Economic Council warns of billion-kroner deficit within decade

The public sector deficit could reach DKK 1 billion within 10 years unless revenues rise or spending is cut, the Economic Council said in a new sustainability report reported by Kringvarp Føroya.

The council said that without action, a growing share of public spending would have to be financed through borrowing, leading to a continuing increase in debt.

The sustainability challenge can be resolved, but political authorities must begin targeted adjustments immediately, the council said.

The fiscal sustainability indicator is minus 4 per cent of gross domestic product in 2026. This means that additional revenue or savings of approximately DKK 1.2 billion a year, on average, will be needed to maintain the current level of welfare services in the future.

The estimate assumes that the pension age will be increased and that public benefits will grow more slowly than wages. The council stressed that the figure is not a forecast of what will happen, but a warning about what could happen if no measures are taken.

The sustainability challenge is driven by the number of older people increasing significantly faster than the working-age population. These demographic changes will put substantial pressure on public spending, with a large part of the future deficit expected to fall on municipalities.

If the pension age does not rise as life expectancy increases, future pensioners will receive public benefits for many more years than they do today. The Economic Council therefore recommends raising the pension age in line with increasing life expectancy, as provided under current legislation.