Rating action

Scope Ratings GmbH (Scope) has assigned long-term issuer and senior unsecured debt ratings of AA+/Stable to Vestfold County Municipality (Vestfold) in both local and foreign currency. Additionally, Scope has assigned short-term issuer ratings of S-1+/Stable in both local and foreign currency.

Rating rationale

The AA+ rating assigned to Vestfold is based on:

• A strongly integrated institutional framework for Norwegian counties: The framework ensures financial stability through fiscal equalisation, central grants, and proactive government support, balancing autonomy with oversight to maintain fiscal discipline and address disparities. Scope’s evaluation of the institutional framework places Norwegian counties within an indicative rating range spanning from AAA to AA. This assessment reflects their strong integration with the Norwegian sovereign (AAA/Stable).
   
• A robust individual credit profile. Vestfold’s individual credit profile is supported by strong liquidity and ample reserves, moderate debt levels, a resilient debt structure, and low risks from contingent liabilities. Operating pressures and substantial investment needs, particularly in upper secondary education, are expected to materially increase costs over the coming years. Limited revenue flexibility further constrains the county’s capacity to absorb these pressures, weighing on budgetary resilience.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Vestfold, within an indicative rating range of AAA to AA, reflecting their strong integration with the Norwegian sovereign (AAA/Stable). This robust framework underpins their financial and operational resilience, effective governance, and proactive central government support. However, Norwegian counties face challenges such as limited revenue flexibility, dependence on central transfers, and adaptation to recent equalisation reforms.

Norway’s fiscal equalisation system redistributes revenues to offset demographic and regional cost differences, ensuring broadly comparable financial capacity across counties. In parallel to the 2024 split of counties, which also affected ‘Vestfold og Telemark’, the General-Purpose Grant Scheme was revised. While some counties benefit and others lose, the scheme’s core function of expenditure and income equalisation remains unchanged. Grants typically constitute the majority of operating revenue for all counties (on average around 60%). The second largest income is from tax revenue, while revenues from alternative sources, such as service fees and energy concessions, remain very limited for most counties.

Norway's sub-sovereign support framework is highly predictable, characterised by proactive interventions from the central government, including supervisory oversight and crisis-response mechanisms such as grants and cost compensation. Fiscal discipline is enforced through the Local Government Act, which mandates an operational budget balance and deficit correction within two years. Counties facing imbalances are monitored through the ROBEK registry. In times of crisis, the government has consistently reinforced stability through grants and cost compensation mechanisms, reflecting a credible history of support.

Norwegian counties maintain substantial autonomy in sourcing funds through banks, bonds, and the state-owned Kommunalbanken (KBN), which offers favourable financing aligned with government policy. This underpins the financial resilience of Norwegian counties.

Finally, Norwegian sub-sovereigns play a significant role in national policymaking through effective coordination with the central government and inter-regional cooperation. Mechanisms like KS (Norwegian Association of Local and Regional Authorities) ensure balanced decision-making and stable governance.

Vestfold’s individual credit profile is supported by strong liquidity and ample reserves, moderate debt levels, a robust debt profile, and low risks from contingent liabilities.

Vestfold’s AA+ ratings are underpinned by strong liquidity and ample reserves. Cash buffers remained strong during 2024, with the balance amounting to NOK 1.51bn at the end of the year (vs. NOK 1.53bn at the start of the year). Coverage of cash/short-term liabilities and cash/debt service was strong at YE 2024, the first full year of operations for Vestfold after the split.

Discretionary funds amounted to NOK 1,047.2m at the end of the year, of which NOK 341.2m were attributed to the pension premium deviation fund. Excluding the premium deviations, discretionary funds constituted 20.3% of freely available income, standing comfortably above the self-imposed target of a minimum of 8%. However, high cash and reserve levels during 2024 were also a result of exceptionally low investments during the year. Hence, buffers are expected to decline during the next years, a tendency seen across counties. The extent of the decline remains uncertain; however, current projections indicate that liquidity and reserves should remain sufficient over the medium term. Additionally, Vestfold, like all local and regional governments in Norway benefits from access to Kommunalbanken (KBN) funding, the state-owned development bank which can provide funding at favourable rates, providing an additional risk mitigating factor.

The county benefits from moderate debt levels with controlled increases over the forecast horizon expected. Vestfold has formulated a target for long-term debt to reach a maximum of 115% of free disposable income. At end-2024, financial debt amounted to NOK 3.4bn and the ratio stood at 96.4%, remaining within self-imposed limits. This result was even lower than budgeted due to delays in investments (transport and property) amid the first year of operations in the new county.

