{
  "title": "IMF Executive Board Concludes 2022 Article IV Consultation with Iceland",
  "publication": "IMF News, June 27, 2022",
  "sourceUrl": "https://www.imf.org/en/news/articles/2022/06/24/pr22224-iceland-imf-executive-board-concludes-2022-article-iv-consultation-with-iceland",
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  "summary": "IMF Executive Board Concludes 2022 Article IV Consultation with Iceland",
  "publishDate": "2022-06-27",
  "sections": [
    {
      "heading": "Macroeconomic outlook and recent performance",
      "content": "- Real GDP growth: 4.3 percent in 2021; projected 3.6 percent in 2022.\n- Average inflation projected at 7.4 percent in 2022; inflation is projected to gradually fall back to target by 2025.\n- By 2027, real GDP is expected to reach a level about 2 percent below its pre-COVID trend.\n- Robust domestic demand and favorable terms of trade boosted output growth in 2021 despite slower recovery in tourism.\n- Current account: projected to revert to a surplus as tourism continues to recover.\n- Risks: global impact of the war in Ukraine, the pandemic, and potential labor market tensions from an impasse in collective bargaining negotiations; upside from faster tourism recovery and new innovative industries."
    },
    {
      "heading": "Fiscal position and policy advice",
      "content": "- Net general government debt: 60 percent of GDP.\n- International reserves: 29 percent of GDP.\n- Executive Board view: the authorities' planned fiscal consolidation is appropriate to help bring inflation back to target and rebuild fiscal buffers.\n- Suggested consolidation measures: streamlining VAT expenditures, public consumption, and the transfer system.\n- Recommendation: save any potential windfall fiscal revenues and reactivate the fiscal rules on time.\n- Need to rebuild fiscal buffers while supporting the most vulnerable."
    },
    {
      "heading": "Monetary policy and inflation management",
      "content": "- Monetary tightening is welcome; the Central Bank of Iceland (CBI) should continue withdrawing monetary policy stimulus.\n- Steering inflation and inflation expectations back to target will require further policy rate hikes and strengthening liquidity management to improve monetary policy transmission.\n- Vigilance and data-driven policy rate decisions are required, considering: evolution of inflation and inflation expectations, prospects for economic recovery, wage and house price developments, capital flows, and imported inflation.\n- Central bank 7-day term deposit rate: 5.00 (2016), 4.25 (2017), 4.50 (2018), 3.00 (2019), 0.75 (2020), 2.00 (2021), 3.75 (2022, rate as of end-April)."
    },
    {
      "heading": "Financial sector, housing, and macroprudential policy",
      "content": "- Banking system: has weathered the pandemic well, but rising systemic risks call for additional action.\n- Surging house prices require further tightening of macroprudential measures.\n- Recommended housing measures: reduce administrative burdens in the construction sector, redesign regressive home ownership incentives, and provide more targeted rental assistance to address housing affordability.\n- Institutional recommendations: further review the CBI’s committees, budgetary independence, and microprudential powers and capacities, including oversight of pension funds’ governance and risk management practices.\n- Ensuring the quality of bank ownership should remain a key government objective and supervisory responsibility of the CBI.\n- Participation and ownership criteria for investors in state-owned banks should mitigate potential reputational and stability risks.\n- The CBI should review future divestiture plans to ensure fitness and probity of potential investors and address other potential prudential issues."
    },
    {
      "heading": "Structural reforms, diversification, and climate policy",
      "content": "- Further efforts needed to diversify the economy and achieve Iceland’s climate goals.\n- Recommended measures: reduce burdens on start-ups, ease business regulations, promote R&D investment, ease access to finance for small firms, and further education reforms.\n- Inclusiveness and aligning wage and productivity growth should be key features in the upcoming collective bargaining agreement.\n- Climate-related recommendations: broaden and increase carbon pricing; make tax incentives for electric vehicles revenue neutral.\n- Expanding renewable energy use requires infrastructure investments; technological improvements may need R&D support."
    },
    {
      "heading": "Executive Board assessment (summary)",
      "content": "- Iceland’s economic outlook is positive but subject to substantial risks.\n- Careful policy coordination is required to: entrench the recovery; contain rising housing risks; rebuild fiscal buffers while supporting the most vulnerable; and stem external imbalances (external position assessed as weaker than fundamentals and desirable policies)."
