## IMF Executive Board Concludes 2018 Article IV Consultation with Iceland

_IMF News, November 14, 2018_

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**Canonical URL:** [IMF Executive Board Concludes 2018 Article IV Consultation with Iceland](https://www.imf.org/en/news/articles/2018/11/14/pr18424-iceland-imf-executive-board-concludes-2018-article-iv-consultation)

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## Bibliographic details
- Published: November 14, 2018

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### Macroeconomic outlook and projections
- Strong real GDP growth is expected to continue in 2018, although "at around 4 percent" the pace will be somewhat slower than in previous years, on the back of moderating tourism growth.
- IMF staff projection: Gross domestic product (2018, Proj.) 3.7 (percentage change).
- Over the medium term:
  - Growth is expected to taper to about 2½ percent.
  - Inflation is expected to remain near target.
  - The current account surplus is expected to settle at about 2 percent of GDP.
- Unemployment rate: 2½ percent (remains well below its long-run average).
- Inflation: described as "close to target" due to a robust supply response to past property price increases and slower tourism growth.

### Executive Board assessment — risks and policy stance
- Directors welcomed the favorable economic outlook and the dissipation of overheating concerns; past króna appreciation has helped guide growth to more sustainable rates.
- Noted risks:
  - Strong oil prices.
  - Competitive pressures in the airline sector.
  - Escalating trade tensions.
  - Potentially excessive wage awards.
  - Brexit.
- Fiscal policy:
  - Directors viewed the broadly neutral fiscal stance as appropriate in the near term.
  - Supported the authorities’ medium term fiscal plan aimed at further debt reduction.
  - Advised careful prioritization of expenditures (infrastructure, healthcare, education) to reach overall budget targets.
  - Recommended prioritizing expenditures based on medium term effects on growth and productivity, with less reliance on ad hoc revenues such as dividend flows and careful assessment of tax reforms.
- Monetary and foreign exchange policy:
  - Directors agreed monetary policy should remain focused on price stability.
  - The inflation target should reflect households’ spending patterns and be understood by all.
  - Foreign exchange intervention should be limited to countering disorderly market conditions, with strong emphasis on maintaining reserve adequacy.
- External position:
  - Directors judged Iceland’s external position to be broadly in line with fundamentals and desired policy settings.

### Financial supervision, capital flow measures, and structural policies
- Financial supervision:
  - Directors supported creating an integrated financial supervisor by merging the financial regulator into the central bank, covering all aspects of the financial sector including pension funds.
  - Emphasized ensuring a smooth transition and maintaining regulatory and operational independence.
- Capital flow management:
  - Directors welcomed the authorities’ decision to halve the special reserve requirement on selected debt inflows.
  - Many Directors supported a gradual lifting as conditions permit; a few favored immediate removal.
  - Noted that capital flow management measures can have a useful role under certain conditions but should not substitute for warranted macroeconomic adjustment.
- Structural reforms:
  - Supported ongoing initiatives to reform the wage bargaining system and anchor it on productivity growth and competitiveness.
  - Recommended increasing public spending on education.
  - Suggested a comprehensive strategy for further tourism development, including contingency plans.
  - Called for ongoing international efforts to ensure sustainable management of migratory marine species.

