Abstract
This 2013 Article IV Consultation highlights that Iceland’s economy is on a path to recovery, but legacy vulnerabilities are weighing on growth. GDP growth—which reached 2.9 percent in 2011—slowed to 1.6 percent in 2012 amid private sector deleveraging and weak external demand. Unemployment has continued to decline however, standing at 5.1 percent in May, down from a peak of 9.2 percent in September 2010. Inflation has come down to 3.3 percent in June from a peak of 18.6 in January 2009, but remains above the central bank’s target of 2½ percent. The outlook is for modest growth, declining inflation, and improving fiscal and external position.
Fund Relations
(As of May 31, 2013)
Membership Status: Iceland became a member of the Fund on December 27, 1945
General Resources Account:
| SDR Million | Percent Quota | |
|---|---|---|
| Quota | 117.60 | 100.00 |
| Fund holdings of currency | ||
| (Exchange Rate) | 610.73 | 519.33 |
| Reserve Tranche Position | 18.75 | 15.95 |
| SDR Million | Percent Quota | |
|---|---|---|
| Quota | 117.60 | 100.00 |
| Fund holdings of currency | ||
| (Exchange Rate) | 610.73 | 519.33 |
| Reserve Tranche Position | 18.75 | 15.95 |
SDR Department:
| SDR Millions | Percent Allocation | |
|---|---|---|
| Net cumulative allocations | 112.18 | 100.00 |
| Holdings | 3.87 | 3.45 |
| SDR Millions | Percent Allocation | |
|---|---|---|
| Net cumulative allocations | 112.18 | 100.00 |
| Holdings | 3.87 | 3.45 |
Outstanding Purchases and Loans:
| SDR Million | Percent Quota | |
|---|---|---|
| Stand-by Arrangements | 511.88 | 435.27 |
| SDR Million | Percent Quota | |
|---|---|---|
| Stand-by Arrangements | 511.88 | 435.27 |
Latest Financial Arrangements:
| Type | Date of Arrangement | Expiration Date | Amount Approved (SDR Million) | Amount Drawn (SDR Million) |
|---|---|---|---|---|
| Stand-By | Nov. 19, 2008 | Aug 31, 2011 | 1,400.00 | 1,400.00 |
| Type | Date of Arrangement | Expiration Date | Amount Approved (SDR Million) | Amount Drawn (SDR Million) |
|---|---|---|---|---|
| Stand-By | Nov. 19, 2008 | Aug 31, 2011 | 1,400.00 | 1,400.00 |
Projected Payments to the Fund 1 (SDR Million; based on existing use of resources and present holdings of SDRs):
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Principal | 341.25 | 170.63 | |||
| Charges/Interest | 4.97 | 9.85 | 6.31 | 1.06 | 0.07 |
| Total | 4.97 | 9.85 | 347.56 | 171.69 | 0.07 |
| Forthcoming | |||||
|---|---|---|---|---|---|
| 2013 | 2014 | 2015 | 2016 | 2017 | |
| Principal | 341.25 | 170.63 | |||
| Charges/Interest | 4.97 | 9.85 | 6.31 | 1.06 | 0.07 |
| Total | 4.97 | 9.85 | 347.56 | 171.69 | 0.07 |
Implementation of HIPC Initiative: Not applicable
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) the principal payments from holdings of amortizing bonds, and (iii) payments on the indexation of principal from holdings of amortizing 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. The Executive Board has approved these restrictions until March 18, 2014.
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 2012 Article IV Consultation were held in Reykjavik during February 21–March 22, 2012. The Staff Report (country report No. 12/89) was considered by the Executive Board on April 6, 2012. Article IV consultations with Iceland are currently held on a 12-month cycle.
