Rating action

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

Rating rationale

The AA+ rating assigned to Østfold is based on:

• A strongly integrated institutional framework for Norwegian counties: The framework ensures financial stability through fiscal equalisation, central government 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 resilient individual credit profile. Østfold’s individual credit profile is supported by solid reserve buffers underpinning liquidity, conservative debt management, and contained risks from contingent liabilities. Challenges include structurally weak operating margins, a rising debt trajectory driven by sustained investment needs, limited budgetary flexibility, and adverse demographic trends, which together weaken the county’s financial flexibility over the medium term.

For the rating report accompanying this review, please see here.

Key rating drivers

Strong intergovernmental integration with the Norwegian sovereign. Scope’s evaluation of the institutional framework places Norwegian counties, including the County of Østfold, 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 Østfold in being split from the previous county of Viken, 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.

Østfold’s AA+ ratings are supported by solid reserve buffers underpinning the county’s liquidity position, conservative debt management, and low risks from contingent liabilities.

Østfold benefits from comfortable levels of discretionary funds, which mitigate risks from potential operating shortfalls and provide an important financial buffer. Total discretionary funds comprise the reserve fund, the energy equalisation fund, the fund to cover pension premium deviations and several smaller funds for various purposes. While only the reserve fund can be used without restrictions, the remaining funds, although earmarked, could be accessed in the event of severe financial stress, enhancing overall financial flexibility.

At year-end 2024,discretionary funds amounted to NOK 664.6m, of which NOK 354.1 were attributed to the pension premium deviation fund. Excluding the premium deviations, discretionary funds accounted for 5.7% of operating revenue, slightly above the target of minimum 5%. The 2025 Budget included a use of the reserve fund of NOK 126.5m, after a NOK 229.6m drawdown in 2024, resulting in a NOK 203m reserve fund as of October 2025, part of NOK 298.8m discretionary funds net of premium deviations (more than 5% of operating revenue). The county plans to maintain a 5.5% financial buffer on average over 2026-29, remaining slightly above the 5% target, which will help to preserve a limited margin of manoeuvre amid sustained budgetary pressures.

Liquidity is further supported by substantial cash buffers, which stood at NOK 922m at YE 2024, the first full year of operations for Østfold after the split from Viken. Cash holdings sufficiently covered short-term liabilities although coverage of debt service over the following 12 months was slightly below full coverage. Average liquidity is estimated at approximately NOK 800m in 2025, in addition to around NOK 700m in money market investments, providing additional liquidity headroom. Going forward, Østfold projects liquidity to remain on average at somewhat lower levels, around NOK 640-720m over the financial plan period 2026-2029. At the same time, Østfold, 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. This access materially strengthens liquidity resilience.

Conservative debt management further supports the rating. The debt profile at the start of 2024 was largely influenced from the distributions decided on during the split of the counties but was gradually modified by the county since. Bonds accounted for 45.5% of total debt as of end 2025. The share of debt exposed to rate adjustments in the coming year was elevated at 68.3% as of end-2025 but declined from 76.1% at YE 2024. At the same time, also the fixed interest period increased, staying at 1.23 as of December 2025, compared to 1.07 in 2024. The share of financial debt maturing in the coming year was also relatively high at 40.8% at YE, although in line with the county’s strategy to maintain a balanced share of short-term and long-term liabilities. KBN is the second-largest lender (18% of total liabilities), after Danske Bank (25%), providing funding security and continuity. The weighted average interest rate stood at 4.1% at end-2025, marginally lower than 4.4% at YE 2024.

Østfold’s exposure to contingent liabilities is low-risk and well-controlled. Most of the guarantees at end-2024 were tied to Vegfinans Viken 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 covering 98% of obligations at end-2024, reducing long-term financial strain.

Challenges for Østfold relate to structurally weak operating margins, a rising debt trajectory driven by sustained investment needs, limited budgetary flexibility, and adverse demographic trends.

Østfold’s credit profile is constrained by structurally weak operating margins, with net operating results projected at around 0.5% in 2026 and 0.4% on average over 2026–29, below the county’s own medium-term targets. Persistent operating pressures and structurally high investment requirements, particularly in road infrastructure and upper secondary education, together with adverse demographic trends are expected to materially increase budgetary challenges over the medium term.

However, Østfold’s operating performance was exceptionally strong in 2024, as the hydroelectric power company Østfold Energi AS, 45% owned by the County, distributed dividends of NOK 122.5m above budget. Together with higher-than-expected investment income and NOK 46.7m additional framework grants, this compensated for a NOK 118m shortfall in tax revenues compared to the budget and NOK 21m lower equalization revenues, resulting in NOK 222.5m net operating profit. Without these additional one-off revenues, persistent high inflation and interest rates posed increasing challenges to Østfold’s operating performance in 2025.

