Abstract
This 2007 Article IV Consultation highlights that boom in private consumption in Iceland was facilitated by easing household credit conditions, tax cuts, rapidly rising housing and equity wealth, and an appreciating real exchange rate. As a result, the output gap peaked at over 5 percent in 2005, declining only modestly in 2006. Record current account deficits and credit downgrades early in 2007 caused little market disruption, in part reflecting a healthy financial sector. The exchange rate remained strong, and confidence in Icelandic banks stayed high.
Annex I. Iceland: Fund Relations
(As of June 30, 2007)
The Article IV consultation discussions were held in Reykjavik during May 31–June 11, 2007. The mission team comprised Mr. Hunt (head), Mr. Annett, Mr. Tchaidze (all EUR), and Ms. Ong (MCM). Mr. Sigurgeirsson (Alternate Executive Director) attended some of the meetings. The staff met with the Prime Minister, the Minister of Finance, the Permanent Secretary in the Prime Minister’s Office, the Governor of the Central Bank of Iceland, other senior officials from a wide range of public institutions, the major banks, and employer and employee federations.
Iceland has accepted the obligations of Article VIII, Sections 2, 3, and 4. The exchange rate is free of restrictions on payments and transfers for current international transactions other than restrictions notified to the Fund in accordance with Decision No. 144-(52/51).
The authorities published the mission’s concluding statement which is available at http://www.imf.org/external/np/ms/2007/061107.htm and intend to publish the staff report.
I. Membership Status: Joined: December 27, 1945; Article VIII
II. General Resources Account:
| SDR Million | % Quota | |
|---|---|---|
| Quota | 117.60 | 100.00 |
| Fund holdings of currency | 99.01 | 84.19 |
| Reserve position in Fund | 18.59 | 15.81 |
| Holdings Exchange Rate |
| SDR Million | % Quota | |
|---|---|---|
| Quota | 117.60 | 100.00 |
| Fund holdings of currency | 99.01 | 84.19 |
| Reserve position in Fund | 18.59 | 15.81 |
| Holdings Exchange Rate |
III. SDR Department:
| SDR Million | % Allocation | |
|---|---|---|
| Net cumulative allocation | 16.41 | 100.00 |
| Holdings | 0.09 | 0.57 |
| SDR Million | % Allocation | |
|---|---|---|
| Net cumulative allocation | 16.41 | 100.00 |
| Holdings | 0.09 | 0.57 |
IV. Outstanding Purchases and Loans: None
V. Latest Financial Arrangements: None
VI. Projected Payments to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011 | |
| Principal | |||||
| Charges/Interest | 0.35 | 0.69 | 0.69 | 0.69 | 0.69 |
| Total | 0.35 | 0.69 | 0.69 | 0.69 | 0.69 |
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011 | |
| Principal | |||||
| Charges/Interest | 0.35 | 0.69 | 0.69 | 0.69 | 0.69 |
| Total | 0.35 | 0.69 | 0.69 | 0.69 | 0.69 |
VII. Implementation of HIPC Initiative: Not applicable
VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable
IX. Exchange Rate Arrangements: Iceland adopted a floating exchange rate regime for the króna effective March 28, 2001.
Iceland continues to maintain exchange restrictions pursuant to UN sanction against Iraq (see EBD/03/115, 12/16/03).
X. Last Article IV Consultation:
Discussion for the 2006 Article IV Consultation were held in Reykjavik during May 8–15, 2006. The Staff Report (Country Report No. 06/296) was considered by the Executive Board on August 4, 2006. Article IV consultations with Iceland are currently held on the 12–month cycle.
XI. Technical Assistance: None
XII. Resident Representative: None
Annex II. Iceland: Statistical Issues
Data provision to the Fund is adequate for surveillance purposes. Iceland subscribed to the Special Data Dissemination Standard (SDDS) in 1996. The Statistics Department (STA) prepared a data module of the Report on the Observance of Standards and Codes (data ROSC) that was published on November 22, 2005.
