## Press Release: IMF Completes Sixth and Final Review Under the Stand-By Arrangement for Iceland

_IMF News, August 26, 2011_

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**Canonical URL:** [Press Release: IMF Completes Sixth and Final Review Under the Stand-By Arrangement for Iceland](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr11316)

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## Bibliographic details
- Published: August 26, 2011

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### Program completion and financing
- The Executive Board completed the sixth and final review of Iceland’s program under a Stand-By Arrangement (SBA).
- Immediate disbursement enabled: an amount equivalent to SDR 280 million (about €312.4 million, or US$450.6 million).
- Total disbursements under the program to date: an amount equivalent to SDR 1,400 million (about €1.56 billion or US$2.25 billion).
- The 33-month SBA was approved on November 19, 2008 for an amount equivalent to SDR 1.4 billion and was subsequently extended to August 31, 2011.
- The arrangement entails exceptional access to IMF resources, amounting to 1,190 percent of Iceland’s quota.
- The SBA will expire on August 31.

### Macroeconomic assessment and outlook
- The Fund concluded the program has been successfully completed owing to strong implementation by the authorities.
- Key objectives met:
  - public finances are on a sustainable path,
  - the exchange rate has stabilized,
  - the financial sector has been restructured.
- Growth and labor market:
  - Moderate growth is expected in 2011.
  - Unemployment remains high.
- Inflation and external risks:
  - Inflation is rising on the back of high commodity prices.
  - Remaining uncertainties and risks, including from the external environment, are weighing on the recovery.
  - Further delays to investment projects and an acceleration of inflation may weaken current prospects.
- Financing assurances: Iceland’s Nordic and Polish partners have extended their lending facilities until end-2011.

### Fiscal policy and consolidation
- Authorities and staff agreed to ease the pace of fiscal consolidation, given:
  - strong fiscal adjustment to date,
  - favorable public debt dynamics,
  - the need to support the recovery.
- The fiscal target for 2011 was modestly eased (the revised plan must now be implemented).
- Policy guidance:
  - Fiscal adjustment must continue.
  - There is some scope to ease the pace of consolidation on account of the significant fiscal effort to date and strong track record.
  - The revised fiscal path would still deliver sustainable debt dynamics while providing near-term support to the economy.
  - It will be critical that the authorities fully implement the new path to ensure that credibility gains are not eroded.

### Monetary policy, capital controls, and reserves
- The Central Bank has appropriately raised policy rates, reflecting:
  - inflation risks going forward,
  - the fall in real interest rates,
  - the need for a gradual normalization as capital controls are lifted.
- Capital account liberalization:
  - The initial steps of the capital account liberalization strategy are being implemented.
  - Liberalization should proceed gradually and flexibly, while maintaining stability in the government bond market and financial sector and ensuring an adequate level of reserves.
  - Effective enforcement of the capital controls will be essential.
- The tightening bias in monetary policy is appropriate given rising inflation expectations and the risk of second-round effects from higher wages.

### Financial sector repairs and supervision
- Recapitalization of Iceland’s core banking system has been completed.
- Private sector debt restructuring:
  - The pace of restructuring private debt finally appears to be accelerating, but efforts must continue until the end of the process.
  - Progress is welcome, but further work is required.
- Ongoing work:
  - Reducing remaining vulnerabilities and strengthening prudential regulations and supervision is ongoing and efforts should be sustained.
  - A further strengthening of financial sector supervision is needed.
  - Addressing gaps in the legal, regulatory, and supervisory framework and fully implementing agreed reforms will be critical to reduce risks and vulnerabilities.

### Post-Program monitoring and continued engagement
- After the expiration of the SBA, Iceland and the IMF will continue to maintain a constructive policy dialogue.
- In accordance with Fund policy, Post-Program Monitoring (PPM) will now be initiated.
- PPM objective: to provide for closer monitoring of the policies of members that have substantial Fund credit outstanding following the expiration of their arrangements, entailing more frequent formal consultation with the Fund with a focus on macroeconomic and structural policies bearing on external viability.

*Press Release No.11/316, August 26, 2011 — International Monetary Fund*

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## References

- [Iceland and the IMF](http://www.imf.org/external/country/ISL/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Press Release No. 08/296](https://www.imf.org/external/np/sec/pr/2008/pr08296.htm)
- [Press Release No. 10/156](https://www.imf.org/external/np/sec/pr/2010/pr10156.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr11316_