The Central
Government's Outstanding Debt
Central government financial assets and debt
Organisation of central government debt management
Borrowing requirement
Objectives for government debt management
Borrowing strategy
Authorisation to borrow
Credit rating
Central government debt and guarantees
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, interest rate swaps 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 why the
central government continues to borrow in the domestic market the same invests
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.
- Because the Treasury’s cash reserves
are placed with the central bank, central government transactions, including
borrowing, have implications for 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. Furthermore, the implementation of the government’s borrowing
program may be adjusted to further facilitate Norges Bank’s operations to
manage the liquidity in the banking sector. The central government may
therefore at times borrow more or less than implied by a liquidity neutral
stance.
- 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 swaps
to 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, 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.
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’s web
site.
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). There is also
information about the interest rates swaps transacted by the government per
December 31, 2005 here.
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
Chart 1. Norwegian benchmark bond issues
Chart 2. Central government debt. NOK billion
Table 7. Calendar for publication of
central government debt statistics
Auction calendar 2007