### Selected economic indicators and key statistics (2014–18, exact reported figures)
- National Accounts (constant prices) — Gross domestic product (percentage change):
  - 2014: 2.1
  - 2015: 4.5
  - 2016: 7.4
  - 2017: 4.0
  - 2018 Proj.: 3.7
- Total domestic demand (percentage change):
  - 2014: 5.3
  - 2015: 6.4
  - 2016: 8.8
  - 2017: 7.0
  - 2018: 4.6
- Private consumption (percentage change): 2014: 3.2; 2015: 7.2; 2016: 7.9; 2017: 5.4; 2018: (not separately listed in the table for 2018 projection).
- Gross fixed investment (percentage change): 2014: 15.9; 2015: 19.7; 2016: 21.7; 2017: 9.5; 2018: 4.8
- Net exports (contribution to growth): 2014: -1.5; 2015: -0.5; 2016: -0.2; 2017: -2.1; 2018: -0.7
- Exports of goods and services (percentage change): 2014: 9.1; 2015: 10.9; 2016: 5.5; 2017: (not listed for 2018)
- Imports of goods and services (percentage change): 2014: 9.8; 2015: 13.8; 2016: 14.5; 2017: 12.5
- Output gap (percent of potential output): 2014: 0.0; 2015: 0.5; 2016: 2.4; 2017: 1.5
- Selected indicators:
  - Gross domestic product (ISK bn.): 2014: 2,074; 2015: 2,288; 2016: 2,503; 2017: 2,615; 2018: 2,797
  - GDP per capita ($ thousands): 2014: 54.0; 2015: 52.2; 2016: 61.2; 2017: 70.2; 2018: 75.5
  - Private consumption (percent of GDP): 2014: 52.7; 2015: 50.1; 2016: 49.4; 2017: 50.3; 2018: 50.4
  - Public consumption (percent of GDP): 2014: 23.9; 2015: 23.4; 2016: 22.8; 2017: 23.3; 2018: 23.8
  - Gross fixed investment (percent of GDP): 2014: 17.2; 2015: 19.2; 2016: 21.5; 2017: 22.3
  - Gross national saving (percent of GDP): 2014: 21.2; 2015: 24.5; 2016: 29.1; 2017: 25.8; 2018: 25.5
  - Unemployment rate (percent of labor force): 2014: 5.0; 2015: 3.0; 2016: 2.8; 2017: (not separately listed for 2018 in the table)
  - Employment (percentage change): 2014: 1.6; 2015: 3.4; 2016: 1.8; 2017: 2.3
  - Labor productivity (percentage change): 2014: 0.2; 2015: 0.9; 2016: 3.6; 2017: 2.2; 2018: 1.4
  - Real wages (percentage change): 2016: 6.0; 2017: 5.6
  - Nominal wages (percentage change): 2016: 4.1; 2017: 7.6; 2018: 8.7
  - Consumer price index (average): 2014: 2.0; 2015: 1.7; 2016: 2.5
  - Consumer price index (end period): 2014: 0.8; 2015: 2.6
  - ISK/€ (average) 1/: 2014: 155; 2015: 146; 2016: 134; 2017: 121; 2018: 126
  - ISK/$ (average) 1/: 2014: 117; 2015: 132; 2016: 107; 2017: 106
  - Terms of trade (average): 2014: 3.3; 2015: 6.7; 2016: -1.0
- Money and Credit (end period):
  - Base money (M0) (percentage change): 2014: -17.6; 2015: 27.8; 2016: 37.9; 2017: 7.7
  - Broad money (M3) (percentage change): 2014: 7.1; 2015: -4.6
  - Bank credit to nonfinancial private sector (percentage change): 2014: -2.4; 2015: 3.5; 2016: 4.4; 2017: 9.2; 2018: 7.5
  - Central bank 7-day term deposit rate 2/: 2014: 4.50; 2015: 5.75; 2016: 5.00; 2017: 4.75; 2018: 4.25
- General Government Finances (percent of GDP unless otherwise indicated) 3/:
  - Revenue: 2014: 43.7; 2015: 40.7; 2016: 56.7; 2017: 42.4; 2018: 41.6
  - Expenditure: 2014: 43.8; 2015: 41.5; 2016: 44.3; 2017: 41.0; 2018: 41.0
  - Overall balance: 2014: -0.1; 2015: -0.8; 2016: 12.3
  - Structural primary balance: 2014: 1.2
  - Gross debt: 2014: 79.7; 2015: 66.0; 2016: 51.7; 2017: 40.0; 2018: 37.0
  - Net debt: 2014: 47.8; 2015: 39.6; 2016: 34.2; 2017: 30.3
- Balance of Payments:
  - Current account balance 4/: 2014: 3.9; 2015: 5.2
  - Capital and financial account (+ = outflow): 2014: 5.1; 2015: 8.9
  - Gross external debt 5/: 2014: 198.8; 2015: 176.0; 2016: 124.4; 2017: 90.0; 2018: 75.9
  - Central bank reserves ($ bn.): 2014: 4.2; 2015: 6.5

*IMF Executive Board press release, November 14, 2018.*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Iceland and the IMF](http://www.imf.org/external/country/ISL/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/11/14/pr18424-iceland-imf-executive-board-concludes-2018-article-iv-consultation_