Central government financial assets and debt
The Norwegian central government is in a net asset position, i.e. the government’s total financial assets exceed total debt. Central government financial assets consist mainly of deposits with Norges Bank (Central Bank), financial investments through the Government Pension Fund - Global, equities in domestic enterprises, lending to, and direct investments in state banks and state enterprises. The central government debt consists of government bonds, Treasury bills and deposits with the Treasury by other state institutions.
Organisation of central government debt management
The Ministry of Finance is responsible for the management of the central government debt. The Ministry has delegated the operational responsibility for auctions and operations in the domestic bond market to Norges Bank. The Bank also provides certain fiscal agency functions and advice on debt management policy.
Borrowing requirement
The non-oil fiscal budget deficit is financed by transfers from the Government Pension Fund - Global. Capital transactions, including debt amortisation, net lending to state entities and net equity investments, are covered by borrowing and/or reduction in the Treasury’s cash reserves.
There are several reasons for the central government to continue to borrow in the domestic market the same investing in foreign financial assets through the Pension Fund – Global:
- The existence of a well-functioning government bond market is assumed to be important for the functioning of other financial markets. Government bonds are credit risk free securities and can therefore be used as reference in the pricing of other types of financial instruments.
- In order to avoid a strengthening of the krone exchange rate, the capital in the Government Pension Fund – Global is solely invested in foreign financial assets. In light of the krone exchange rate, the domestic borrowing requirement should not be financed by transfers from the Fund.
- Treasury's cash reserves is placed with the central bank and central government transactions, including borrowing will have an effect on the liquidity in the domestic money market. In order to offset such effects, amortisation on domestic debt, net lending and net equity investments are in general financed by raising new loans in the domestic market.
- The Treasury’s cash reserves fluctuate considerably, and short term borrowing instruments are needed to ensure that the central government has sufficient funds to meet the payment obligations at any time.
Objectives for government debt management
The main objective for central government debt management is to cover central government borrowing requirement at the lowest possible cost, risks taken into account. Government borrowing shall also contribute to maintain and develop well-functioning and efficient financial markets in Norway.
Borrowing strategy
The government borrows currently in the domestic market only. In order to maintain a liquid secondary market, the government is committed to concentrating its borrowing on a limited number of loans with maturity up to 10-11 years. Government bonds, which are long term loans issued with maturity of more than one year, are normally auctioned 5-6 times a year. New 11-year bonds are usually opened every 2-2½ year and are gradually being build up to relatively large volume. (Chart 1 Norwegian benchmark bond issues).
Usually there are five benchmark bonds quoted in the market, with remaining maturity from one to eleven years. When remaining maturity is less than one year, the bond is no longer regarded as a benchmark. Treasury bills, which are short term loans issued with maturity up to one year, are auctioned once or twice every month. New 12-month T-bills are opened 4 times a year with settlement on IMM-dates. Results of the auctions can be found at Norges Bank’s web site.
The central government uses interest rate swapsto adjust the interest rate exposure of the debt portfolio without changing the borrowing strategy. The Ministry of Finance assesses the duration on the domestic debt to be somewhat long compared to the duration on central government interest bearing assets. Table 3 shows duration and average term to maturity on the marketable debt portfolio.
Norges Bank has, on behalf of the Ministry of Finance, entered into agreements with a number of primary dealers on the quoting and trading of Norwegian government bonds and Treasury bills. More information on the primary dealer agreements is available at Norges Bank web site.
Norges Bank has, on behalf of the Ministry of Finance, the operational responsibilities for entering into swap transactions. However, the commercial decisions are made by the Ministry. The central government does not enter into swap transactions in the period from seven work days prior to a monetary meeting in Norges Bank, including the day of the announcement by the Executive Board.
The government regards transparency concerning the borrowing program as important for the efficiency of the market. An annual auction calendar for the issuance of government bonds and Treasury bills is therefore published (Auction calendar 2007). The calendar is not binding and auctions can be either cancelled or supplemented. One week before bond auctions and three bank days before bill auctions, Norges Bank announces the exact amount and security for the auction.
Authorization to borrow
The Storting (Parliament) authorizes the Ministry of Finance to borrow based on an annual proposition to the Storting. For 2007, the Ministry is authorized to borrow up to NOK 40 billion in long term loans and to have up to NOK 80 billion in outstanding short term market loans.
Credit rating
The Norwegian central government debt, both in local and foreign currency, is given the highest credit rating from international rating agencies, such as Standard & Poors and Moody’s (AAA and Aaa, respectively).
Central government debt and guarantees
The Ministry of Finance publishes on a quarterly basis statistics on central government debt and guarantees. Table 1-5 summarize the central government outstanding debt by instrument, maturity etc. Table 6 shows total outstanding state guarantees. For complete information about the government debt and financial assets consult the annual Report to Storting on the State’s account St.meld. nr. 3 (2005-2006). Information about the interest rates swaps transacted by the government per September 30, 2007 is available in table 8.
These documents are available only in PDF format. You may download them and view them using Acrobat Reader.
Table 1. Central government debt. Nominal value. NOK million
Table 2. Borrowing requirements. NOK billion
Table 3. Duration and average tern to maturity of marketable debt. Years
Table 4. Outstanding debt by remaining maturity. NOK million
Table 5. Government benchmark bonds
Table 6. State guarantees. NOK million
Table 7. Calendar for publication of central government debt statistics
Table 8. Interest rates swaps
Chart 1. Norwegian benchmark bond issues
Chart 2. Central government debt. NOK billion
Auction calendar 2007
