17 October 2023

Iceland’s balance of payments, international investment position, and vulnerabilities

A Central Bank of Iceland publication, issued today, focuses on Iceland’s balance of payments, capital inflows and outflows, external position, and vulnerabilities, as well as presenting a balance of payments scenario for 2023 and 2024 to estimate the likeliest developments in the balance of payments and assess the economy’s resilience to external shocks.

As is explained in the report, the Icelandic economy was resilient when the COVID-19 pandemic struck in 2020, enabling the authorities to mitigate the impact of the pandemic, including the impact on the balance of payments. National saving declined markedly between 2019 and 2021. The main determinants were a 30% contraction in exports in 2020 and fiscal measures taken in response to the pandemic. After a consistent current account surplus from 2009 onwards, Iceland recorded a current account deficit in 2021. When pandemic-related public health measures were lifted in Iceland and its trading partners, export revenues increased again, hitting a historical high in 2022. By mid-2023, Iceland’s net international investment position was positive by 29% of GDP and its external liabilities equalled 100% of GDP. The debt ratio is the lowest since the turn of the century.

In the balance of payments scenario depicted in the report, a small current account deficit is expected in 2023 and 2024. It is assumed that the deficit will be financed with capital inflows, which will push external liabilities higher. The stock of highly liquid króna-denominated assets held by non-residents is small in historical context, and risks stemming from them are therefore limited. The net external position is projected at 25% of GDP at the end of 2024, and the international reserves, which stood at 19% of GDP at the end of September, will remain ample relative to key reserve adequacy metrics.

Iceland’s balance of payments, international investment position, and vulnerabilities was previously issued in 2021. In publishing this report, the Central Bank of Iceland seeks to provide detailed information on the balance of payments and exchange rate and currency matters.

See here: Balance of payments, external position, and vulnerabilities 

See the 2021 publication here: Special Publication 14: Iceland’s balance of payments and international investment position

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