As investments pick up and operating pressures continue, debt levels are expected to rise over the next years, reaching over NOK 4bn towards the end of the planning horizon. Long-term debt as a share of gross operating income, a measure commonly used across counties, is expected to reach 79% in 2026.The trajectory is buffered by the reserve funds to some extent, though, which will support investments limiting the need for further borrowing.

A robust debt profile and effective debt management limit interest and refinancing risk. While the debt profile at the start of 2024 resulted from distributions during the split of the counties, Vestfold benefits from a robust debt profile further tailored during the year. The share of bonds in the overall debt portfolio increased from 25.7% at the beginning of 2024 to 45.3% by end-December. The largest lender was KBN, with 85% of the long-term loan portfolio (around 30% of the overall portfolio).

At end-2024, the share of financial debt maturing within the next year was 19.5%, only consisting of certificate loans. To mitigate interest rate risk, a minimum of 30% of gross debt should be interest secured according to financial and debt regulations. At end-2024, Vestfold met this target with exactly 30% of the portfolio being interest secured. The weighted average interest rate stood at 4.7% at end-2024. Going forward, interest swaps will likely be replaced by fixed rate loans in accordance with the financial and debt management strategy.

Vestfold’s exposure to contingent liabilities remains low-risk and well-controlled. All outstanding guarantees at end-2024 were tied to Vegfinans Vestfold og Telemark AS, one of the financing arms of the regional toll road operator. Despite significant guarantee volumes, Vegfinans’ low-risk business model ensures a minimal probability of guarantee activation. Additionally, pension-related liabilities are well-covered, with pension funds accounting for 96% of obligations at end-2024, reducing long-term financial strain.

Challenges for Vestfold relate to persistent operating pressures, high investment needs, and limited budgetary flexibility.

Counties have key social responsibilities in the areas of education, transport and healthcare. Vestfold faces rising cost pressures, especially in education, which accounts for more than one-third of operating expenditure. The “AHT” programme (Arbeid- og hverdagslivstrening) delivering work and everyday life training, is projected to increase operating costs by about NOK 138m by 2030 (with NOK 15m budgeted for 2026).

Capital expenditures were low in 2024, at 5.4% of total spending, reflecting delays in investments in the county’s first year of operation. However, investment needs remain substantial and Capex is expected to rise above 10% this year. A maintenance backlog on county roads requires stepped-up capital spending and investments in public transport will result in increased costs of NOK 34m planned in 2026 and NOK 134m from 2027 onward. This rising investment profile will place additional demands on a constrained budget.

Budgetary flexibility is limited on both the revenue and expenditure sides. As in all Norwegian counties, free revenues from framework grants and taxes make up roughly 75% of operating income, leaving little scope to increase revenues autonomously. Tax revenues came in nearly NOK 40m below budget in 2024, highlighting the county’s sensitivity to central government decisions and the equalisation system. While the net operating margin improved to 2.6% of free disposable income supported by lower pension costs and savings in service areas, discretionary income is projected to grow by only 2.5% in 2026, the lowest rate among all counties. This underscores weaker revenue dynamics relative to peers.

Cost rigidity remains a further constraint. Personnel expenses accounted for 38% of operating expenditure (excl. depreciation) in 2024, one of the highest shares among counties, limiting the county’s ability to adjust its cost base in the short term. Although Vestfold has initiated restructuring measures, personnel-related costs will continue to dominate expenditure, constraining consolidation efforts and contributing to the county’s structural budget pressures.

Rating-change drivers

The Stable Outlooks reflect Scope’s view that risks to the ratings are balanced over the coming 12 to 18 months.

Upside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Reforms to the institutional framework materially strengthened regions’ integration in institutional arrangements.
    
2. Vestfold’s individual credit profile strengthened significantly.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. The Kingdom of Norway’s ratings/Outlooks were downgraded.
    
2. Reforms to the institutional framework materially weakened regions’ integration in institutional arrangements.
    
3. Vestfold’s individual credit profile weakened significantly.

Qualitative Scorecards (QS1, QS2)

Scope’s institutional framework assessment determines the intergovernmental integration between sub-sovereigns and their rating anchor, which is the sovereign or a higher-tier government. To perform this assessment, Scope applies the Institutional Framework scorecard (QS1), centred on six analytical components: i) exceptional support and bailout practices; ii) systemic budgetary support and fiscal equalisation; iii) funding practices; iv) fiscal rules and oversight; v) revenue and spending powers; and vi) political coherence and multilevel governance.

