Press Release

DBRS Morningstar Confirms the Kingdom of Norway at AAA, Stable Trend

March 31, 2023

DBRS Ratings Limited (DBRS Morningstar) confirmed the Kingdom of Norway’s (Norway) Long-Term Foreign and Local Currency – Issuer Ratings at AAA. At the same time, DBRS Morningstar confirmed Norway’s Short-Term Foreign and Local Currency – Issuer Ratings at R-1 (high). The trend on all ratings is Stable.

The confirmation of the Stable trend reflects DBRS Morningstar’s view that risks to Norway’s ratings remain limited. The country’s solid public sector metrics and strong macroeconomic fundamentals help mitigate the risks posed by the weaker external environment, elevated inflation and rising interest rates. Recent global financial market turbulence, if prolonged, could result in weaker than expected GDP growth in Norway and among trading partners in the near term, but risks for banks in the country appear contained. High energy prices resulted in nominal GDP increasing by 32.2% in 2022. On the other hand, mainland real GDP, which excludes the petroleum-based offshore sector, came in at a more modest 3.7% last year and growth is expected to slow to 1.1% in 2023. Despite the limited direct impact of Russia’s invasion of Ukraine on the Norwegian economy, elevated energy and food prices, in tandem with a weak Norwegian krone (NOK), are putting pressure on inflation, prompting Norges Bank to hike its policy rate. This is resulting in higher debt service costs for households and contributing to a correction in house prices. In spite of the elevated uncertainty, Norway’s strong fiscal position and the very low debt ratio continue to provide ample room to support the economy if needed.

Norway’s AAA ratings are underpinned by its public-sector wealth, prudent management of its oil-related revenue windfalls, strong external position, and sound institutional framework. On the other hand, Norway faces several structural challenges related to its high household indebtedness, the dependance on the petroleum sector, and the ageing population. Norway is well-positioned to deal with these challenges and has substantial buffers to absorb shocks. The country’s sovereign wealth fund (SWF), the Government Pension Fund Global (GPFG), had a market value of around NOK 12.4 trillion at the end of 2022, which is equivalent to around 348% of mainland GDP. This provides Norway with a substantial buffer against potential shocks. The GPFG acts as both a current source of income (supplementing the annual budget) and a future source of resilience, as demonstrated by the large transfers to the national budget seen during the pandemic.

Norway is firmly placed in the AAA rating category, but could be downgraded by one or a combination of the following factors: (1) a worsening of financial conditions and medium-term growth prospects that is severe enough to materially affect Norway’s financial stability and fiscal position; or (2) a significant weakening of the government’s commitment to a prudent fiscal policy.


A Strong Recovery Following The Pandemic But Growth Is Set To Deteriorate Modestly In The Near Term

Economic growth will slow in 2023 and 2024 due to the impact of the Russian invasion of Ukraine, elevated inflation and rising interest rates. Risks stemming from the recent increase in financial market volatility are contained, but heightened turbulence might affect business and consumer confidence both in Norway and abroad. Following a mild real GDP (mainland) contraction of 2.8% in 2020, GDP rebounded by 4.2% in 2021 and 3.7% in 2022. However, it will slow to around 1.1% and 0.5% in 2023 and 2024, respectively, according to Norges Bank. The moderate worsening in the economic outlook is not expected to be prolonged and is not likely to have structural implications. Households are tapping into their excess savings to sustain consumption while investment on petroleum services and renewable energy is expected to increase, supporting economic growth, particularly this year. Moreover, the labour market is expected to remain in a very strong position with the unemployment rate close to 2% and employment above pre-pandemic levels.

Norway’s ratings are underpinned by its wealthy and stable economy, with a balanced income distribution. On the other hand, as a small and open economy, Norway remains exposed to potential downturns in external demand, and a prolonged conflict in Ukraine could hinder Norway’s performance, along with the rest of Europe. Norway’s conservative approach to managing oil revenues has helped to limit the economy’s vulnerability to oil price shocks, but dependence on the petroleum sector and successful diversification away from the oil-dependent economy towards other tradable sectors pose challenges in the medium- to long-term.

