Rating action

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

Rating rationale

The assignment of Innlandet’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. The County of Innlandet demonstrates prudent fiscal management, low debt levels relative to peers, and a resilient budget performance, underpinned by a robust revenue structure and substantial discretionary funds. Strong liquidity levels further support its debt profile, limiting reliance on external borrowing. Additionally, the county maintains well-managed exposure to contingent liabilities. Challenges are related to limited flexibility in revenue regeneration and expenditure adjustments, which may constrain fiscal adaptability. Furthermore, weaker population growth relative to the national level could pose long-term economic and demographic pressures.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Innlandet, 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 the ongoing 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. 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 for most counties.

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.

Innlandet’s strong individual credit profile is supported by its resilient budgetary performance, ample liquidity, relatively low debt levels, and well-managed contingent liabilities. Limited flexibility in revenue and expenditure and slower population growth present challenges.

Resilient budgetary performance. Innlandet benefits from a robust revenue structure, where its primary revenue sources (framework grants and tax revenues) are supplemented by dividend income from shareholdings, mainly Innlandet Energi Holding AS, managed through its two holding companies Hedmark fylkeskraft (HFK) and Oppland fylkeskraft (OFK). In 2024, operating revenues increased, supported by a 4.9% YoY rise in tax revenue and strong growth in fees and other income (+22.4% YoY), mostly from user payments and dividends. Over the next four years, Innlandet will benefit from recent adjustments to the revenue and expenditure equalization system, resulting in additional NOK 120m annually. This includes NOK 40m from a correction in the allocation of resources for county roads. In addition, updated dividend distribution rules from Innlandet Energi Holding AS will lead to an increase of over NOK 50m per year, leading to total dividends averaging NOK 139m annually (1.6% of operating revenue) over 2025-28.

Despite strong revenue growth, Innlandet faces rising operating expenditures, driven by higher financial expenses, increased costs for goods and services, rising salaries and social expenses, including increasing pension costs. Additionally, a change in pension accounting practices in 2024 will require annual premium deviations (the difference between pension premiums paid to the pension scheme and actual pension costs) to be recognised directly in the budget and amortised over 7 years. As a result, premium deviations will no longer be accumulated in a dedicated fund for long-term distribution, leading to higher pension expenditures. However, this change is expected to improve cost predictability and reduce volatility. Moreover, accumulated resources in the pension premium deviation fund may be repurposed for investment financing, providing additional financial flexibility. Despite these expenditure pressures, Scope expects Innlandet’s budgetary performance to remain robust in the medium term, with an average operating balance of 7.1% in 2025-28. This budgetary outlook is supported by favourable revenue equalization adjustments, higher dividend distributions from energy-related shareholdings, and robust discretionary reserves that enhance financial flexibility.

At the end of 2024, total disposal funds stood at NOK 656m (7.5% of operating revenue), comprising the General Contingency Fund (NOK 150m), which serves as a financial buffer for revenue shortfalls or unforeseen expenditures, and the Reserve Fund (NOK 90.7m), part of which has been allocated to cover damages caused by storms and floods in 2023-24. To further mitigate future environmental risks, the county has proposed allocating NOK 40m annually to the Reserve Fund over 2025-28, ensuring adequate resources to address potential climate-related damages.

Solid liquidity position supports the county’s debt profile. Innlandet benefits from ample cash holdings, which stood at NOK 2.85bn at the end of 2024, accounting for 32% of operating revenue and covering 1.4 times short-term liabilities as well as almost 50.1% of total debt. When considering total current assets, they were sufficient to cover 2.3 times total current liabilities in 2024. This solid liquidity position enables the county to balance financial expenses and effectively manage refinancing risks. Innlandet’s average interest rate on total borrowing – consisting of almost 80% long-term loans with Kommunalbanken – was relatively high at 5% in 2024. In addition, the proportion of long-term loan debt with fixed interest rate is low at 16%, potentially increasing exposure to interest rate fluctuations. Nevertheless, when factoring in interest rate compensation for investments in schools and county roads, as well as compensation from floating-rate deposits, the portion of loans effectively exposed to changes in interest rates remains limited at NOK 453m (8% of total loan debt). At the same time, refinancing risks are well-contained as short-term papers account for only 4.3% of total loan debt.

Low debt relative top peers and available unrestricted funds containing the need for external borrowing. Innlandet’s debt-to-operating revenue ratio stood at 62.9% of operating revenue in 2024, declining slightly from 64% in the previous year. However, planned elevated investments levels over 2025-28 period, averaging NOK 1.2bn annually, up from NOK 900m in 2024, will drive an increase in financial debt, with the debt-to-operating revenue ratio expected to reach 75.9% by 2028.

Over the next five years, total planned investments of NOK 4.7bn will be directed toward county roads, climate initiatives, dental health, and public transport. Despite the rising debt trajectory, the availability of multiple contingency funds will help mitigate the need for external borrowing. These resources include transfers from the operating budget, including the self-financing fund (NOK 138.3m at end-2024), along with funds from early loan repayment totalling NOK 202.6m, received from the two holding companies HFK AS and OFK AS. Additionally, continuous and increasing dividends from Innlandet Energi Holding AS, as well as state funds allocated for selected projects, will further support investment financing. As a result, despite the rising trajectory, the debt-to-operating income ratio will remain low compared to peers. In addition, interest payments will rise relative to past levels but are projected to remain stable at around 3% of operating expenditure over 2025-28.