Technical Assistance:
| Department | Purpose | Date |
|---|---|---|
| MCM | Capital account liberalization | March 2010 |
| MCM | Reserves building and liquidity management | June 2010 |
| MCM | Public debt management | July 2010 |
| FAD | Fiscal framework issues | August 2010 |
| MCM | Capital Control Liberalization | November 2010 |
| MCM | Liquidity management | March 2011 |
| FAD | Tax policy | March 2011 |
| STA | External Sector Statistics | April 2011 |
| FAD | Organic Budget Law | October 2011 |
| FAD | Follow up on Organic Budget Law | May 2012 |
| Department | Purpose | Date |
|---|---|---|
| MCM | Capital account liberalization | March 2010 |
| MCM | Reserves building and liquidity management | June 2010 |
| MCM | Public debt management | July 2010 |
| FAD | Fiscal framework issues | August 2010 |
| MCM | Capital Control Liberalization | November 2010 |
| MCM | Liquidity management | March 2011 |
| FAD | Tax policy | March 2011 |
| STA | External Sector Statistics | April 2011 |
| FAD | Organic Budget Law | October 2011 |
| FAD | Follow up on Organic Budget Law | May 2012 |
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 June 21, 2013)
Iceland: Table of Common Indicators Required for Surveillance
(As of June 21, 2013)
| Date of latest observation | Date received | Freq. of Data | Freq. of Reporting | Freq.of publication | Memo Items: | ||
|---|---|---|---|---|---|---|---|
| Data Quality – Methodological soundness | Data Quality – Accuracy and reliability | ||||||
| Exchange Rates | Jun. 21, 13 | Jun. 21, 13 | D and M | D and M | D and M | ||
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities | May 2013 | Jun. 7, 13 | M | M | M | ||
| Reserve/Base Money | May 31, 13 | Jun. 7, 13 | M | M | M | LO, O, LO, LO | LO, O, O, O, O |
| Broad Money | Apr. 2013 | May 27, 13 | M | M | M | ||
| Central Bank Balance Sheet | May 2013 | Jun. 7, 13 | M | M | M | ||
| Consolidated Balance Sheet of the Banking System | Apr. 2013 | May 27, 13 | M | M | M | ||
| Interest Rates | Jun. 21, 13 | Jun. 21, 13 | D | D | D | ||
| Consumer Price Index | May 2013 | May 29, 13 | M | M | M | O, O, O, O | O, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing – General Government | Q1, 2013 | Jun. 2013 | Q | Q | Q | O, LO, O, LO | LO, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing– Central Government | Apr. 2013 | May 2013 | M and Q | M and Q | M and Q | ||
| Stocks of Central Government and Central Government-Guaranteed Debt | May 2013 | Jun. 2013 | M | M | M | ||
| External Current Account Balance | Q1, 2013 | Jun. 3, 13 | Q | Q | Q | O, O, LO, O | LO, O, O, O, O |
| Exports and Imports of Goods and Services | Q1, 2013 | Jun. 7, 13 | Q | Q | Q | ||
| GDP/GNP | Q1, 2013 | Jun. 7, 13 | Q | Q | Q | O, LO, O, LO | LO, O, LO, LO, O |
| Gross External Debt | Q1, 2013 | Jun. 3, 13 | Q | Q | Q |
Iceland: Table of Common Indicators Required for Surveillance
(As of June 21, 2013)
| Date of latest observation | Date received | Freq. of Data | Freq. of Reporting | Freq.of publication | Memo Items: | ||
|---|---|---|---|---|---|---|---|
| Data Quality – Methodological soundness | Data Quality – Accuracy and reliability | ||||||
| Exchange Rates | Jun. 21, 13 | Jun. 21, 13 | D and M | D and M | D and M | ||
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities | May 2013 | Jun. 7, 13 | M | M | M | ||
| Reserve/Base Money | May 31, 13 | Jun. 7, 13 | M | M | M | LO, O, LO, LO | LO, O, O, O, O |
| Broad Money | Apr. 2013 | May 27, 13 | M | M | M | ||
| Central Bank Balance Sheet | May 2013 | Jun. 7, 13 | M | M | M | ||
| Consolidated Balance Sheet of the Banking System | Apr. 2013 | May 27, 13 | M | M | M | ||
| Interest Rates | Jun. 21, 13 | Jun. 21, 13 | D | D | D | ||
| Consumer Price Index | May 2013 | May 29, 13 | M | M | M | O, O, O, O | O, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing – General Government | Q1, 2013 | Jun. 2013 | Q | Q | Q | O, LO, O, LO | LO, O, O, O, O |
| Revenue, Expenditure, Balance and Composition of Financing– Central Government | Apr. 2013 | May 2013 | M and Q | M and Q | M and Q | ||
| Stocks of Central Government and Central Government-Guaranteed Debt | May 2013 | Jun. 2013 | M | M | M | ||
| External Current Account Balance | Q1, 2013 | Jun. 3, 13 | Q | Q | Q | O, O, LO, O | LO, O, O, O, O |
| Exports and Imports of Goods and Services | Q1, 2013 | Jun. 7, 13 | Q | Q | Q | ||
| GDP/GNP | Q1, 2013 | Jun. 7, 13 | Q | Q | Q | O, LO, O, LO | LO, O, LO, LO, O |
| Gross External Debt | Q1, 2013 | Jun. 3, 13 | Q | Q | Q |
When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section