Petroleum Exports Increased The Current Account Surplus To Record High In 2022

Norway’s external accounts are characterized by a structural current account surplus and a positive net creditor position. Driven by large oil exports and a high savings rate, the current account surplus has averaged around 10.0% of GDP over the last ten years. In 2022 the current account surplus reached a record high level at 30.4% of GDP due to high energy prices and increased exports of energy goods to the European markets. Norway is one of the largest exporters of natural gas in the world and has been contributing to the efforts of European countries to reduce their reliance on Russian gas. Norway is now Europe’s largest supplier of natural gas. Overall, Norwegian exports of natural gas increased last year by 185% (from NOK 475 billion to NOK 1,356 billion) compared to 2021, mainly due to elevated energy prices. From a stock perspective, Norway’s large positive net international investment position at 209.4% of GDP in Q4 2022 reflects a substantial accumulation of foreign assets through the GPFG. In addition to this, Norway’s floating currency acts as a shock absorber in the face of global economic volatility. The Norwegian krone, as measured by the import-weighted exchange rate index I-44, has weakened by around 11% since March 2022 and it is projected to remain weak in 2023, potentially delaying the decline in inflation.

Norway’s Creditworthiness Is Underpinned By Its Solid Fiscal Framework And Low Public Debt Ratio

Norway’s solid fiscal framework and conservative management of the oil sector revenues constitute important credit strengths. Under Norway’s fiscal framework, the net cash flow from the petroleum activity are transferred to the GPFG. The proceeds (receipts from the sale of oil and gas reserves and oil and gas taxes) are invested entirely overseas. Norway’s fiscal rule also requires that the transfers from the GPFG to the national budget over time should be limited to the expected real return of the fund, estimated at 3.0%. Norway’s GPFG is the world’s largest sovereign wealth fund, with a market value at around NOK 12.4 trillion (equivalent to around 348% of mainland GDP) at the end of 2022. Despite losses in the equity and fixed income market in 2022, the market value of the fund increased by NOK 89 billion compared to 2021 due to increased inflows from petroleum revenues and krone depreciation.

Norway’s GPFG and strong fiscal position before the pandemic provided the government with ample fiscal space to withstand the pandemic and energy crises. To support the economy, the structural non-oil fiscal deficit increased to NOK 362.8 billion in 2020 (3.6% of GPFG) from NOK 231.0 billion (equivalent to 2.8% of the value of GPFG) in 2019, before gradually declining to NOK 323.7 billion (2.6% of the GPFG) last year. However, due to the sharp increases in gas prices, the government received substantial revenues in 2022. The net cash flow from petroleum activity in 2022 is estimated at NOK 1,169 billion, from initial estimates of NOK 277 billion, and approximately four times the 2021 proceeds. For 2023, the government estimates the structural non-oil deficit to reach NOK 316.8 billion (2.5% of GPFG).

Norway’s solid public sector balance sheet is one of its key credit strengths relative to other AAA-rated peers. Norway’s general government gross debt ratio remains one of lowest among advanced economies, at 37.4% of GDP in 2022. The non-oil budget deficit is financed by transfers from the GPFG and therefore does not trigger any borrowing requirement. However, the government borrows in local currency to fund government lending schemes, to ensure a well-functioning financial market in Norway, and to cover redemption of outstanding debt. The Norwegian government’s financial assets far exceeds total debt. The large net asset position standing at 273.5% of GDP in 2022 is explained by its large sovereign wealth fund. Norway’s low public debt ratio, along with the government’s asset position and its solid fiscal framework, place Norway in a strong position to mitigate adverse shocks, and therefore support a positive assessment in the ’Debt and Liquidity’ building block.

Norges Bank Set To Continue To Raise Rates; Recent Volatility Unlikely To Materially Weigh On Norwegian Banks

Norges Bank was the first central bank among the advanced economies to raise rates in September 2021 and has continued with its gradual hiking cycle. In its latest policy meeting on March 22, the central bank decided to further tighten monetary policy, increasing the policy rate to 3.0% from 2.75% in December 2022. This reflects the strong commitment of the Norges Bank to fight inflation. Consumer price growth increased by 5.8% in 2022 but Norges Bank expects a gradual fall to 4.9% and 3.3% in 2023 and 2024, respectively, mainly due to lower energy prices and lower domestic demand.

Norway’s banking system remains liquid and well-capitalized, with the weighted average Common Equity Tier 1 (CET1) capital ratio for the seven largest banks at 18.2% in Q3 2022. The asset quality of the Norwegian banking sector remains very strong, with the non-performing loans (NPLs) as a share of total gross loans at 0.5% in Q3 2022. Norway benefits from a credible and independent monetary policy authority and proactive regulators. The Norwegian authorities have undertaken a series of banking regulatory measures and macro-prudential policies to enhance the resiliency of the financial system, including a debt-to-income ratio ceiling at five times borrowers’ annual income and the loan-to-value ratio at 85%. The increase in the volatility in the financial market due to concerns over the banking industry in US and in Europe is not expected to have a direct impact on Norway as banks benefit from high liquidity and strict regulatory requirements. Nevertheless, an intensification in financial market tensions could result in a rise in the cost of funding for Norwegian banks as well as a tightening in credit lending standards.

