03 June 2013

Underlying external position of the economy at the end of the first quarter of 2013

The Central Bank of Iceland has published a preliminary summary of the balance of payments for Q1/2013 and the external position at the end of the quarter.

For further information, the Central Bank is now publishing a concurrent estimate of the underlying net external position (international investment position, or IIP) of the economy. Assessing the underlying position entails estimating the position that will result when the domestic and foreign assets of the deposit money banks (DMBs) in winding–up proceedings have been sold and the proceeds distributed to creditors. Furthermore, several non-financial domestic companies currently undergoing winding-up proceedings are omitted (for further explanation, see Central Bank Special Publication no. 9: “Iceland’s underlying external position and balance of payments”, published on 18 March 2013). In the recent past, the Central Bank has also omitted the effects of pharmaceuticals company Actavis in its estimates of the underlying external position of the economy. Actavis was sold in late 2012, and in the company’s assets and liabilities were subsequently redistributed. This significantly reduced Actavis’ effect on the IIP, and the Central Bank is of the opinion that there is no longer any reason to omit the company from the calculations, even though it still affects the IIP somewhat, or by about –11% of GDP as of the end of Q1.

Book value according to the winding–up committees’ accounts is used to assess the assets of the DMBs in winding–up proceedings. The classification of creditors as domestic or foreign is carried out with reference to approved claims according to creditors’ registers, itemised by underlying assets. It is appropriate to note that the value of the assets of the DMBs in winding–up proceedings is uncertain, as is the proportional classification of creditors into foreign and domestic. Factors such as the settlement exchange rate of currencies, netting of debt, and the resolution of disputes about specific claims will ultimately determine the position of the estates and thereby the effect on the IIP.

See the full press release here: Underlying external position of the economy at the end of the first quarter of 2013 (pdf)

No. 18/2013 
3 June 2013