Innlandet’s exposure to contingent liabilities remains well-managed. The majority of outstanding guarantees are linked to Vegfinans AS, the local toll operator, and its subsidiaries. Although guarantee volumes are significant, the low-risk nature of Vegfinans’ business model minimises the likelihood of guarantee activation. Additional contingent liabilities stemming from remaining outstanding loans to HFK AS and OFK AS remain also limited, at around NOK 200m. Similarly, pension-related liabilities are well covered, with pension funds accounting for 97% of obligations at the end of 2024, reducing financial strain.

Credit challenges for Innlandet relate to limited flexibility in revenue and expenditure and weak population growth.

Innlandet's revenue flexibility is constrained by its substantial reliance on government transfers, which accounted for approximately 66% of operating revenue in 2024, a higher proportion compared to national peers. This dependency limits the county’s ability to adjust revenue sources in response to economic or fiscal pressures.

Similarly, expenditure flexibility is restricted, as a relatively small portion of total spending is allocated to capital investments compared to peers—9.6% in 2024, with a projected average of 14% over 2025-28. This is also due to lower capital expenditure pressures compared to other counties. Additionally, personnel costs represent nearly 33% of total expenditures, further constraining budgetary adaptability. However, the presence of dividend income and unrestricted reserve funds provides some buffer against fiscal rigidity.

Demographic challenges and moderate economic prospects. Innlandet faces structural demographic challenges, with low population growth and an aging population affecting long-term fiscal and economic sustainability. Since 2010, the county’s population has grown by around 3%, well below the 10% national growth rate. This was mostly due to a prolonged birth deficit which was not fully compensated by net immigration. According to the latest Statistics Norway’s baseline scenario, population in Innlandet will increase by 15,000 people by 2040, corresponding to an annual growth of 0.4%, below the national estimate of 0.7% annually. Under an alternative scenario, a decline in population by 2040 remains a possibility, although factors such as migration from Ukraine could introduce upside risks, though their long-term impact remains uncertain. Additionally, 24% of Innlandet’s population is aged 65 or older, compared to 19% nationally, and the 67+ age group is projected to grow by over 20,000 by 2040. While the county's old-age dependency ratio remains relatively favourable in an international context, the working-age population is shrinking, posing long-term economic and fiscal challenges. Furthermore, the number of 16-18-year-olds is expected to decline by 11%-14% over the next 12 years, reducing the need for upper secondary education—one of the county’s core responsibilities. Innlandet has already started to react to the reducing pupil numbers, closing down selected schools. Further downscaling will likely be required in the coming years as this demographic trend will result in a negative impact on revenue transfers under the national equalization system.

Despite a very low unemployment rate (at 2.1% as of January 2025), most of the economic activities are concentrated in sectors such as agriculture, forestry and fishing, usually characterized by lower value creation and wages. These industries generally contribute less to overall economic growth and generate lower income levels compared to other regions of Norway. As a result, wage levels in Innlandet remain below the national average, limiting the region’s tax revenue potential. Around 8% of total Norwegian companies are located in Innlandet and, as of 2021, value creation in the county accounted for only 6% of total value creation in Mainland Norway. However, the strong tourism sector, which is labour-intensive, provides an important contribution to local tax revenues, particularly benefiting municipal finances.

Rating-change drivers

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

Downside scenarios for the ratings and Outlooks are (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. Innlandet’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 Innlandet of 70 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 Innlandet.

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 Innlandet’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 Innlandet’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 Innlandet’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 Innlandet is assessed as ‘stronger’, reflecting the county’s: i) build-up of budgetary funds and reserves, substantial liquidity resources, as well as tracking of self-imposed fiscal targets; and ii) a stable and predictable political environment which favours the clear definition of policy objectives and forward-looking financial planning.

Social considerations are included in Scope’s assessment of Innlandet’s ‘economic sustainability’. Despite weaker demographic developments observed in Innlandet compared to the rest of the country, demographic conditions remain favourable in an international context. Moreover, they are less of a concern for Norwegian counties as population trends and age structure are 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 Innlandet, no additional adjustments to the individual credit profile apply for social and environmental factors & resilience beyond what is already captured under other risk pillars.

Innlandet presents a relatively high level of greenhouse gas emissions, mostly coming from agriculture activities, road traffic and other combustion sectors, accounting for 88% of total emissions. Given the absence of coasts, no emissions from shipping are recorded, as well as from aviation. Scope acknowledges ambitious climate goals: Innlandet aims at reducing direct GHG emissions by at least 55% by 2030 compared to 1990 levels. It also targets to make the county’s activities fossil-free by the end of 2025. With the already adopted measures, the county would be able to reduce direct GHG emissions by 26% in 2030. Therefore, for a 55% reduction, additional policies and measures would be necessary. The 2025-28 Financial Plan includes the implementation of 18 GHG reduction measures, for a total effect of around 450 tons of Co2e, financed either through the ordinary operating framework or the investment budget.
 
Rating committee
The main points discussed by the rating committee were: i) institutional framework for Norwegian counties, ii) Innlandet’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: Alessandra Poli, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Senior Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 28 February 2025.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Innlandet 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.

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. 

Conditions of use/exclusion of liability
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