09 May 2023

IMF mission concludes Article IV Consultation with Icelandic Government and other stakeholders

The International Monetary Fund published its Staff Concluding Statement today, after meeting with the Icelandic Government and other stakeholders over the past two weeks. The meetings were part of the Fund’s annual Article IV Consultation on developments and prospects for the Icelandic economy. Similar appraisals are carried out by IMF staff in all member countries. The Article IV mission is led by Magnus Saxegaard.

Another IMF mission has also been working in Iceland over the past winter in connection with the Fund’s Financial Sector Assessment Program (FSAP). The head of the FSAP mission is Étienne Yehoue.

In the Concluding Statement, published today, the IMF notes that “Iceland has shown remarkable resilience to multiple shocks since 2019.” The Statement goes on to point out that an overheated economy and inflation far above target call for tight macroeconomic policies. Particular risks lie in persistent inflation, labour market tension in connection with forthcoming wage negotiations, and tighter global financial conditions. The upcoming round of wage negotiations represents an opportunity to align real wages and productivity growth more effectively.

The FSAP appraisal revealed that the financial system is highly resilient, although vulnerabilities and gaps exist as well. The banks’ capital position is strong and should enable them to withstand shocks. Their liquidity was also deemed adequate but indicated that foreign funding could be a potential vulnerability. Although financial regulation and supervision were deemed adequate overall, the Fund pointed out that the regulatory framework for pension fund activities should be strengthened.

The IMF missions’ reports will be discussed by the Fund’s Executive Board in mid-June and then published.

The Concluding Statement can be found here: Iceland: Staff Concluding Statement of the 2023 Article IV Mission

Link to material on Iceland on the IMF website.