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Affirms AAA Rating on Kingdom of Norway; Outlook Stable | Mar 17, 2010 |
Issuer: Kingdom of Norway
Foreign Currency Long-Term Senior Debts: AAA (Stable)
Local Currency Long-Term Senior Debts : AAA (Stable)
JCR has affirmed its AAA rating on the foreign currency and local currency long-term senior debts of the Kingdom of Norway.The ratings reflect the country's sound economy underpinned by its strong external position and well-diversified industrial structure, significant budget surplus brought by oil and gas revenues, ample net assets, and the presence of a framework that requires fiscal discipline and prudent policies to sustain a stable fiscal structure in the longer term.
The outlook of the rating is stable. Norway's fiscal position is expected to weaken in 2009 and 2010 due mainly to increased budget spending aimed to ease an economic downturn. However, JCR holds that the country's non-oil fiscal balance will improve once its economy recovers and that its sound fiscal position will be sustained in the medium to long term as the government will be able to uphold its rigid fiscal discipline again.
(1) The impact of the global recession is relatively mild
Norway's nominal GDP per capita, at approximately US$70,000, is one of the highest in the world. The country constantly ranks top in terms of the human development index defined by the United Nations Development Program (UNDP), thanks to its people's longevity and well-designed social welfare policy. Norway has maintained a steady economic growth led by domestic demand amid the steady development of the manufacturing and services sectors as well as oil and gas production. Its average annual growth rate for the last decade was higher than the euro-zone average. The growth rate turned negative in 2009 impacted by the global recession, but the downturn was less severe than in many other developed countries thanks to the implementation of extensive policy actions such as interest rate cuts and a fiscal stimulus package equivalent to 3% of GDP (The mainland GDP growth rate, which consists of all domestic production activities excluding oil/gas production and related activities, was -1.5%). After the Lehman Brothers shock, the banking sector managed to weather a liquidity crisis and retained its soundness as the central bank had supplied ample liquidity to the market. With domestic demand showing signs of recovery, the economic growth rate in 2010 is foreseen to reach 2%, although slower than in the past. The unemployment rate tended to rise amid the economic downturn but, at 3.25% at the end of 2009, stayed much lower than those in other advanced economies.
Norway's external liquidity position is extremely strong, with the current account balance posting a constant annual surplus higher than 10% of GDP since 2000. The net balance of financial assets stood at a high 65% of GDP in 2008, providing high resilience to external shocks. With oil and natural gas revenues accounting for more than half of the annual exports, the country's trade surplus had been on the rise in the past years due to the surge of crude oil prices. The trade surplus slightly narrowed in 2009 as exports of oil and natural gas declined on drops in their prices. Nonetheless, Norway has broad-ranging, internationally competitive industries other than the energy sector, and the export of products from such industries as metal, machinery and food has been expanding. These industries are expected to underpin the country's economic growth in the longer term.
(2) Fiscal position weakened temporarily by fiscal stimulus
Norway's public finance is characterized by its outstanding stability in comparison to those of the EU member countries thanks to its rich oil revenues. The general government fiscal surplus averaged about 13% of GDP in the past decade, with the ratio of net assets to GDP standing at 120% at the end of 2009. The non-oil fiscal balance, excluding transfers from the Government Pension Fund - Global (GPFG) that manages oil revenues, reached an equilibrium in 2007 on increased tax revenues and subdued expenditures, but slipped into a deficit of about 7% of GDP in 2009 on reduced tax revenues and massive stimulus measures implemented to ease the economic downturn. The government envisages a roughly equal amount of non-oil fiscal deficit in 2010 and plans to transfer an amount larger than what is set by the fiscal disciplinary rule from GPF (the rule sets such transfer at 4% of GPFG's expected annual return). This should put the general government fiscal balance in a surplus equivalent to around 7% of GDP in 2009 and 2010. The larger transfer would leave the government with less leeway in repeating a similar operation. However, JCR holds that the non-oil fiscal balance will improve once the economy picks up, allowing the government to maintain a sound fiscal position in the medium to long term through a return to the rigid fiscal rule.
