Iceland: Staff Report For The 2012 Article IV Consultation And First Post-Program Monitoring Discussion—Informational Annex
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar Close
Publication Date:
12 Apr 2012
eISBN:
9781475503111
Language:
English
Keywords:
ISCR; CR; inflation outlook; inflation expectation; FDI route; anchor inflation expectation; Icelandic krona; SDR million; holdings of SDR; External sector statistics; Financial statistics; Government debt management; Monetary statistics; Capital account liberalization
Download PDF (283.7 KB)

The 2012 Article IV Consultation reports that Iceland’s fiscal consolidation is continuing, but at a slower pace. Moderate expenditure overruns materialized in 2011, which will partly spill over to 2012 and the medium term. A key priority is to put the medium-term fiscal path back on track, which can be achieved with additional fiscal measures of ½ percent of GDP. Lifting the capital controls remains an overarching policy challenge, given the significant locked-in funds.

Abstract

The 2012 Article IV Consultation reports that Iceland’s fiscal consolidation is continuing, but at a slower pace. Moderate expenditure overruns materialized in 2011, which will partly spill over to 2012 and the medium term. A key priority is to put the medium-term fiscal path back on track, which can be achieved with additional fiscal measures of ½ percent of GDP. Lifting the capital controls remains an overarching policy challenge, given the significant locked-in funds.

FUND RELATIONS

(As of February 29, 2012)

Membership Status: Iceland became a member of the Fund on December 27, 1945

General Resources Account:

article image

Latest Financial Arrangements:

article image

Projected Payments to the Fund 1 (SDR Million; based on existing use of resources and present holdings of SDRs):

article image

Implementation of HIPC Initiative: Not applicable

SDR Department:

article image

Outstanding Purchases and Loans:

article image

Implementation of Multilateral Debt Relief Initiative (MDRI): Not applicable

Implementation of Post-Catastrophe Debt Relief (PCDR): Not applicable

Exchange Rate Arrangements: The Icelandic krona is floating effective October 2008. Iceland accepted the obligations under Article VIII, Sections 2(a), 3, and 4 but maintains exchange restrictions arising from limitations imposed on the conversion and transfer of (i) interest on bonds (whose transfer the FX rules apportion depending on the period of the holding), (ii) amortized principal on bonds, and (iii) the indexed portion of principal on bonds. In addition, Iceland has in place measures that constitute exchange restrictions imposed for security reasons related to financial transactions based on UN Security Council Resolutions.

Safeguards Assessment: The 2009 assessment concluded that the CBI’s overall control environment was broadly appropriate for a small central bank, with good controls in the accounting and financial reporting area. The CBI’s external and internal audit procedures practices were not found to be in line with international practices, however, and the foreign reserves management area would benefit from development. The authorities have already taken steps to implement safeguard recommendations, notably by appointing an international audit firm under the auspices of the Auditor General to conduct annual external audits of the CBI in line with international standards, starting with financial year 2009. Internal audit was also outsourced. Work on other recommendations, such as the reserves management guidelines, is in progress.

Last Article IV Consultation: Discussions for the 2010 Article IV Consultation were held in Reykjavik during June 14–28, 2010 and July 19–22, 2010. The Staff Report (country report No. 10/176) was considered by the Executive Board on September 29, 2010. Article IV consultations with Iceland are currently held on a 12-month cycle.

Technical Assistance :

article image

Resident Representative: Mr. Franek Rozwadowski assumed the position in March 2009.

STATISTICAL ISSUES

Data provision to the Fund is adequate for surveillance purposes. Iceland subscribed to the Special Data Dissemination Standard (SDDS) in 1996, and is in observance of the SDDS 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). 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.

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. A breakdown is disseminated by industry back to the beginning of the production approach in 1973. Data on GNP and national income, in current and constant prices, as well as data on net savings for the economy as a whole, are also disseminated. The quarterly data are seasonally adjusted. The authorities publish a Treasury cash flow statement on a monthly basis, quarterly data on the general government operations, and annual data on the general government operations and financial assets and liabilities. 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). 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).

The CBI made good progress in improving external sector statistics based on 2011 TA mission’s recommendations. Particularly, (i) the coverage was expanded by including the data on portfolio investment in equity capital, as well as in securities on secondary market; (ii) data on FDI and on other investment income are compiled in line with balance of payments methodology; (iii) remittances data were improved based on information from money transfer operators; and (iv) the old banks’ transactions are recorded broken down by instruments.

On 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, M3/Broad Money measure includes deposits of the central government, positions of commercial banks with private nonfinancial corporations include some positions with public nonfinancial corporations, and the latter include some positions with private nonfinancial corporations. Beginning in February 2010, the CBI reports for publication in IFS monetary data for central bank and other depository corporations using the Standardized Report Forms (SRFs).

Iceland: Table of Common Indicators Required for Surveillance

(As of March 15, 2012)

article image
1

When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Iceland: Staff Report for the 2012 Article IV Consultation and First Post- Program Monitoring Discussion
Author:
International Monetary Fund
Volume/Issue:
Volume 2012: Issue 089
Publisher:
International Monetary Fund
ISBN:
9781475503111
ISSN:
1934-7685
Pages:
69
DOI:
https://doi.org/10.5089/9781475503111.002