Icelandic State Applies for International Loan for Grindavík

Grindavik from above

The Icelandic state has applied for a line of credit from the Council of Europe Development Bank due to Grindavík, RÚV reports. Government response measures for the earthquake- and volcano-hit town are expected to cost up to ISK 100 billion [$718 million, €668 million]. Business owners in the town say the government is leaving them in the lurch.

Roads, buildings, and power lines damaged

Grindavík (pop. 3,600), a fishing town on Iceland’s Reykjanes peninsula, was evacuated on November 10, 2023 due to powerful seismic activity that heavily damaged buildings, homes, and roads in the town. Since December, five eruptions have occurred just north of the town, including one that is currently ongoing. Lava from the eruptions has cut off roads in and out of the town on several occasions, damaged power and water lines to the town, and destroyed three houses at its north edge.

While the town has been largely evacuated of residents since November 2023, some businesses do continue to operate there, particularly in the harbour. Since the seismic and volcanic activity began, they have had to contend with repeated power outages, evacuations, and closures of the town by civil protection authorities.

Line of credit won’t necessarily be used

The Icelandic government’s response measures to the ongoing events have focused on buying up residential properties from residents who want to relocate, building lava barriers around the town, and repairing public infrastructure in Grindavík. The cost of the first two measures is projected to be around ISK 70-80 billion [$503-575 million, €467-534 million], while the cost of repairs to return the town to an inhabitable state is projected at ISK 14-19 billion [$101-137 million, €94-127 million].

“Then we need to draw on some lines of credit, one of the things we have applied for is a loan from the Council of Europe Development Bank,” stated Minister of Finance Sigurður Ingi. “That’s not to say that we need to use it, it’s more of a precaution in order to have the possibility because no one can tell us the exact scope of the projects we have to undertake.”

Grindavík business owners unhappy with support measures

The government of Iceland has drafted a bill outlining continuing support measures for the town of Grindavík. It has received 45 comments on the official consultation portal, most criticising the lack of support for the town’s businesses. Existing measures have largely been centred on compensating loss of income, but business owners have criticised that the government is not offering to buy up their properties as it has done for Grindavík’s residents.

The bill has gone through its first reading in Parliament and is being reviewed in the Economic Affairs and Trade Committee.

Government to Buy Grindavík Homes

Grindavík

The Icelandic government is offering to buy all residential housing owned by individuals in Grindavík and take over the mortgages on the properties. The cost is estimated to be ISK 61 Billion [$443 Million, €411 Million], according to a press release from the ministries in charge of the programme.

The January 14 volcanic eruption near Grindavík destroyed three houses, caused crevasses to form across town, and displaced the 3,800 inhabitants for the foreseeable future. The town had already been evacuated once before, on November 10 last year, due to seismic activity. The latest eruption on February 8 damaged a hot water pipeline, cutting off heating for Reykjanes homes.

Bill introduced this week

During a meeting of the cabinet of ministers Friday, a bill on the purchase was agreed upon. It was put into an online consultation process and will be introduced in Alþingi, Iceland’s parliament this week. Over 300 comments on the bill’s contents have already been submitted. The government has conferred with opposition party parliamentarians and introduced the bill to the municipal government of Grindavík.

A real estate company, Þórkatla, will be established to handle the purchase and management of the properties, which it will purchase for 95% of their official fire insurance value, with the relevant mortgages deducted. The company will be financed by the treasury and with loans from financial institutions. The state is expected to receive reimbursements from the Natural catastrophe insurance of Iceland for any properties rendered uninhabitable.

Grindavík residents will have until July 1 to apply to enter the programme and have their homes bought.

Treasury Debt Falls by ISK 88 Billion

Treasury debt has fallen by over ISK 88 billion ($809m/€710m) over the past 12 months, Morgunblaðiðreports. In April 2018, Iceland’s treasury debt amounted to ISK 866 billion ($8b/€7b), or around 32% of GDP.

“This is largely explained by the sale of the state’s share in Arionbanki bank and the payment of government bonds due to Arionbanki,” stated Minister of Finance Bjarni Benediktsson. “We have used these funds to settle debts, in addition to lowering the government’s credit balance at the Central Bank of Iceland.”

Over the past 12 months, the Central Bank of Iceland has bought back bonds issued in 2008 to refinance banks after the banking collapse.

Moddy’s Investor’s Service changed the Government of Iceland’s sovereign rating outlook to positive from stable last month, citing the lowering of government debt and the country’s improving economic resilience as the reasons behind the change.