Dagong Global Credit Rating Co., Ltd.
August 31, 2018
Dagong Global Credit Rating Co., Ltd. (hereafter referred to as “Dagong”) has decided today to maintain the local and foreign currency sovereign credit ratings of the Kingdom of Norway (hereafter referred to as “Norway”) at AAA, each with a stable outlook. Norway’s repayment environment is basically stable. The country’s rising oil prices and tax reform policy stimulate domestic demand while boosting economic growth. Its fiscal surplus and current account surplus both broaden. Norway’s sufficient government financial assets and its position as a net creditor guarantee relatively strong government solvency in local and foreign currency.
The key reasons for maintaining the sovereign credit rating of Norway are below:
First, the country’s political ecology is orderly while its credit ecology still faces some hidden dangers. Norway’s central-right government and a mature mechanism for party negotiations help facilitate the steady implementation of a host of macro policies which aim to develop a green economy, improve infrastructure construction, and build an inclusive labor market, as well as a sustainable welfare society. In terms of the credit environment, the central bank lowers the inflationary targets, with an increasing expectation of rising interest rates. Thus, in the short term, the growth rate of domestic credit will slow down. Norway’s banking system faces relatively large risk exposure concerning household debt and the real estate market. As of the year-end of 2017, the ratio of household debt to disposable income hit 223.1%. Recently, a slight fall in housing prices cut down the country’s residential wealth. That, coupled with the growing anticipation of rate increases, renders the asset quality of the banking sector under pressure.
Second, in the short term, Norway’s economic growth rate continues to rise, boosted by rising oil prices and the country’s tax reform. Both the lower personal income rate and steady income growth promote personal consumption. Although falling housing prices cause investment into the construction industry to slow down, investment into infrastructure and oil sectors accelerate nonetheless. Rising oil prices lead the oil industry to expand and thereby broaden the trade surplus. It is expected that in 2018 and 2019, Norway’s economic growth rate will rise to 2.3%. In the medium and long term, population aging and a steady income growth will exert a negative impact upon the expansion of the non-oil sector as well as Norway’s overall competitiveness. However, a steady transformation of its economic structure, the continued accumulation of technological advances, as well Norway’s traditional advantages in oil, natural gas and manufacturing can all ensure a moderate growth over this period.
Third, the government fiscal surplus narrows moderately while adequate financial assets render repayment sources secure. In 2017, Norway’s general government saw its fiscal surplus rise, reversing its falling trend. In the near term, an improved labor market will reduce the pressure from social welfare spending, while the structure of fiscal spending is consistently improving. However, recent tax adjustments, featuring tax cuts, cause government revenue to fall. It is projected that in 2018 and 2019, the general government’s fiscal surplus will narrow to 3.9% and 3.8%, while government financing needs over the same period are 9.9% and 9.7% of fiscal revenue. Moreover, as of the year-end of 2017, the government’s net financial assets have enlarged to 310.3% of GDP, while the steady and stable fiscal surplus can cause those assets to continue growing. Norway’s financial assets, featuring those of high-liquidity including cash deposits and short-term securities, are 1.5 times that of the government’s short-term debt. Hence, government repayment sources are highly secure.
Fourth, government solvency in local and foreign currency is highly sound. Given the development of the financial market at home, it is forecasted that in 2018 and 2019, Norway’s debt burden will rise slightly to 36.8% and 38.8%. However, a reasonable debt structure and a great financing capacity guarantee stable solvency in local currency. Norway’s current account has long held an enormous surplus, while the ratio of the net asset of international investment position to GDP approaches 188.5% and continues to accumulate. That, combined with the huge sovereign wealth funds and sufficient overseas assets, renders government solvency in foreign currency extremely strong.
In the short term, global rising oil prices will bolster Norway’s economy and its non-oil industry will expand steadily, altogether solidifying larger government revenue and more pronounced strengths. Government debt remains at a low level and government solvency is highly sturdy. Norway’s tremendous fiscal revenue and external investment position will provide relatively large policy space for the soft landing of financial risks. Therefore, Dagong assigns a stable local and foreign currency sovereign credit rating outlook for Norway in the following one to two years.