The Executive Board of the International Monetary Fund (IMF) approved yesterday the third review of the Economic Recovery Program agreed to by the IMF and the Icelandic government.
Five ministers of the Icelandic government at parliament; Economics Minister Árnason is the second from the left. Photo by Páll Kjartansson.
This opens the way for disbursement of the third tranche of the fund’s loan provided to the Icelandic government which amounts to around ISK 19 billion (USD 167 million, EUR 122 million), a press release from the Ministry of Economic Affairs states.
In addition, loans from Poland and the Nordic countries are also expected to be forthcoming following the review.
“[Yesterday’s] approval is a very significant statement of trust in the Icelandic economy and recognition that we have been successful in achieving our stated objectives,” said Árni Páll Árnason, Minister of Economic Affairs.
“We welcome the expeditious approval of the review and look forward to dealing with the next urgent tasks on our agenda which have been defined through our very effective cooperation with the IMF’s experts. Our goal remains to resolve the consequences of the banks’ collapse by the end of the program period by laying a solid foundation for steady and sustainable growth in the long-term,” the minister added.
Upon the conclusion of the review, the Icelandic government sent the IMF a new letter of intent, describing Iceland’s economic policy. It lays out the basis for economic recovery and describes the considerable progress made since the collapse.
The improved fiscal balance has become evident in growing trust, ISK appreciation and greater economic stability since the end of 2009. Unemployment is thought to have peaked, inflation is dropping rapidly and positive economic growth is expected in the latter half of 2010 according to forecasts.
Although public debt is relatively high, it is considered to be sustainable. The fiscal deficit as a ratio of GDP of 14 percent at mid-2009 is forecast to decrease to nine percent in 2010. Furthermore, credit default swap (CDS) spreads on treasury debt have dropped to around 300 bps.
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