Foreign Currency Long-Term Senior Debts: AAA (Stable)
Local Currency Long-Term Senior Debts : AAA (Stable)
JCR has affirmed its AAA rating on the foreign currency and local currency long-term senior debts of the Kingdom of Norway.The ratings reflect the country's sound economy underpinned by its strong external position and well-diversified industrial structure, significant budget surplus brought by oil and gas revenues, ample net assets, and the presence of a framework that requires fiscal discipline and prudent policies to sustain a stable fiscal structure in the longer term.
The outlook of the rating is stable. Norway's fiscal position is expected to weaken in 2009 and 2010 due mainly to increased budget spending aimed to ease an economic downturn. However, JCR holds that the country's non-oil fiscal balance will improve once its economy recovers and that its sound fiscal position will be sustained in the medium to long term as the government will be able to uphold its rigid fiscal discipline again.
(1) The impact of the global recession is relatively mild
Norway's nominal GDP per capita, at approximately US$70,000, is one of the highest in the world. The country constantly ranks top in terms of the human development index defined by the United Nations Development Program (UNDP), thanks to its people's longevity and well-designed social welfare policy. Norway has maintained a steady economic growth led by domestic demand amid the steady development of the manufacturing and services sectors as well as oil and gas production. Its average annual growth rate for the last decade was higher than the euro-zone average. The growth rate turned negative in 2009 impacted by the global recession, but the downturn was less severe than in many other developed countries thanks to the implementation of extensive policy actions such as interest rate cuts and a fiscal stimulus package equivalent to 3% of GDP (The mainland GDP growth rate, which consists of all domestic production activities excluding oil/gas production and related activities, was -1.5%). After the Lehman Brothers shock, the banking sector managed to weather a liquidity crisis and retained its soundness as the central bank had supplied ample liquidity to the market. With domestic demand showing signs of recovery, the economic growth rate in 2010 is foreseen to reach 2%, although slower than in the past. The unemployment rate tended to rise amid the economic downturn but, at 3.25% at the end of 2009, stayed much lower than those in other advanced economies.
Norway's external liquidity position is extremely strong, with the current account balance posting a constant annual surplus higher than 10% of GDP since 2000. The net balance of financial assets stood at a high 65% of GDP in 2008, providing high resilience to external shocks. With oil and natural gas revenues accounting for more than half of the annual exports, the country's trade surplus had been on the rise in the past years due to the surge of crude oil prices. The trade surplus slightly narrowed in 2009 as exports of oil and natural gas declined on drops in their prices. Nonetheless, Norway has broad-ranging, internationally competitive industries other than the energy sector, and the export of products from such industries as metal, machinery and food has been expanding. These industries are expected to underpin the country's economic growth in the longer term.
(2) Fiscal position weakened temporarily by fiscal stimulus
Norway's public finance is characterized by its outstanding stability in comparison to those of the EU member countries thanks to its rich oil revenues. The general government fiscal surplus averaged about 13% of GDP in the past decade, with the ratio of net assets to GDP standing at 120% at the end of 2009. The non-oil fiscal balance, excluding transfers from the Government Pension Fund - Global (GPFG) that manages oil revenues, reached an equilibrium in 2007 on increased tax revenues and subdued expenditures, but slipped into a deficit of about 7% of GDP in 2009 on reduced tax revenues and massive stimulus measures implemented to ease the economic downturn. The government envisages a roughly equal amount of non-oil fiscal deficit in 2010 and plans to transfer an amount larger than what is set by the fiscal disciplinary rule from GPF (the rule sets such transfer at 4% of GPFG's expected annual return). This should put the general government fiscal balance in a surplus equivalent to around 7% of GDP in 2009 and 2010. The larger transfer would leave the government with less leeway in repeating a similar operation. However, JCR holds that the non-oil fiscal balance will improve once the economy picks up, allowing the government to maintain a sound fiscal position in the medium to long term through a return to the rigid fiscal rule.
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