Faroe Islands’ Government Debt on the Rise

Despite having a robust economy, the Faroe Islands’ government debt has been steadily increasing since 2008. The gross debt now stands at approximately 45% of GDP, a significant increase from the low levels seen in the years leading up to the financial crisis.

Budget Balancing Efforts

To balance its budget, the Faroese government has proposed introducing new resource taxes on pelagic fishing. Revenue from these taxes will be used to reduce the deficit. However, there is still uncertainty surrounding the implementation of this plan, as it hinges on the outcome of a fisheries reform.

• The local government budgets have also shown a deficit of kr. 78 million.
• The Economic Council for the Faroe Islands has warned that public consumption and investment have been increasing at a rate that is not sustainable in the long term.

Gross Government Debt

According to recent figures, the gross Faroese government debt has risen steadily since 2008. The total debt now stands at approximately kr. 4.5 billion (45% of GDP). However, when adjusted for liquid financial assets, the debt is a more manageable 20% of GDP.

• The majority of this debt is held by the central government, which accounts for just over 80% of the total gross government debt.
• The remaining 20% is owed by local governments and other entities.

Bond Rating Upgrade

Moody’s has upgraded its credit rating for Faroese bonds to Aa3, citing the strong likelihood of extraordinary support from the Danish government in the event of financial difficulty. This upgrade reflects Moody’s assessment that the Danish government is likely to provide assistance if needed.

• The central government has also issued 5-year bonds in Danish kroner in recent years, with a current credit rating of Aa3 and a stable outlook.