## IMF Executive Board Concludes 2026 Article IV Consultation with Iceland

_IMF News, July 30, 2026_

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## Bibliographic details
- Published: July 30, 2026

---

### Key messages and risks
- Tight macroeconomic policies have helped slow domestic demand, but wage growth and inflation remain elevated, raising concerns about a de-anchoring of inflation expectations and erosion of export competitiveness.
- The economy is projected to recover, led by a rebound in net trade, while inflation is expected to remain elevated in the near term.
- Risks to growth are tilted to the downside while risks to inflation are to the upside.
- Policy priorities: return inflation sustainably to target, anchor inflation expectations, and increase resilience to shocks by further building fiscal buffers and advancing productivity-enhancing structural reforms.

### Economic activity and outlook
- 2025: GDP expanded by 1.3 percent after a 1.3 percent contraction in 2024.
- Drivers in 2025: private consumption (supported by strong wage growth) and investment (continued expansion of data centers), with significant import leakages; exports remained subdued partly due to idiosyncratic shocks.
- Labor market: has cooled though wage and inflation pressures persist.
- Growth projections:
  - 2026: 1.8 percent
  - 2027: 2.1 percent
  - 2028: 2.4 percent (table projection)
- Inflation projections:
  - 2026: around 5.2 percent (average)
  - 2027: 3.2 percent (average)
  - Decline toward the 2.5 percent target projected in early 2028
- Output gap status: negative output gap acknowledged despite elevated inflation.
- Key downside risks: escalation of geopolitical tensions, stronger‑than‑expected wage growth, disruptions to key export sectors.
- Medium-term growth: prospects remain favorable, supported by diversification toward new export-oriented sectors.

### Fiscal assessment and recommendations
- Fiscal stance: appropriately contractionary; medium-term fiscal targets are appropriately ambitious and should be fully implemented.
- Policy role: fiscal stance in 2026 and beyond will help lower inflation and build buffers.
- VAT on fuel: the temporary reduction should remain time-bound and be phased out as planned.
- Medium-term targets: place public debt on a firm downward trajectory; sustained discipline and credible medium-term planning needed given longer-term spending pressures from healthcare and infrastructure.
- Fiscal risk management and revenue/options:
  - Scope to raise revenues and reduce spending if needed to meet MTFS targets, mitigate long-term spending pressures, or scale up infrastructure investment.
  - Options include raising the preferential VAT rate and/or narrowing its coverage, increasing housing-related taxation, streamlining R&D support, and further rationalizing public spending, including through spending efficiency and public sector wage restraint.
- State-owned infrastructure company: could help mobilize financing but should have strong safeguards to contain fiscal risks, including careful monitoring and transparent recording of contingent liabilities and off-balance-sheet exposures.
- Strengthening fiscal framework:
  - The amended fiscal rule should help contain spending and reduce procyclicality.
  - Meaningful increase in Fiscal Council capacity and resources is needed.
  - Recommend regular publication of timely and independently-verifiable quarterly fiscal data consistent with the fiscal-rule perimeter.
  - Expand coverage of the budget and fiscal rules to the entirety of the central government to improve transparency.

### Monetary policy, reserves, and external position
- Monetary stance: appropriately restrictive; vigilance warranted alongside clear and forceful communication.
  - Further tightening may be needed in the near term if inflationary pressures persist or intensify.
  - Policy should remain restrictive until inflation and inflation expectations are firmly anchored at target.
  - Strengthen communication, including use of alternative scenarios; transition toward a more forecast-based inflation targeting framework as uncertainty recedes.
- Reserves: adequate for precautionary purposes.
  - Recommendation to further strengthen foreign exchange reserves toward the upper end of the Fund’s ARA range to enhance resilience.
  - Deepen the foreign exchange market to support broader market participation and improve hedging opportunities.
- External position: current account deficit widened in 2025 due to imports for data centers and other idiosyncratic factors; external position assessed to be moderately weaker than implied by fundamentals and desirable policies.

