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 the total debt. The central government financial consists of government bonds, Treasury bills and deposits with the treasury by other state institutions. The financial assets consist mainly of deposits with Norges Bank (the central Bank), financial investments through the Government Pension Fund, equity holdings in domestic enterprises and lending to, and direct investments in state banks and state enterprises.
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.
The central government continues to borrow in the domestic market, and at the same time invests in foreign financial assets through the Pension Fund Global. A gradual increase in the use of petroleum revenues is in accordance with the fiscal policy guidelines and is conducive to stable exchange rate expectations and stable developments of the Norwegian economy. To use the capital invested abroad to finance the domestic borrowing requirement would weakened this stability.
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 payment obligations at any time. These fluctuations have increased over the past few years and a larger minimum cash reserve is therefore considered necessary. The aim now is to keep the cash reserves above NOK 50 billion.
Objectives of government debt management
The main objective of debt management is to cover central government borrowing requirement at the lowest possible cost, risks taken into account. Government borrowing should also contribute to maintaining and developing well-functioning and efficient financial markets in Norway.
Government borrowing is currently concentrated on 4 T-bills with maturities up to one year and 5-6 government bonds with maturities up to eleven years. This strategy is assumed to reduce borrowing cost for the government and at the same time provide the financial market with a risk free yield curve.
In order to improve liquidity in the government securities market, 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 on the Oslo Stock Exchange.
The Ministry of Finance uses interest rate swaps to reduce interest rate exposure on the debt portfolio without changing the borrowing strategy.Transparency is seen as important for the efficiency of the market. An annual auction calendar for the issuance of government bonds and Treasury bills is therefore published in December the year before. The calendar is not binding and auctions can either be cancelled or supplemented.
Authorization to borrow
The Storting (Parliament) authorize the Ministry of Finance to borrow based on an annual proposition. For 2014 the Ministry is authorized to borrow up to NOK 70 billion in long term loans and to have up to NOK 200 billion in outstanding short term market loans.
The Norwegian central government debt is given the highest credit rating from international rating agencies such as Standard & Poors and Moody’s (AAA and Aaa, respectively).
The Ministry of Finance publishes on a quarterly basis statistics on the central government debt. Table 1-5 summarize the central government outstanding debt by instrument, maturity etc. For complete information about the government debt and financial assets consult the annual Report to Storting on the State’s account Meld. St. 3 (2013-2014).
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Table 1. Central government debt. Nominal value. NOK million
Table 2. Borrowing requirements. NOK billion
Table 3. Duration and average term to maturity of marketable debt. Years
Table 4. Outstanding debt by remaining maturity. NOK million
Table 5. Tresury bills and Government bonds. NOK million
Table 6. Interest rates swaps
Chart 1. Ownership structure Norwegian benchmark bonds
Chart 2. Central government debt. NOK billion