Rating action

Scope Ratings GmbH (Scope) has assigned long-term issuer and senior unsecured debt ratings of AAA/Stable to Rogaland County Municipality (Rogaland) in both local and foreign currencies. Additionally, Scope has assigned short-term issuer ratings of S-1+/Stable in both local and foreign currencies.

Rating rationale

The assignment of Rogaland’s AAA rating is based on:

• A strongly integrated institutional framework for Norwegian counties: The framework ensures financial stability through fiscal equalisation, central grants, and proactive government support, balancing autonomy with oversight to maintain fiscal discipline and address disparities. Counties generally have limited revenue flexibility and depend significantly on central transfers. Scope’s evaluation of the institutional framework places Norwegian counties within an indicative rating range spanning from AAA to AA. This assessment reflects their strong integration with the Norwegian sovereign (AAA/Stable).
   
• A strong individual credit profile. Rogaland County Municipality demonstrates conservative debt management and benefits from a strong liquidity position, ample reserves, robust budgetary performance and well-controlled exposure to low-risk contingent liabilities. Limited expenditure flexibility and high investment needs are challenges.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Rogaland, within an indicative rating range of AAA to AA, reflecting their strong integration with the Norwegian sovereign (AAA/Stable). This robust framework underpins their financial and operational resilience, effective governance, and proactive central government support. However, Norwegian counties face challenges such as limited revenue flexibility, dependence on central transfers, and adaptation to recent equalisation reforms.

A comprehensive fiscal equalisation system mitigates disparities among Norwegian counties by redistributing tax revenues and accounting for demographic and regional cost factors. In parallel to the county division process that took effect on 1 January 2024, the General-Purpose Grant Scheme for the county authorities was reviewed and underwent some changes. While some counties benefit and others lose, the main purpose of the scheme remains the equalisation of the county authorities’ finances via the expenditure and income equalisation. Central government grants typically constitute the majority of operating revenue for all counties (on average almost 60% for 2021–23). The second largest income is from tax revenue, while revenues from alternative sources, such as service fees and energy concessions, remain very limited.

Norway's sub-sovereign support framework is highly predictable, characterized by proactive interventions from the central government, including supervisory oversight and crisis-response mechanisms such as grants and cost compensation. Fiscal discipline is enforced through the Local Government Act, which mandates an operational budget balance and deficit correction within two years. Counties facing imbalances are monitored through the ROBEK registry. In times of crisis, the government has consistently reinforced stability through grants and cost compensation mechanisms, reflecting a credible history of support.

Norwegian counties maintain substantial autonomy in sourcing funds through banks, bonds, and the state-owned Kommunalbanken (KBN), which offers favourable financing aligned with government policy. This underpins the financial resilience of Norwegian counties.

Finally, Norwegian sub-sovereigns play a significant role in national policymaking through effective coordination with the central government and inter-regional cooperation. Mechanisms like KS (Norwegian Association of Local and Regional Authorities) ensure balanced decision-making and stable governance.

Rogaland’s strong individual credit profile is driven by its conservative debt management, strong liquidity position and ample reserves, as well as a robust budgetary performance. Limited expenditure flexibility and high investment needs are challenges.

Conservative debt management and strong debt affordability. Rogaland demonstrates prudent debt management, maintaining a comparatively moderate debt burden despite an expected increase in borrowing needs. In 2023, the county’s debt-to-operating balance stood at 6.1x, significantly outperforming the peer average of 9.4x. While Scope expects a slight weakening in 2024, Rogaland’s debt metrics will remain strong relative to peers, reflecting its disciplined financial strategy. The county’s strategic investments in transport and education—critical for long-term economic and social development—are the primary drivers of its rising debt trajectory. The debt-to-income ratio is projected to increase from 62% at end-2024 to just over 70% by 2028 (adjusted for inflation), aligning with its self-imposed target. Under a non-adjusted scenario, where the ratio could reach 75%, Rogaland's financial position remains manageable and within sustainable levels.

Despite rising debt levels, robust debt affordability significantly mitigates risk. Rogaland benefits from a robust financial framework, ensuring conservative and forward-looking financial planning. As of August 2024, the county’s average debt interest rate was 3.5%, a moderate increase from 3.25% at end-2023, yet lower than the 3-month NIBOR of 4.7%. This rate compares favourably to peers like Akershus (4.3%), reinforcing Rogaland’s efficient debt management. Rogaland remains an active issuer in the bond markets, with NOK 3.26bn in outstanding bonds as of February 2025. The county's proactive debt management strategy, including a well-balanced mix of fixed and variable rate debt, further strengthens financial resilience. Maintaining fixed-rate debt within 25-75% of the total portfolio is a key risk-management approach, with 47.2% of its debt portfolio at fixed rates as of August 2024.

Rogaland’s access to favourable financing ensures low refinancing risk. Financial regulations limit short-term refinancing exposure, with no more than 25% of total debt maturing within 12 months, providing stability and predictability in debt servicing. Additionally, Kommunalbanken (KBN) lending facilities offer a continuous and cost-effective borrowing alternative, further safeguarding against liquidity pressures.