Østfold has initiated a restructuring plan aimed at realizing savings of NOK 400m between 2024 and 2029. Of this, around NOK 260m has already been achieved in 2024 and 2025 and additional NOK 16m are budgeted for this year. However, the net operating result-to-operating revenue ratio is projected to remain at 0.5% in 2026 and 0.4% on average over 2026-29. Reaching the 3% target would require annual savings of NOK 140m across 2026-29, presenting challenging volumes. The increased allocation of resources for municipalities and counties from the 2026 central government budget will result in NOK 13m additional framework subsidies for Østfold. At the same time, the decline in the 16-18 years old population foreseen in the County, a fundamental factor for grant distribution, will lead to lower central government transfers in the medium-to-long-term.

Capital expenditure accounted for 13% of total spending in 2024, slightly below the 15% peer average, but set to increase substantially in the coming years. Østfold faces increasing investment needs due to a significant maintenance backlog for road network and school infrastructure. At the same time, the financial plan anticipates no room for transfers from operating to investment funds beyond annual NOK 5.5m in equity contributions to the public pension provider KLP. This would require a balance between reprofiling capital expenditure over the medium-term, while addressing investment pressures, which will place additional demands on a constrained budget. Østfold anticipates total investments of NOK 6.8bn over 2026-29, scaling the investment framework up from NOK 5.6bn in the previous financial plan. Investments will be financed mostly via the use of investment funds, VAT compensation, and the use of loans.

Limited revenue flexibility further constrains the county’s capacity to absorb these pressures, weighing on budgetary resilience and medium-term fiscal flexibility. Østfold’s budgetary flexibility is limited both on the revenue and expenditure sides. As in all Norwegian counties, free revenues from framework grants and taxes make up roughly 73% of operating income, leaving little scope to increase revenues autonomously. On the expenditure side, Østfold faces rising costs particularly in the areas of transport and education as well as cost rigidity, with personnel expenses accounting for 36% of total operating expenditure (excl. depreciation) in 2024. This constrains the effects of consolidation efforts contributing to the county’s structural budget pressures.

In addition, a rising debt trajectory weighs on Østfold credit profile. Debt is expected to increase from around 69% of gross operating revenue in 2026 to around 96% by 2029, reflecting structurally high investment needs, notably in road infrastructure and schools, combined with limited internal funding capacity. As a result, investment financing is increasingly reliant on new borrowing, constraining financial flexibility over the medium term.

Finally, adverse demographic trends weigh on the county’s medium- to long-term outlook. A declining youth population is expected to exert pressure on grant allocations, complicate service adjustments in upper secondary education, and reduce the predictability of future revenues, adding to fiscal pressures. Østfold’s population amounted to 314,407 people in January 2025, representing 5.6% of Norway’s population. Student population (15–17-year-olds) is projected to have reached its peak in 2025 and will decline from 2027, resulting in a total student population reduction of 11% over 2025-2035. This would add to the 1,000 student places currently vacant in upper secondary school and will reduce demand for this education segment, one of the county’s core responsibilities. Downsizing school service capacity will likely be required in the coming years, as this demographic trend will result in a negative impact on revenue transfers under the national equalisation system.

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. Østfold’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. Østfold’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 Østfold of 61 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 Østfold.

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 Østfold’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 Østfold’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 Østfold’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 a stable and predictable political environment, transparent policymaking and prudent financial planning, including the tracking of self-imposed fiscal targets.

Social considerations are reflected in Scope’s assessment under the ESG ‘Social factors’ component, which is assessed as Neutral. While demographics, a main source of risk across many regions in Europe, are broadly considered within the equalisation system, not all impacts are buffered by equalisation with developments in the age groups of the 16–19-year-olds and elderly people of particular importance for the level of transfers. Additionally, Østfold shows comparatively lower levels of educational attainment vis-à-vis the national average, with around 25% of population aged 16 years or older having university or college education levels as of 2024, compared to the 38% national average.

Environmental factors are reflected in Scope’s assessment under the ESG ‘Environmental factors’ component, which is assessed as ‘Strong’. Østfold managed to considerably reduce its emission intensity over time, with GHG emissions declining by 29% since 2009. Direct emissions in Østfold are mostly related to transport, industry, energy production and agriculture. The county’s overall goal is to cut GHG emissions by 80% by 2030, increase the production of renewable energy by at least 3,000 GWh, and improve energy efficiency. The county is currently developing a new climate budget which will outline the measures, costs, efforts and responsibilities needed to achieve specific climate goals.

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

Methodology
The methodology used for these Credit Ratings and 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 Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain and the Rated Entity.
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: Alessandra Poli, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Executive Director
The Credit Ratings and Outlooks were first released by Scope Ratings on 30 January 2026.

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 Østfold 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 9 December 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’s published calendar was due to the first-time publication of the ratings.

Conditions of use / exclusion of liability
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