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Fitch Affirms Norway at 'AAA'; Outlook Stable
November 28, 2013 / 4:51 PM / 4 years ago

Fitch Affirms Norway at 'AAA'; Outlook Stable

LONDON, November 28 (Fitch) Fitch Ratings has affirmed Norway's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AAA'. The Outlooks on both ratings are Stable. The issue rating on Norway's senior unsecured local currency bonds is also affirmed at 'AAA'. The Country Ceiling is affirmed at 'AAA' and the Short-term foreign currency IDR at 'F1+'. KEY RATING DRIVERS Norway's 'AAA' ratings reflect its very high income per capita, its strong institutional framework and high governance and human development indicators. North Sea petroleum revenues have been prudently managed. The sovereign's balance sheet places the Norwegian authorities in a strong position to respond to adverse shocks and gives them time to adjust to an ageing population. Net government financial assets amounted to 167% of GDP at end-2012, making Norway a stand-out among 'AAA' peers. The economy's high commodity dependence is, in and of itself, a rating weakness. Moreover, the rising share of the economy linked to the oil sector is leading to competitiveness pressures in the non-oil economy. However, Norway's strong policy framework continues to underpin economic stability, mitigating this weakness. Norway has a long track record of economic stability in comparison both with its Nordic neighbours and rated peers. Mainland value-added fell by only 2.5% in the recession following the global financial crisis; and real mainland GDP is now more than 10% above its trough. Oil exports support both the fiscal balance and the current account balance, which were both close to 14% of GDP in 2012. Rising residential property prices have brought about a substantial rise in households' indebtedness. Real house prices are almost double their 2000 levels, and household debt is around 2x disposable income. Although house price rises have levelled off in high frequency data, a more abrupt correction could hold back private consumption and residential investment. Fitch currently has Norway on a Macro-Prudential Indicator of '2', indicating a moderate vulnerability risk status with credit/GDP above its long-term trend at more than the 5% trigger. The Norwegian authorities have introduced measures to improve macro-prudential stability. These require banks to increase capital ratios over the years ahead. By mid-2016 systemically important banks will meet a Tier 1 requirement of 12%. RATING SENSITIVITIES Fitch judge Norway's credit profile to be very strong, implying that a negative rating action in the near term is unlikely. However, the following factors could, individually or collectively, put pressure on the 'AAA' rating: -A sustained decline in the oil price: This would represent a significant shock to the Norwegian economy, given that it is heavily dependent on the petroleum sector -A worsening of economic imbalances: Sustained real wage growth unaccompanied by productivity gains, or further sharp increases in property prices and private sector credit would not be sustainable in the medium term and would increase the risk of a sharp correction Ageing population: Over the long term, a failure to address the fiscal burden of ageing would lead to an erosion of Norway's fiscal position Norway's sovereign wealth fund (SWF) would be able to absorb the first two of these risk factors, but it would be insufficient to pay for the cost of an ageing population in the absence of corrective measures in the long run. KEY ASSUMPTIONS The ratings and outlooks are based on a number of assumptions: - Fitch assumed that the oil price will average USD105 per barrel (pb) in 2013 and USD100pb in 2014 and 2015, respectively. The agency views the likelihood of a sustained fall in oil prices to be low - Fitch assumes that the Norwegian government will continue to adhere to the fiscal policy rule that over time 4% of SWF assets may be dedicated to current expenditure each year - Consistent with the implementation of the fiscal rule, Fitch assumes that the long-term real return for the SWF will be 3-4% - Fitch assumes that the risk of fragmentation of the eurozone remains low. Contact: Primary Analyst Alex Muscatelli Director +44 20 3530 1695 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Douglas Renwick Senior Director +44 20 3530 1045 Committee Chairperson Paul Rawkins Senior Director +44 20 3530 1046 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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