Strong liquidity position and ample reserves. Rogaland maintains a solid liquidity position and robust reserves, providing a strong financial buffer as the county transitions to a sustainable budget balance. High revenue inflows in recent years have enabled the county to accumulate substantial reserves. At the end of 2024, disposition funds are expected to stand at NOK 1.48bn (13.9% of gross operating revenue), including a premium deviation fund of NOK 434m. The county’s prudent financial planning anticipates a gradual reduction of these funds over 2025–2028, with NOK 423m allocated for use during this period. By 2028, reserves are projected to stabilize at just over NOK 1bn (9.3% of gross operating revenue)— slightly below the county’s self-imposed 10% target, demonstrating a conservative approach to financial management.

Consistently strong cash position. Rogaland’s cash reserves remain solid. At end-2023, the county held NOK 2.1bn in cash (20% of operating revenue), broadly consistent with its NOK 2.0bn cash balance in 2022. While the current ratio of 1.9x in 2023 was slightly below the county average of 2.2x, Rogaland continues to demonstrate strong liquidity planning and financial flexibility. The county has adjusted its investment plan to align with its financial strategy, demonstrating its ability to manage expenses and mitigate refinancing risks. As a result, Rogaland has not required liquidity loans in recent years, further underscoring its proactive budget management.

Rogaland’s exposure to contingent liabilities remains well-controlled. The majority of outstanding guarantees are linked to Ferde AS, the local toll road operator, and its subsidiaries. Despite the significant guarantee volumes, the low-risk nature of Ferde AS’s business model ensures minimal probability of guarantees being utilized. Similarly, pension-related liabilities are well-covered, with pension funds accounting for 95% of obligations at end-2023, reducing financial strain. This strong coverage ratio reinforces Rogaland’s ability to manage long-term obligations without compromising financial stability.

Robust budgetary performance. Rogaland benefits from a stable and predictable revenue structure, with framework grants and tax revenues forming the core of its financial base, complemented by energy-related income. While the net operating profit for 2024 is estimated at NOK 200m, lower than the 2020–2023 average of NOK 664m, this still reflects a well-structured and resilient budgetary framework that effectively absorbs temporary fluctuations.

The recent revenue equalisation reforms will reduce Rogaland’s budgetary headroom by approximately NOK 80m per year—less than 1% of total operating revenue—minimizing the impact on overall financial stability. The gradual phasing-in of these adjustments from 2024 to 2027 provides Rogaland with ample time to adapt its financial planning, ensuring a smooth transition with minimal disruption. Despite a temporary shortfall in tax revenues in 2024, recovery is expected in 2025, with moderate tax revenue growth of 1% per year forecasted for 2026–2028. This gradual recovery, combined with Rogaland’s prudent financial management, supports long-term budget sustainability.

Scope expects Rogaland to generate moderate operating surpluses of around NOK 900m (before interest expenses) in both 2025 and 2026, in line with its financial plan. The county’s strong focus on cost control will help stabilize operating expenses, ensuring fiscal balance despite moderately rising interest costs. Supported by the planned drawdowns from the disposition fund, we expect the county to be able to meet its target of transferring 4% of operating revenue to investments. Continued self-financing of investments at this level will help to preserve financial autonomy while continuing to support critical sectors such as transport and education.

Credit challenges for Rogaland relate to limited expenditure flexibility and high investment needs.

Rogaland faces growing budgetary constraints, with limited expenditure flexibility and rising investment demands adding pressure to its budgetary outlook. With one-third of operating costs allocated to personnel expenses, the county has little room to adjust spending without impacting essential services. Additionally, education and transport continue to require substantial funding, further straining Rogaland’s already tight budget.

Investment needs are set to rise in 2025 and 2026, driven by growing student numbers, which will require increased spending on education infrastructure, and higher demands in the transport sector, particularly for emission-reducing restructuring efforts. In 2023, capital expenditures accounted for 23.5% of total spending, but this share is projected to rise to approximately 30% in 2025 and 2026. Gross investments, excluding those financed by external funds, are expected to nearly double, increasing from NOK 1bn in 2024 to around NOK 2bn in 2025 and 2026. From 2027 onward, investment levels are expected to decline, but they will likely remain above NOK 1bn annually until at least 2030.

Like all Norwegian counties, Rogaland faced rising operating expenditures, especially between 2020-2023, driven by increased service demands, high inflation, and post-pandemic economic adjustments. The Norwegian Association of Local and Regional Authorities (KS) estimates that inflation has eroded fiscal headroom by 2-3%, creating additional budgetary pressure. Scope expects pressures on operating expenditures to persist, therefore the county needs to adjust to a new elevated level. To counter these challenges, Rogaland has launched the ‘More for Less’ restructuring initiative, targeting NOK 150m in operational cost savings by 2028. This initiative highlights Rogaland’s proactive approach to expenditure efficiency, ensuring that resources are optimized without compromising essential services.