Scope considers the institutional framework under which the Norwegian counties operate to display ‘strong’ integration for exceptional support and bailout practices, funding practices, fiscal rules and oversight, and political coherence and multilevel governance. The system displays ‘full’ integration for systemic budgetary support and fiscal equalisation, and revenue and spending powers. Consequently, Scope's assessment of the institutional framework establishes an indicative minimum rating of ‘aa’ for Norwegian counties.

Furthermore, Scope assesses the individual credit profile based on quantitative and qualitative analysis of four risk categories: i) debt and liquidity; ii) budget; iii) economy; and iv) ESG.

The outcome of these assessments, as reflected in the application of the Individual Credit Profile scorecard (QS2), is an individual credit profile score for Vestfold of 60 out of 100.

The mapping of this score to the range defined by the Institutional Framework assessment results in an indicative rating of ‘aa+’ for Vestfold.

The review of potential exceptional circumstances that cannot be captured by the Institutional Framework and Individual Credit Profile scorecards did not lead to further adjustments to Vestfold’s indicative rating.

As such, the final rating corresponds to the indicative rating of AA+.

Environment, social and governance (ESG) factors

ESG factors material to Vestfold’s credit quality are captured by Scope’s rating approach through several analytical areas.

Scope’s assessment of Norway’s sovereign credit quality includes an appraisal of ESG risks as detailed in Scope’s Sovereign Rating Methodology.

Governance considerations are material to Vestfold’s rating and are included in Scope’s institutional framework assessment and its assessment of the county’s individual credit profile. These assessments highlight the robust quality of governance alongside the administration’s practices of sound liquidity and conservative financial planning.

The institutional framework assessment captures governance factors under fiscal rules and oversight, assessed as ‘strong integration’ for the Norwegian counties reflecting the financial rules mandated by the Local Government Act and close monitoring of finances. Additionally, governance factors are captured by political coherence and multilevel governance assessed as ‘strong’ integration for the Norwegian counties. This reflects extensive inter-regional cooperation that fosters policy coordination and a balanced, stable government structure.

The individual credit profile captures governance factors under the ESG ‘Governance and transparency’ component, which is assessed as Stronger. This assessment reflects transparent policymaking, a stable and predictable political environment, and forward-looking financial planning and management that tracks self-imposed fiscal targets.

Social considerations are reflected in Scope’s assessment under the ESG ‘Social factors’ component, which is assessed as Neutral. Demographics, a main source of risk across many regions in Europe, are comparatively less of a concern for Norwegian counties as population trends and age structure are broadly considered within the equalisation system. However, developments in the age groups of the 16–19-year-olds and elderly people are of particular importance, with not all impacts buffered by equalisation.

Environmental factors are reflected in Scope’s assessment under the ESG ‘Environmental factors’ component, which is assessed as Neutral. Between 2018 and 2023, total GHG emissions in Vestfold were cut by over 40%, mainly driven by the closure of refinery operations by Esso Slangetangen during 2021. However, looking at the core period of reduction between 2020-2022, emissions other than from ‘industry, oil and gas’ actually increased. Vestfold targets a reduction of direct GHG emissions by 60% by 2030 compared to 2009. Given the closure of the refinery, the county is well on track to achieve this goal, being the county that has seen the greatest reduction in emissions. Decreases in shipping, road traffic and other mobile combustion also contributed to favorable developments.

Sustainability plays a key role in the county’s strategic planning. The Vestfold Plan is structured around the three dimensions of sustainability, social, economic and environmental sustainability, which are each assessed in a dedicated chapter. The plan also addresses public safety and emergency preparedness.

Rating committee
The main points discussed by the rating committee were: i) institutional framework for Norwegian counties, ii) Vestfold’s individual credit profile including debt, budget, economy and ESG components; and iii) peer comparison.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Sub-Sovereign Rating Methodology, 12 September 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation        NO
With access to internal documents                                     NO
With access to management                                              NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Elena Klare, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings on 21 November 2025.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on Vestfold are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Publication Calendar 2025 Sovereign, Sub-Sovereign and Supranational Ratings" published on 16 June 2025 on www.scoperatings.com). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case the deviation from Scope Ratings’ published calendar was due to the first-time publication of the ratings.

Conditions of use / exclusion of liability
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