    },
    {
      "heading": "Key statistics (selected)",
      "content": "- National Accounts (Constant Prices)\n  - Gross domestic product growth: 6.3 (2016), 4.2 (2017), 4.9 (2018), 2.4 (2019), -7.1 (2020), 4.3 (2021), 3.6 (2022 Prel./Proj.).\n  - Total domestic demand growth: 7.7 (2016), 7.6 (2017), 4.8 (2018), 0.9 (2019), -1.7 (2020), 7.3 (2021), 2.5 (2022).\n  - Private consumption growth: 6.7 (2016), 8.0 (2017), 1.9 (2018), -2.9 (2019), 2.8 (2020).\n  - Gross fixed investment growth: 18.0 (2016), 10.6 (2017), 3.1 (2018), -2.4 (2019), -9.5 (2020), 13.6 (2021).\n  - Net exports (contribution to growth): -0.8 (2016), 0.5 (2017), 1.7 (2018), -5.4 (2019), -3.0 (2020), 0.6 (2021).\n  - Exports of goods and services growth: 11.0 (2016), 5.1 (2017), -4.7 (2018), -30.2 (2019), 12.3 (2020), 17.9 (2021).\n  - Imports of goods and services growth: 14.6 (2016), 11.8 (2017), -8.5 (2018), -21.6 (2019), 20.3 (2020), 15.2 (2021).\n  - Output gap (percent of potential output): 0.8 (2016), 1.2 (2017), 3.3 (2018), 4.0 (2019), -2.8 (2020), -0.7 (2021).\n- Selected Indicators\n  - Gross domestic product (ISK bn.): 2,512 (2016), 2,642 (2017), 2,844 (2018), 3,043 (2019), 2,928 (2020), 3,233 (2021), 3,640 (2022).\n  - Gross domestic product ($ bn.): 20.8 (2016), 24.7 (2017), 26.3 (2018), 24.8 (2019), 21.6 (2020), 25.5 (2021), 28.0 (2022).\n  - GDP per capita ($ thousands): 62.5 (2016), 73.1 (2017), 75.4 (2018), 69.5 (2019), 59.4 (2020), 69.0 (2021), 74.8 (2022).\n  - Private consumption (percent of GDP): 49.3 (2016), 50.1 (2017), 50.3 (2018), 49.9 (2019), 51.6 (2020), 51.7 (2021), 50.7 (2022).\n  - Public consumption (percent of GDP): 23.0 (2016), 23.7 (2017), 24.1 (2018), 24.5 (2019), 27.8 (2020), 27.4 (2021), 25.3 (2022).\n  - Gross fixed investment (percent of GDP): 20.9 (2016), 21.8 (2017), 22.0 (2018), 21.3 (2019), 21.2 (2020), 22.9 (2021), 22.6 (2022).\n  - Gross national saving (percent of GDP): 29.2 (2016), 26.0 (2017), 25.8 (2018), 26.9 (2019), 22.2 (2020), 20.2 (2021).\n  - Unemployment rate (percent of labor force): 6.4 (2016), 6.0 (2017).\n  - Employment growth: 4.1 (2016).\n  - Labor productivity growth: 3.8 (2016), 2.7 (2017), 1.5 (2018), -4.2 (2020), 0.7 (2021).\n  - Real wages growth: 6.8 (2016), 7.4 (2017), 3.7 (2018), 3.4 (2019).\n  - Nominal wages growth: 8.6 (2016), 9.3 (2017), 6.5 (2018), 8.3 (2019).\n  - Consumer price index (average): 3.0 (2016), 4.5 (2017).\n  - Consumer price index (end period): 2.0 (2016).\n  - ISK/€ (average): 134 (2016), 121 (2017), 128 (2018), 141 (2019), 157 (2020), 148 (2021).\n  - ISK/$ (average): 107 (2016), 108 (2017), 123 (2018), 135 (2019), 127 (2020).\n  - Terms of trade (average): -3.7 (2016), -1.2 (2017), 6.2 (2018).\n- Money and Credit (End Period)\n  - Base money (M0): 37.9 (2016), -9.2 (2017), 9.0 (2018), 13.2 (2019).\n  - Broad money (M3): -4.6 (2016), 5.0 (2017), 7.0 (2018), 6.6 (2019), 10.9 (2021).\n  - Bank credit to nonfinancial private sector: 4.4 (2016), 9.2 (2017), 11.9 (2018), 10.5 (2019), 10.3 (2020), 12.6 (2021).\n- General Government Finances\n  - Revenue (percent of GDP): 59.0 (2016), 45.4 (2017), 44.8 (2018), 41.9 (2019), 42.1 (2020), 40.4 (2021), 42.0 (2022).\n  - Expenditure (percent of GDP): 46.4 (2016), 44.4 (2017), 43.8 (2018), 43.4 (2019), 46.8 (2020), [overall balance and other items provided in table].\n  - Gross debt: 82.4 (2016), 71.6 (2017), 63.1 (2018), 66.2 (2019), 77.4 (2020), 75.0 (2021), 68.3 (2022).\n  - Net debt: 67.6 (2016), 60.2 (2017), 54.1 (2018), 60.8 (2019), 59.9 (2020), 55.2 (2021).\n- Balance of Payments and External Indicators\n  - Current account balance: 8.1 (2016), 3.5 (2017), 5.8 (2018), 0.3 (2019).\n  - Capital and financial account (+ = outflow): 8.5 (2016), 1.1 (2017), 5.7 (2018), 5.4 (2019), 5.5 (2020), 0.1 (2021).\n  - Gross external debt: 125.1 (2016), 90.3 (2017), 73.3 (2018), 77.9 (2019), 89.9 (2020), 82.9 (2021), 80.5 (2022).\n  - Central bank reserves ($ bn.): 7.2 (2016), 6.1 (2017), 7.1 (2018), 6.9 (2019).\n\nIMF Executive Board Concludes 2022 Article IV Consultation with Iceland (Press Release No. 22/224), June 27, 2022.\n\n---\n\n\n References\n\n- Iceland and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/06/24/pr22224-iceland-imf-executive-board-concludes-2022-article-iv-consultation-with-iceland"
    }
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    "Published: June 27, 2022",
