fuels. However, the decision to continue oil exploration is strongly supported by EU member states, which have recently strengthened energy cooperation with Norway as it is seen as one of the main alternative gas suppliers to Russia. Norway accounted for 25% of EU gas imports in 2021, which is set to increase, and will thus continue to play a key role as an energy supplier to EU member states.

      The Norwegian government has prudently prioritised restructuring the national economy with the aim of reaching climate neutrality by 2050 and further diversifying sources of economic growth. The decision to divest companies solely dedicated to oil and gas exploration and production from the GPFG’s benchmark index also helps diversify the country’s wealth away from the sector. The government aims to reach carbon neutrality by 2050. Its new budget also presented a proposal to allocate additional funds to the Green Platform Initiative over 2023-25, supporting research and innovation projects that contribute to the green transition. In addition, Norway’s Climate Action Plan 2021-30 proposes raising the carbon tax from NOK 590 per tonne of CO2 in 2021 to NOK 2,000 per tonne of CO2 in 2030. Several other measures, including subsidies for electric cars and investments in renewable energy, should also support the transition.

      Core Variable Scorecard (CVS) and Qualitative Scorecard (QS)

      Scope’s Core Variable Scorecard (CVS), which is based on the relative rankings of key sovereign credit fundamentals, provides an indicative rating of ‘aaa’ for the Kingdom of Norway. The qualitative scorecard (QS) can adjust this indicative rating by up to three notches depending on the size of relative qualitative credit strengths or weaknesses versus a peer group of countries.

      For the Kingdom of Norway, the following relative credit strengths have been identified: i) monetary policy framework; ii) fiscal policy framework; iii) debt sustainability; iv) debt profile and market access; v) strong resilience to short-term external shocks; vi) low social risks; and vii) low governance risks. Relative credit weaknesses are: i) fragility due to financial imbalances.

      The combined relative credit strengths and weaknesses indicate a sovereign rating of AAA for Norway.

      A rating committee has discussed and confirmed these results.

      Factoring of Environment, Social and Governance (ESG)

      Scope explicitly factors in ESG sustainability issues during its ratings process via the sovereign methodology’s stand-alone ESG sovereign risk pillar, with a 25% weighting under the quantitative model (CVS) as well as in the qualitative overlay (QS).

      Norway’s performance on ESG factors supports the country’s AAA sovereign rating. With respect to environmental factors, Norway receives high scores for the following CVS indicators: carbon emissions per unit of GDP, exposure and vulnerability to natural disaster risks and the ecological footprint of consumption compared with available biocapacity, while it receives a low score for GHG emissions per capita. Scope assesses Norway’s QS adjustment for ‘environmental factors’ as ‘neutral’ given the significant medium-term transition risks towards a non-commodity-dependent economy.

      Factors related to Norway’s social profile are captured in Scope’s CVS, where the country benefits from low income inequality and high labour force participation. Long-run demographic trends also remain a credit strength, with the old-age dependency ratio forecast to reach 40% by 2050 according to Eurostat, a level similar to that of Sweden and below that of most peers. The country ranked second after Switzerland in the United Nation’s 2021 Human Development Index – an indicator predicated on life expectancies, educational achievement and income levels. Scope’s QS assessment of Norway’s ‘social factors’ is strong, reflecting the country’s strong social safety net and inclusive labour market, as well as favourable demographic dynamics compared to the country’s ‘aaa’ sovereign peer group.

      Governance-related factors are explicitly captured in Scope’s assessment of a composite index of six World Bank Worldwide Governance Indicators where Norway has the highest score in Scope’s rated sovereign universe. Following parliamentary elections in September 2021, Labour Party candidate Jonas Gahr Støre became the head of a new centre-left coalition minority government, taking over from the previous conservative party-led government, which had been in power since 2013. Scope expects broad continuity in Norway’s main policy areas, in line with the country’s track record of smooth political transitions. Scope evaluates Norway’s ’governance’ profile as strong in its qualitative assessment.

      Rating Committee
      The main points discussed by the rating committee were: i) domestic economic risk; ii) public finances risk, including fiscal framework and debt dynamics; iii) external risks; iv) financial stability risks, including housing market and private sector debt; v) ESG considerations; and vi) peer developments.

      The methodology used for these Credit Ratings and/or Outlooks, (Sovereign Rating Methodology, 27 September 2022), is available on
      Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on
      The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.
      Solicitation, key sources and quality of information
      The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
      With Rated Entity or Related Third Party participation YES
      With access to internal documents                               NO
      With access to management                                         YES
      The following substantially material sources of information were used to prepare the Credit Ratings: the Rated Entity, public domain.
      Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
      Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

      Regulatory disclosures
      These Credit Ratings and/or Outlooks issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
      Lead analyst: Eiko Sievert, Director
      Person responsible for approval of the Credit Ratings: Alvise Lennkh-Yunus, Executive Director
      The Credit Ratings/Outlooks were first released by Scope Ratings on January 2003. The Credit Ratings/Outlooks were last updated on 12 November 2021.

      Potential conflicts
      See under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

      Conditions of use / exclusion of liability
      © 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

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