Data on a wide range of economic and financial variables are provided to the Fund in a timely manner during and between consultations. In addition to periodic press releases, statistical information is disseminated to the public through a range of monthly, quarterly, and annual publications by three main institutions (The Central Bank of Iceland (CBI), the Ministry of Finance, and Statistics Iceland), and is increasingly available on their internet sites. Provision of electronic data in English has improved substantially in recent years, especially from Statistics Iceland.
Iceland is in observance of the SDDS since June 30, 2004, meeting the specifications for coverage, periodicity, and timeliness, but uses a flexibility option on the timeliness and periodicity for the production index and the producer price index (PPI). Iceland generally meets the requirements regarding advance release calendars. However, there are some delays in the dissemination of data on central government operations and central government debt, and the advance release dates posted for these data categories are tentative. Also, summary methodology statements in a number of data categories are neither provided nor posted on the IMF’s Dissemination Standards Bulletin Board.
As regards the national accounts data, the authorities shifted to ESA95 in August 2000 and revised the corresponding time series back to 1990. Another revision was carried out in 2002 going back only to 1997.
The authorities publish Treasury returns on a monthly basis, and quarterly and annual data on the general government balance. Iceland reports government finance statistics in accordance with the GFSM 2001 framework in the GFS Yearbook, and is an up-to-date contributor to the International Financial Statistics (IFS).
Iceland’s balance of payments data deviate from the IMF’s Balance of Payments Manual, fifth edition (BPM5) in certain respects. In particular, the CBI follows the methodology applied by the European Central Bank (ECB) for the calculation of income payable by collective investment institutions (e.g., mutual funds). Unlike the BPM5, the ECB’s methodology includes portfolio investors’ shares of retained earnings in the balance of payments statement.
Some other departures from BPM5 are: a) income on external debt is compiled on a due-for-payment basis, including between affiliated enterprises; b) debt between affiliated banks is not identified; c) banking sector loans are not classified separately from currency and deposits; d) in the international investment position, foreign direct investments are valued at book value; e) external debt is valued at face value; f) financial derivatives held by banks are not available as on-balance sheet items; and, g) domestic currency deposits held with banks by nonbank nonresidents are not recorded as part of external debt.
Monetary and financial statistics
The concepts and definitions broadly conform to the guidelines of the Monetary and Financial Statistics Manual (MFSM). Departing from the MFSM, monetary aggregates include deposits of the foreign sector and the central government; and the currency-linked and indexed bonds held by nonresidents are classified as domestic instead of foreign liabilities. Classification and sectorization are mostly in line with the MFSM, except that, in the accounts of other depository corporations (that is, commercial and savings banks), financial derivatives are off balance sheet and positions of nonfinancial public corporations are indistinguishably included as part of government; and, in the accounts of the CBI, fixed assets are off balance sheet and IMF accounts are included under other items net instead of as foreign liabilities. The basis for recording follows the MFSM, except that several banks report loans net of provisions and securities for investment are not at market value. The CBI has yet to commence reporting monetary data to STA using standardized report forms.
Iceland: Table of Common Indicators Required for Surveillance
(As of July 6, 2007)
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
Foreign and domestic financing.
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
Including currency and maturity composition.
Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Not Available (NA).
Reflects the assessment provided in the data ROSC (published on November 22, 2005, and based on the findings of the mission that took place during February 1-15, 2005) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).
Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.
