Iceland: 2024 Article IV Consultation-Press Release; and Staff Report
IMF Staff Country Reports, July 15, 2024
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- Iceland: 2024 Article IV Consultation-Press Release; and Staff Report
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Bibliographic details
- Published: July 15, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400282560.002
Summary
- Following an impressive recovery from shocks in recent years, tight monetary and fiscal policies have slowed domestic demand growth, strengthened the current account, and started to lower inflationary pressures.
- A coordinated tightening of macroeconomic policies has successfully narrowed domestic and external imbalances built up during the post-pandemic period.
- Appropriately tight macroeconomic policies are expected to dampen economic growth in the near term, while medium-term growth prospects are favorable.
- Reactivation of the fiscal rules in 2026 presents an opportunity to revisit their design to ensure fiscal policy is both sustainable and contributes to macroeconomic stability.
- An application of the IMF’s Integrated Policy Framework to Iceland suggests some benefits of foreign exchange interventions during times of stress.
- Structural policies should focus on gradually reducing state involvement in collective wage bargaining, accelerating the green transition, and further diversifying the economy.
Key findings and outcomes
- Tight monetary and fiscal stance has:
- slowed domestic demand growth;
- strengthened the current account;
- started to lower inflationary pressures.
- Coordinated policy tightening narrowed domestic and external imbalances accumulated in the post-pandemic period.
- Medium-term growth prospects are favorable despite near-term dampening from tight policies.
Policy recommendations and options
- Maintain appropriately tight macroeconomic policies in the near term to continue addressing inflationary pressures and external imbalances.
- Reactivate and revisit fiscal rules in 2026 to ensure:
- fiscal policy sustainability;
- fiscal policy contributes to macroeconomic stability.
- Consider targeted foreign exchange interventions during times of stress, as suggested by the IMF’s Integrated Policy Framework application to Iceland.
- Structural policy priorities:
- gradually reduce state involvement in collective wage bargaining;
- accelerate the green transition;
- further diversify the economy.
Analytical tools and frameworks
- IMF’s Integrated Policy Framework applied to Iceland indicates some benefits of foreign exchange interventions during times of stress.
Content in this bundle
- 1islea2024001-print-pdf