In 2007, the Finance Minister determined that, in connection with the country’s loan facilities, the Faroe Islands, as a country, should be “rated”. The Finance Minister received approval of this initiative at the government coalition meeting held in the autumn of 2007.
To be listed on exchange markets, a “rating” is necessary. A rating is a credit assessment conducted on behalf of potential borrowers. The better the credit rating, the better the interest rate obtainable on the open market.
For example, there are many investors that are quite constrained in making an investment if the borrower is unable to secure a rating. In particular, institutional investors under public scrutiny fall into this category, such as pension funds, insurance companies and investment funds.
Moreover, there are a number of investors who demand that a borrower – in this case, the National Treasury, shall have a “rating” so that overall the bonds to be issued are approved and considered appropriate investment instruments.
In addition, an outside credit assessment of the Faroe Islands gives a good indication of the level of interest the National Treasury can offer.