The main risks to financial stability remain linked to the high level of household indebtedness and banks’ large exposure to the housing and commercial real estate markets. As of Q4 2022, the household debt-to-gross disposable income ratio stood high at 238%, making households vulnerable to increases in interest rates and declines in housing prices. The housing market, after experiencing a period of rapid price growth fueled by low interest rates, growth in household income, and supply constraints, has now started to cool down. Norges Bank forecasts house prices to decline by 2.9% in 2023. The commercial real estate market also remains a source of vulnerability, with banks’ exposure to commercial real estate (CRE) estimated at around 50% of banks’ total corporate exposures. CRE companies in aggregate have a high debt-to-revenue ratio, and therefore are vulnerable to increases in interest rates and income losses. However, high equity ratios render them more resilient to price falls.

Strong Institutions And A Stable Political Environment Underpin Norway’s Ratings

Norway benefits from strong political institutions and a stable political environment as reflected in the Worldwide Governance Indicators. The country is characterized by strong rule of law, a robust regulatory environment, and low levels of corruption, with a stable and predictable policy framework. After two consecutive terms under the minority center-right coalition, a new center-left coalition was appointed by King Harald V on October 14, 2021. The government consists of a coalition between Jonas Gahr Stoere’s Labor Party and the Centre Party. DBRS Morningstar expects the coalition to stay in power until the end of the legislative term and to focus on the management of the energy sector and Norway’s relations with the European Union (EU).


Environmental (E) Factors
The Resource and Energy Management factor is relevant to the ratings. Norway is one of the world’s largest oil and gas exporters, with the petroleum sector accounting for 35% of GDP and 47.4% of state revenues in 2022. Despite having one of the largest oil and gas reserves in Europe, 98% of Norway’s domestic electricity generation has been sourced from renewable energy. The government has been preparing for a post-carbon future through its SWF, the GPFG, where oil proceeds are reinvested abroad, and therefore has become less vulnerable to volatility in commodity prices. DBRS Morningstar has taken these considerations into account within the ‘Economic Structure and Performance’ building block.

There were no Social and Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at (May 17, 2022).

For more information on the Rating Committee decision, please see the Scorecard Indicators and Building Block Assessments:

All figures are in NOK unless otherwise noted. Public finance statistics reported on a general government basis unless specified.

The principal methodology is the Global Methodology for Rating Sovereign Governments (August 29, 2022). In addition, DBRS Morningstar uses the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (May 17, 2022) in its consideration of ESG factors.

The sources of information used for this rating include Government of Norway, the Ministry of Finance of Norway (National Budget 2023 – October 2022, Key Figures in the National Budget 2023 – October 2022, The Government’s first meeting on the budget for 2024 – March 2023, Norges Bank (Monetary Policy Report - March 2023, Financial Stability Report 2022: vulnerabilities and risks – November 2022), Statistics Norway, the Financial Supervisory Authority of Norway, Norges Bank Investment Management, International Energy Agency, International Monetary Fund (WEO - October 2022, 2022 Article IV - September 2022), BIS, Energy Information Administration, Real Estate Norway, the Social Progress Imperative (2022 Social Progress Index), Norwegian Petroleum, World Bank, Freedom House and Haver Analytics. DBRS Morningstar considers the information available to it for the purposes of providing this rating to be of satisfactory quality.

With respect to FCA and ESMA regulations in the United Kingdom and European Union, respectively, this is an unsolicited credit rating. This credit rating was not initiated at the request of the issuer.

With Rated Entity or Related Third Party Participation: YES
With Access to Internal Documents: NO
With Access to Management: NO

DBRS Morningstar does not audit the information it receives in connection with the rating process, and it does not and cannot independently verify that information in every instance.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For further information on DBRS Morningstar historical default rates published by the European Securities and Markets Authority (ESMA) in a central repository, see: DBRS Morningstar understands further information on DBRS Morningstar historical default rates may be published by the Financial Conduct Authority (FCA) on its webpage:

The sensitivity analysis of the relevant key rating assumptions can be found at:

This rating is endorsed by DBRS Ratings GmbH for use in the European Union.

Lead Analyst: Spyridoula Tzima, Vice President, Global Sovereign Ratings
Rating Committee Chair: Michael Heydt, Senior Vice President, Global Sovereign Ratings
Initial Rating Date: March 21, 2012
Last Rating Date: October 7, 2022

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