Iceland: Table of Common Indicators Required for Surveillance
(As of July 6, 2007)
| Date of latest observation |
Date received |
Frequency of Data6 |
Frequency of Reporting6 |
Frequency of publication6 |
Memo Items: | ||
|---|---|---|---|---|---|---|---|
| Data Quality – Methodological soundness7 |
Data Quality – Accuracy and reliability8 |
||||||
| Exchange Rates | Jun 2007 | Jul 2007 | D and M | D and M | D and M | ||
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | May 2007 | 6/15/2007 | M | M | M | ||
| Reserve/Base Money | May 2007 | 6/21/2007 | M | M | M | LO, O, LO, LO | LO, O, O, O, O |
| Broad Money | May 2007 | 6/21/2007 | M | M | M | ||
| Central Bank Balance Sheet | Jun 2007 | 7/5/2007 | M | M | M | ||
| Consolidated Balance Sheet of the Banking System | May 2007 | 6/21/2007 | M | M | M | ||
| Interest Rates2 | 7/6/2007 | 7/6/2007 | D | D | D | ||
| Consumer Price Index | Jun 2007 | 6/12/2007 | M | M | M | O, O, O, O | O, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing3 – General Government4 | 2006 | 4/24/2007 | A | A | A | O, LO, O, LO | LO, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing3– Central Government | 2006 | 4/24/2007 | A | A | A | ||
| Stocks of Central Government and Central Government-Guaranteed Debt5 | 2006 | 6/19/2007 | A | A | A | ||
| External Current Account Balance | Q1, 2007 | 6/5/2007 | Q | Q | Q | O, O, LO, O | LO, O, O, O, O |
| Exports and Imports of Goods and Services | May 2007 | 6/29/2007 | M | M | M | ||
| GDP/GNP | Q1, 2007 | 6/13/2007 | Q | Q | Q | O, LO, O, LO | LO, O, LO, LO, O |
| Gross External Debt | Q1, 2007 | 6/5/2007 | Q | Q | Q | ||
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
Foreign and domestic financing.
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
Including currency and maturity composition.
Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Not Available (NA).
Reflects the assessment provided in the data ROSC (published on November 22, 2005, and based on the findings of the mission that took place during February 1-15, 2005) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).
Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.
Iceland: Table of Common Indicators Required for Surveillance
(As of July 6, 2007)
| Date of latest observation |
Date received |
Frequency of Data6 |
Frequency of Reporting6 |
Frequency of publication6 |
Memo Items: | ||
|---|---|---|---|---|---|---|---|
| Data Quality – Methodological soundness7 |
Data Quality – Accuracy and reliability8 |
||||||
| Exchange Rates | Jun 2007 | Jul 2007 | D and M | D and M | D and M | ||
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | May 2007 | 6/15/2007 | M | M | M | ||
| Reserve/Base Money | May 2007 | 6/21/2007 | M | M | M | LO, O, LO, LO | LO, O, O, O, O |
| Broad Money | May 2007 | 6/21/2007 | M | M | M | ||
| Central Bank Balance Sheet | Jun 2007 | 7/5/2007 | M | M | M | ||
| Consolidated Balance Sheet of the Banking System | May 2007 | 6/21/2007 | M | M | M | ||
| Interest Rates2 | 7/6/2007 | 7/6/2007 | D | D | D | ||
| Consumer Price Index | Jun 2007 | 6/12/2007 | M | M | M | O, O, O, O | O, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing3 – General Government4 | 2006 | 4/24/2007 | A | A | A | O, LO, O, LO | LO, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing3– Central Government | 2006 | 4/24/2007 | A | A | A | ||
| Stocks of Central Government and Central Government-Guaranteed Debt5 | 2006 | 6/19/2007 | A | A | A | ||
| External Current Account Balance | Q1, 2007 | 6/5/2007 | Q | Q | Q | O, O, LO, O | LO, O, O, O, O |
| Exports and Imports of Goods and Services | May 2007 | 6/29/2007 | M | M | M | ||
| GDP/GNP | Q1, 2007 | 6/13/2007 | Q | Q | Q | O, LO, O, LO | LO, O, LO, LO, O |
| Gross External Debt | Q1, 2007 | 6/5/2007 | Q | Q | Q | ||
Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.
Foreign and domestic financing.
The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
Including currency and maturity composition.
Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Not Available (NA).
Reflects the assessment provided in the data ROSC (published on November 22, 2005, and based on the findings of the mission that took place during February 1-15, 2005) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).
Same as footnote 7, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.