MercoPress. South Atlantic News Agency

Falklands pass £216m budget under 'live within our means' principle amid fiscal pressures

Among the principles set in January are a ban on borrowing for operating purposes and the requirement to keep uncommitted reserves equivalent to at least 1.5 times operating expenditure

The Falkland Islands Government presented its 2026/27 budget to the Legislative Assembly on Wednesday, the first of the Assembly elected in December, with an Appropriation Bill of 216.3 million pounds and under the guiding principle of “living within our means.” The plan seeks to balance the territory's finances amid pressure on revenue and an ambitious infrastructure investment program.

The budget was presented by Assembly member and Budget Select Committee chair Jack Ford. Among the principles set in January are a ban on borrowing for operating purposes and the requirement to keep uncommitted reserves equivalent to at least 1.5 times operating expenditure. The budget was drawn up against a difficult financial backdrop: corporation tax receipts fell because of challenges in the fishing industry —including weak loligo squid seasons— while investment income dropped as reserves were drawn down to fund the capital program.

The Falklands face the first interest payments —9 million pounds— on the 150-million-pound loan taken out for infrastructure, within a 360-million-pound, ten-year capital program. The reserves policy of 1.5 times operating expenditure is now expected to be breached around 2028/29, although the budget decisions reduced the forecast shortfall in the fifth year of the medium-term plan from 55 million to 45 million pounds. The 2025/26 year-end forecast improved from a projected 0.7-million-pound deficit to a 5.7-million-pound surplus, driven by one-off revenue and departmental underspends.

Even so, the operating surplus projected for 2026/27 is 9.2 million pounds before interest and just 0.2 million once the loan cost is deducted —far below the roughly 30-million-pound target the government considers necessary to service the debt and maintain capital.

Among the decisions affecting households, a flat 500-pound pay award was agreed for public employees from July, along with grade-based increments. The minimum wage will rise from 9.66 to 10.17 pounds an hour (a 5.3% increase) in January 2027. Pensions and most social benefits will rise by 2.7%, in line with inflation, and personal and corporation taxes are held at 2025/26 levels. The government also suspended the Travel Credit Scheme for the term of this Assembly, subject to annual review.

Most fees and charges will rise by 2.7%, with some above-inflation exceptions: overseas stamps and visa, permit and status applications may increase by up to 100%; road tax by 30%; and alcohol (3%-4%), cigarettes and cigars (10%), tobacco (20%) and vapes (30%), serving a dual purpose as revenue and public-health measures. The electricity rate is held at 35 pence per unit.

On investment, the capital program is dominated by four major projects already underway: the port replacement, the new power station, phase 3 of the Sand Bay wind farm, and the waste management facility. To address the housing shortage, 10 million pounds was allocated to an accelerated development at Murray Heights, expected to deliver 30 modular units in about twelve months, in partnership with the oil company Navitas.

The budget is set against what the government describes as a sound financial position. S&P reaffirmed the territory's sovereign rating at “A+ with a stable outlook.” Work is also underway to create a sovereign wealth fund for future hydrocarbon royalties, after the Sea Lion oil project reached its Final Investment Decision, with drilling expected in 2027 and commercial production in 2028.