## IMF Lending Case Study: Iceland

## Source details

**Canonical URL:** [IMF Lending Case Study: Iceland](https://www.imf.org/en/countries/isl/iceland-lending-case-study)

## Other formats

- [Markdown version](/en/countries/isl/iceland-lending-case-study/index.md)
- [Structured JSON version](/en/countries/isl/iceland-lending-case-study/index.json)
- [Bundle manifest](/en/countries/isl/iceland-lending-case-study/bundle-manifest.json)

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### Crisis background and triggers
- Iceland’s banking system had assets 10 times the size of GDP and was heavily reliant on aggressive foreign borrowing.
- Collapse of the Icelandic foreign exchange market and banks led the króna to threaten a spiral, severely affecting firms and households with foreign currency and inflation-indexed loans.
- The IMF was called in and within 10 days there was an agreement on a set of policy measures.

### IMF-supported program and international support
- The IMF-supported program was $2.1 billion.
- The program size represented 18 percent of Iceland’s GDP.
- The program amounted to 1,190 percent of Iceland’s quota in the IMF.
- Support and solidarity of other countries in the region helped catalyze broad international support around the IMF’s seal of approval.

### Policy measures and program design
- Capital controls with no predefined time frame were implemented to restore monetary stability.
  - They helped stabilize the króna and prevented an increase in domestic interest rates that would have taken a higher toll on growth and balance sheets.
- Banking sector strategy focused on splitting up failed banks and limiting taxpayer support to essential domestic operations.
  - A split between the failed banks’ domestic operations and their much larger foreign operations allowed taxpayer support to focus on shielding the domestic economy while maximizing asset recovery.
- Phased fiscal consolidation was adopted to accommodate fiscal pressure during the first year and prevent a deeper collapse in demand as government debt surged because of public support for the financial sector.
  - There was a strong political commitment to restoring the downward path of public debt in due course.
- Safeguarding Iceland’s social welfare system aimed to protect vulnerable groups and contributed to reducing inequality during the program.

### Outcomes and macroeconomic indicators (a decade after the crisis outbreak)
- Iceland experienced eight years of robust growth averaging close to 4 percent.
- Capital controls have largely been lifted.
- The current account and budget have remained in surplus for several years.
- Gross public debt declined from 92 percent of GDP at its peak to 35 percent in 2018.
- Iceland now has more assets abroad than liabilities, a high level of foreign exchange reserves, and banks that are sound and well capitalized.

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## References

- [Effectiveness of IMF Lending Programs: Country Case Studies](https://www.imf.org/en/about/effectiveness-of-imf-lending)
- [Iceland and the IMF](https://www.imf.org/en/countries/isl)

_Source: https://www.imf.org/en/countries/isl/iceland-lending-case-study_