Investment, Not Cuts, in 2021 Budget Bill Skip to content

Investment, Not Cuts, in 2021 Budget Bill

By Yelena

Bjarni Benediktsson kynning fjármálafrumvarp 2021
Photo: A screenshot from RÚV.

The main goal of the government’s new five-year budget plan is to stop accumulating debt by the end of 2025. Minister of Finance Bjarni Benediktsson presented the government’s 2021 budget bill and its financial plan until 2025 at a press conference this morning. Parliament opens its fall session this afternoon.

Deficit Could Reach ISK 900 billion by 2025

Bjarni stated in the press conference that the ideology behind the bill was to use the state’s strong financial position to tackle the current recession using investment rather that cuts. Iceland’s treasury has been improving its debt ratio in recent years, which puts it in a good position for taking loans in order to invest in the short term. Borrowing money and operating at a deficit over the coming years, says Bjarni, is expected to leave Iceland’s economy in a better position after the recession in terms of GDP and employment. Tackling the crisis by making drastic cuts, he stated, is “really not an option.”

The treasury’s deficit is expected to amount to ISK 265 billion ($1.9 billion/€1.6 billion) next year and could amount to as much as ISK 900 billion ($6.5 billion/€5.5 billion) by the end of 2025. Annual deficit is expected to decrease year on year, and the main goal of the budget plan is that the treasury’s debt ratio stops worsening by the end of 2025.

Local COVID-19 Restrictions Influence Spending

Bjarni showed statistics on how Icelanders’ spending habits correlated with the rise and fall of domestic infections. Icelanders’ domestic consumption rose by as much as 20% this summer, when COVID-19 restrictions were eased and infection rates were low, but fell significantly during the height of outbreaks this year and under the tightest restrictions. These numbers demonstrate the economic importance of containing the SARS-CoV-2 virus locally, according to Bjarni.

Iceland’s GDP is expected to drop 7.6% this year, according to Statistics Iceland’s newest forecast. The projections for 2021 are less dire, expecting a recovery and 3.9% growth.

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