### Financial sector and macroprudential stance
- Systemic risks: contained; macroprudential stance broadly appropriate.
- Banking sector: banks remain well-capitalized, profitable, and liquid, with strong asset quality.
- Vulnerabilities: parts of the corporate sector—notably construction and tourism-related activities—require vigilance.
- Borrower-based measures: should remain broadly unchanged for now, given the slowing housing market.
- CPI-indexed mortgages: reducing reliance may strengthen monetary transmission over time but should be carefully timed and sequenced given their role in borrower resilience and financial stability.
- Financial sector reforms and priorities:
  - Build on FSAP implementation progress.
  - Strengthen pension fund governance and safeguard independence of financial supervision.
  - Strengthen operational resilience, including against cyber and payments-related risks.

### Structural reforms and EU/euro considerations
- Structural reform priorities to raise productivity and diversification:
  - Reduce regulatory barriers and streamline licensing and permitting processes.
  - Address skills shortages through education reform, vocational training, and improved reskilling.
  - Reform wage-setting arrangements to better align wage growth with productivity and the inflation target.
  - Close infrastructure gaps.
  - Improve efficiency of R&D support and strengthen the broader innovation ecosystem.
- Growth Plan to 2035: well aligned with priorities; successful implementation requires strong cross-ministerial coordination, prioritization, monitoring and reporting.
- EU accession and euro adoption: ultimately political choices.
  - Potential benefits: deeper integration and potential credibility gains.
  - Trade-offs: loss of independent monetary policy and exchange rate flexibility.
  - Preconditions if process moves forward: maintain low inflation, sound public finances, exchange rate aligned with fundamentals, advance structural reforms to increase productivity, and align wages with productivity to safeguard stability and competitiveness.

