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Katrín Jakobsdóttir
Photo: Katrín Jakobsdóttir .

Icelandic Government Takes Measures to Protect Economy from Impact of COVID-19

At a meeting this morning, the Icelandic government approved an action plan intended to minimise the negative impact of COVID-19 on the Icelandic economy. Due to the drastically changed economic conditions, the government is revising its fiscal policy and will delay presenting its budget bill until May.

“The COVID-19 epidemic will have a direct impact on economic activity and the state of the National Treasury,” a government press release reads. The national economy is in a good position to absorb the impact, the press release goes on to say, but is nevertheless “vulnerable to the external effects” of the virus, which can “already be noted” in the economy.

In order to protect the economy, the Icelandic government will take the following measures:

  • Companies that experience temporary operational difficulties due to a drop in income will be given leeway, e.g. with later deadlines to submit taxes and public fees.
  • Consideration will be given to temporarily suspending fees that are burdensome for tourism companies, e.g. overnight tax, which will be temporarily suspended.
  • A marketing campaign will be launched overseas when conditions are created to promote Iceland as a destination, as well as a campaign to encourage Icelanders to travel domestically.
  • Measures will be taken that can stimulate private consumption and demand, e.g. with tax or support systems.
  • Increased energy will be put into public construction projects in the current year and the coming one.
  • Active consultation will be established between the government and the Icelandic Financial Services Association on their response to the foreseeable liquidity and payment difficulties of companies in tourism.
  • The Housing Financing Fund’s deposits with the Central Bank will be transferred to banks’ deposit accounts to support banks’ and creditors’ leverage to lend to their clients.

The government is currently reviewing the current fiscal policy in consideration of the altered economic circumstances. The presentation of the new budget bill, originally scheduled for April 1, has been delayed until after mid-May.

“In conjunction with work on the revision of the fiscal policy, a special investment effort is underway which will entail a significant increase in the National Treasury’s investment level in the coming years,” the press release states. The plan assumes the planned sale of Íslandsbanki, currently in state ownership, will occur during the budget period in whole or in part, “but only if conditions for sale are favourable.” A bill on collaborative investment in road works will also be presented in the spring, a further effort to support future investment.

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