    "Real GDP growth: 4.3 percent in 2021; projected 3.6 percent in 2022.",
    "Average inflation projected at 7.4 percent in 2022; inflation is projected to gradually fall back to target by 2025.",
    "By 2027, real GDP is expected to reach a level about 2 percent below its pre-COVID trend.",
    "Robust domestic demand and favorable terms of trade boosted output growth in 2021 despite slower recovery in tourism.",
    "Current account: projected to revert to a surplus as tourism continues to recover.",
    "Risks: global impact of the war in Ukraine, the pandemic, and potential labor market tensions from an impasse in collective bargaining negotiations; upside from faster tourism recovery and new innovative industries.",
    "Net general government debt: 60 percent of GDP.",
    "International reserves: 29 percent of GDP.",
    "Executive Board view: the authorities' planned fiscal consolidation is appropriate to help bring inflation back to target and rebuild fiscal buffers.",
    "Suggested consolidation measures: streamlining VAT expenditures, public consumption, and the transfer system.",
    "Recommendation: save any potential windfall fiscal revenues and reactivate the fiscal rules on time.",
    "Need to rebuild fiscal buffers while supporting the most vulnerable.",
    "Monetary tightening is welcome; the Central Bank of Iceland (CBI) should continue withdrawing monetary policy stimulus.",
    "Steering inflation and inflation expectations back to target will require further policy rate hikes and strengthening liquidity management to improve monetary policy transmission.",
    "Vigilance and data-driven policy rate decisions are required, considering: evolution of inflation and inflation expectations, prospects for economic recovery, wage and house price developments, capital flows, and imported inflation.",
    "Central bank 7-day term deposit rate: 5.00 (2016), 4.25 (2017), 4.50 (2018), 3.00 (2019), 0.75 (2020), 2.00 (2021), 3.75 (2022, rate as of end-April).",
    "Banking system: has weathered the pandemic well, but rising systemic risks call for additional action.",
    "Surging house prices require further tightening of macroprudential measures.",
    "Recommended housing measures: reduce administrative burdens in the construction sector, redesign regressive home ownership incentives, and provide more targeted rental assistance to address housing affordability.",
    "Institutional recommendations: further review the CBI’s committees, budgetary independence, and microprudential powers and capacities, including oversight of pension funds’ governance and risk management practices.",
    "Ensuring the quality of bank ownership should remain a key government objective and supervisory responsibility of the CBI.",
    "Participation and ownership criteria for investors in state-owned banks should mitigate potential reputational and stability risks.",
    "The CBI should review future divestiture plans to ensure fitness and probity of potential investors and address other potential prudential issues.",
    "Further efforts needed to diversify the economy and achieve Iceland’s climate goals.",
    "Recommended measures: reduce burdens on start-ups, ease business regulations, promote R&D investment, ease access to finance for small firms, and further education reforms.",
    "Inclusiveness and aligning wage and productivity growth should be key features in the upcoming collective bargaining agreement.",
    "Climate-related recommendations: broaden and increase carbon pricing; make tax incentives for electric vehicles revenue neutral.",
    "Expanding renewable energy use requires infrastructure investments; technological improvements may need R&D support.",
    "Iceland’s economic outlook is positive but subject to substantial risks.",
    "Careful policy coordination is required to: entrench the recovery; contain rising housing risks; rebuild fiscal buffers while supporting the most vulnerable; and stem external imbalances (external position assessed as weaker than fundamentals and desirable policies).",
    "National Accounts (Constant Prices)",
    "Selected Indicators",
    "Money and Credit (End Period)",
    "General Government Finances",
    "Balance of Payments and External Indicators",
    "[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)"
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