### Key selected indicators (as reported)
- GDP growth (annual percent change): 2021: 5.2; 2022: 8.9; 2023: 5.0; 2024: -1.3; 2025: 1.3; 2026: 1.8; 2027: 2.1; 2028: 2.4
- Total domestic demand (percent change): 2021: 7.9; 2022: 8.0; 2023: 2.5; 2024: 1.4; 2025: 3.9; 2026: 0.4
- Private consumption (percent change): 2021: 8.1; 2022: 7.6; 2023: 0.9; 2024: 4.3; 2025: 1.7
- Gross fixed investment (percent change): 2021: 13.5; 2022: 15.3; 2023: 6.2; 2024: 6.5; 2025: 4.0; 2026: -2.9; 2027: 2.7; 2028: 3.2; 2029: 3.6
- Net exports (contribution to growth): 2021: -2.8; 2022: 0.6; 2023: -2.6; 2024: -2.7; 2025: -0.1; 2026: -0.2; 2027: -0.3
- Exports of goods and services (percent change): 2021: 12.4; 2022: 26.1; 2023: -2.2; 2024: 1.0; 2025: 0.5; 2026: 3.5; 2027: 3.1
- Imports of goods and services (percent change): 2021: 20.3; 2022: 22.6; 2023: -1.9; 2024: 4.2; 2025: 7.2; 2026: -2.4; 2027: 3.8; 2028: 3.4
- Output gap (percent of potential output): 2021: -3.8; 2022: 1.6; 2023: 0.3; 2024: 0.0
- GDP (ISK bn.): 2021: 3,332; 2022: 3,947; 2023: 4,373; 2024: 4,578; 2025: 4,956; 2026: 5,351; 2027: 5,645; 2028: 5,937; 2029: 6,259; 2030: 6,590; 2031: 6,937
- GDP ($ Mn.): 2021: 26,235; 2022: 29,176; 2023: 31,702; 2024: 33,187; 2025: 38,583; 2026: 43,664; 2027: 46,316; 2028: 48,777; 2029: 51,189; 2030: 53,619; 2031: 56,153
- GDP per capita ($ thousands): 2021: 73.2; 2022: 80.0; 2023: 84.5; 2024: 86.5; 2025: 99.1; 2026: 109.7; 2027: 114.0; 2028: 117.6; 2029: 121.0; 2030: 124.2; 2031: 127.5
- Private consumption (percent of GDP): 2021: 51.2; 2022: 49.8; 2023: 48.7; 2024: 49.1; 2025: 49.6; 2026: 49.2; 2027: 48.9; 2028: 48.8
- Gross fixed investment (percent of GDP): 2021: 22.5; 2022: 23.8; 2023: 24.9; 2024: 26.8; 2025: 26.7; 2026: 24.6; 2027: 24.8; 2028: 25.0; 2029: 25.4; 2030: 25.6
- Gross national saving (percent of GDP): 2021: 20.2; 2022: 24.2; 2023: 23.0; 2024: 23.3; 2025: 24.0; 2026: 24.5
- Unemployment rate (percent of labor force): 2021: 5.8
- Employment (percent change): 2022: 7.0; 2023: 4.1; 2024: -0.6; 2025: -0.4; 2026: 1.1
- Labor productivity (percent change): 2021: -5.1; 2022: 1.9; 2023: 2.2
- Real wages (percent change): 2021: 3.7; 2022: 0.7
- Nominal wages (percent change): 2021: 8.3; 2022: 9.8; 2023: 6.6; 2024: 4.5
- Consumer price index (average): 2021: 8.7; 2022: 5.9
- Consumer price index (end period): 2021: 5.1; 2022: 9.6; 2023: 7.7; 2024: 4.7; 2025: 2.6
- Core CPI (average): 2021: 8.6; 2022: 6.1
- ISK/€ (average): 2021: 148; 2022: 159; 2023: 163; 2024: 164; 2025: 152
- ISK/$ (average): 2021: 127; 2022: 135; 2023: 138; 2024: 128
- Terms of trade (average): 2021: -4.9; 2022: -0.7; 2023: 0.1
- Base money (M0) (end period percent change): 2021: 9.0; 2022: -21.5; 2023: 16.7; 2024: 2.9; 2025: 11.8; 2026: 10.9; 2027: 9.9; 2028: 9.2
- Broad money (M3) (end period percent change): 2021: 11.7; 2022: 5.6; 2023: 9.5; 2024: 6.7
- Credit to nonfinancial private sector (end period percent change): 2021: 10.5; 2022: 11.3; 2023: 5.3; 2024: 6.3; 2025: 5.7
- Central bank 7 day term deposit rate (percent): 2021: 2.00; 2022: 6.00; 2023: 9.25; 2024: 8.50; 2025: 7.25; 2026: 7.75 (For 2026, policy rate as of the May MPC meeting.)
- General government revenue (percent of GDP): 2021: 40.7; 2022: 42.3; 2023: 43.1; 2024: 42.9; 2025: 42.6; 2026: 43.2; 2027: 43.6; 2028: 43.7; 2029: 43.8
- General government expenditure (percent of GDP): 2021: 46.2; 2022: 45.2; 2023: 47.1; 2024: 45.0; 2025: 44.7; 2026: 44.2; 2027: 44.1; 2028: 44.0; 2029: 43.9
- Overall balance (percent of GDP): 2021: -8.0; 2022: -2.1; 2023: -4.2; 2024: -1.4
- Structural primary balance (percent of GDP): 2021: 2.0
- Gross debt (percent of GDP): 2021: 73.6; 2022: 66.4; 2023: 61.5; 2024: 60.4; 2025: 56.1; 2026: 54.7; 2027: 53.2; 2028: 52.3; 2029: 50.7; 2030: 49.3; 2031: 48.2
- Net debt (percent of GDP): 2021: 58.8; 2022: 55.3; 2023: 52.1; 2024: 50.4; 2025: 45.8; 2026: 45.1; 2027: 42.5; 2028: 41.5; 2029: 40.8
- Current account balance (percent of GDP): 2021: -1.7; 2022: -3.2; 2023: -3.6; 2024: -0.5; 2025: 0.2
- Services balance (percent of GDP): 2021: 7.4; 2022: 5.5; 2023: 6.4; 2024: 6.8
- Capital and financial account (+ = outflow) (percent of GDP): 2021: -1.0; 2022: -3.0
- Direct investment, net (+ = outflow) (percent of GDP): 2021: -3.9; 2022: -4.8; 2023: -7.6
- Gross external debt (percent of GDP): 2021: 83.1; 2022: 74.3; 2023: 73.7; 2024: 67.9; 2025: 61.7; 2026: 56.0; 2027: 54.2; 2028: 52.8; 2029: 51.5
- Central bank reserves ($ Mn.): 2021: 7,091; 2022: 5,879; 2023: 5,720; 2024: 6,387; 2025: 7,643; 2026: 7,916; 2027: 8,248; 2028: 8,565; 2029: 8,978; 2030: 9,308; 2031: 9,642

*Source: IMF press release, July 30, 2026.*

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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/)
- [www.imf.org/Iceland](http://www.imf.org/Iceland)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2026/07/30/pr26263-iceland-imf-executive-board-concludes-2026-article-iv-consultation_