The report made by a task force on behalf of the International Monetary Fund in relation to the IMF’s second review of the economic stabilization program for Iceland was released last week. Its main conclusion is that Iceland’s financial position is better today than had been expected when the program was launched following the banking collapse in October 2008.
Copyright: Icelandic Photo Agency.
Three of the program’s key issues have been completed and the fourth, the reorganization of the savings banks, is in its final stages. All of the program’s goals that were supposed to be reached at this point in time have been reached, visir.is reports.
The report also mentions that the Icelandic króna has appreciated constantly since the first review of the program and the report describes the positive development of the inflation and trade balance since the end of 2008 as “striking.”
New information on the financial situation of the private sector indicates that the weaknesses of the economy are not as severe as originally thought.
However, the report points out that although the economy is performing better than expected, the difficult debt situation can compromise its growth for some time.
The IMF task force reasons in the report that economic growth is being stalled by delays in large-scale operations. However, changes to the monetary policy and the reorganization of debt in the private sector counterweigh that delay somewhat.
The IMF assumes that the country’s total debt situation will peak this year and amount to 300 percent of the gross domestic product.
Next year the debt will begin to decrease, however more slowly than hoped. The reason is, among other factors, the reevaluation of the timing of the settlement of the claims to the old banks. Also, significant real depreciation of the exchange rate of the króna could cause problems.
The outlook for the sustainability of the state’s debts has improved, especially because an evaluation for the recollection of receivable claims held by the state since the banking collapse in 2008 show that higher amounts might be returned to the treasury than earlier believed.
Click here to read more about the IMF’s review of Iceland’s program.