Finally, Norwegian counties generally have limited revenue flexibility, relying heavily on central transfers. However, Rogaland benefits from a relatively stronger revenue position compared to peers, with only 56% of operating revenue derived from transfers—below the national average of 61%. While income from licensed power is expected to moderate after high revenues during the energy crisis, which provided an additional fiscal cushion, Scope expects it to stabilize slightly above 2020 levels.

Rating-change drivers

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

Downside scenarios for the rating and Outlooks are if (individually or collectively):

1. The Kingdom of Norway’s ratings/Outlooks were downgraded.
    
2. Reforms to the institutional framework materially weakened regions’ integration in institutional arrangements.
    
3. Rogaland’s individual credit profile weakened significantly.

Qualitative Scorecards (QS1, QS2)

Scope’s institutional framework assessment determines the intergovernmental integration between sub-sovereigns and their rating anchor, which is the sovereign or a higher-tier government. To perform this assessment, Scope applies the Institutional Framework scorecard (QS1), centred on six analytical components: i) extraordinary support and bailout practices; ii) ordinary budgetary support and fiscal equalisation; iii) funding practices; iv) fiscal rules and oversight; v) revenue and spending powers; and vi) political coherence and multilevel governance.

Scope considers the institutional framework under which the Norwegian counties operate to display ‘strong’ integration for extraordinary support and bailout practices, funding practices, fiscal rules and oversight, and political coherence and multilevel governance. The system displays ‘full’ integration for ordinary budgetary support and fiscal equalisation, and revenue and spending powers. Consequently, Scope's assessment of the institutional framework establishes an indicative minimum rating of ‘aa’ for Norwegian counties.

Furthermore, Scope assesses the individual credit profile based on quantitative and qualitative analysis of four risk categories: i) debt and liquidity; ii) budget; iii) economy; and iv) governance. These are further complemented by additional adjustments for environmental and social factors & resilience.

The outcome of these assessments, as reflected in the application of the Individual Credit Profile scorecard (QS2), is an individual credit profile score for Rogaland of 80 out of 100.

The mapping of this score to the range defined by the Institutional Framework assessment results in an indicative rating of ‘aaa’ for Rogaland.

The review of potential exceptional circumstances that cannot be captured by the Institutional Framework and Individual Credit Profile scorecards did not lead to further adjustments to Rogaland’s indicative rating.

As such, the final rating corresponds to the indicative rating of AAA.

Environment, social and governance (ESG) factors

ESG factors material to Rogaland’s credit quality are captured by Scope’s rating approach through several analytical areas.

Scope’s assessment of Norway’s sovereign credit quality includes an appraisal of ESG risks as detailed in Scope’s Sovereign Rating Methodology.

Governance considerations are material to Rogaland’s rating and are included in Scope’s institutional framework assessment and its assessment of the county’s individual credit profile. These assessments highlight the robust quality of governance alongside the administration’s practices of sound liquidity and prudent budgetary planning.

The institutional framework assessment captures governance factors under fiscal rules and oversight, assessed as ‘strong integration’ for the Norwegian counties reflecting the financial rules mandated by the Local Government Act and close monitoring of finances. Additionally, governance factors are captured by political coherence and multilevel governance assessed as ‘strong integration’ for the Norwegian counties. This reflects extensive inter-regional cooperation that fosters policy coordination and a balanced, stable government structure.

The individual credit profile captures governance factors under the quality of governance and financial management, where Rogaland is assessed as ‘stronger’ reflecting transparent policymaking, a stable and predictable political environment, and robust financial planning and management that allowed the build-up of reserves in years with higher profit and tracks self-imposed fiscal targets.

Social considerations are included in Scope’s assessment of Rogaland’s ‘economic sustainability’. Demographics, a main source of risk across many regions in Europe, are relatively favourable and considered within the equalisation systems.

Additional environmental and social factors can be material for sub-sovereign creditworthiness beyond what is already captured in other sections of the methodology. In the case of Rogaland, no additional adjustments to the individual credit profile apply for social and environmental factors & resilience beyond what is already captured under other risk pillars.

Scope notes policy goals to reduce greenhouse gas emissions by 55 percent by 2030 compared to 2020 and new goals for the period between 2030 and 2050 are scheduled to be adopted in 2025. Rogaland’s geographic structure is the reason why especially emissions from ferries will be key to reduce overall emissions. Due to its dependence on the oil and gas industry, Rogaland is particularly affected by transition risks which is mitigated by strengthening the county’s position in sustainable industries such as offshore wind, green maritime, and hydrogen.

Rating committee
The main points discussed by the rating committee were: i) institutional framework for Norwegian counties, ii) Rogaland’s individual credit profile including debt, budget, economy and ESG components; and iii) peer comparison.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sub-Sovereigns Rating Methodology, 11 October 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. 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 https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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                                YES
With access to management                                         YES
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
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 Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Elena Klare, Associate Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Senior Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 7 February 2025.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Rogaland are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Publication Calendar 2025 Sovereign, Sub-Sovereign and Supranational Ratings" published on 13 December 2024 on www.scoperatings.com). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case the deviation from Scope’s published calendar was due to the first-time publication of the ratings.

Conditions of use / exclusion of liability
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