| ICELAND |
Economy:
Iceland's Scandinavian-type social-market economy combines a capitalist structure and
free-market principles with an extensive welfare system. Prior to the 2008 crisis, Iceland
had achieved high growth, low unemployment, and a remarkably even distribution of
income. The economy depends heavily on the fishing industry, which provides 40% of
export earnings, more than 12% of GDP, and employs 7% of the work force. It remains
sensitive to declining fish stocks as well as to fluctuations in world prices for its main
exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been
diversifying into manufacturing and service industries in the last decade, particularly within
the fields of software production, biotechnology, and tourism. Abundant geothermal and
hydropower sources have attracted substantial foreign investment in the aluminum sector
and boosted economic growth, although the financial crisis has put several investment
projects on hold. Much of Iceland's economic growth in recent years came as the result of
a boom in domestic demand following the rapid expansion of the country's financial sector.
Domestic banks expanded aggressively in foreign markets, and consumers and
businesses borrowed heavily in foreign currencies, following the privatization of the
banking sector in the early 2000s. Worsening global financial conditions throughout 2008
resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign
exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the
country's GDP, became unsustainable. Iceland's three largest banks collapsed in late
2008. The country secured over $10 billion in loans from the IMF and other countries to
stabilize its currency and financial sector, and to back government guarantees for foreign
deposits in Icelandic banks. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in
February 2009. GDP fell 3.4% in 2010. Since the collapse of Iceland's financial sector,
government economic priorities have included: stabilizing the krona, reducing Iceland's
high budget deficit, containing inflation, restructuring the financial sector, and diversifying
the economy. Three new banks were established to take over the domestic assets of the
collapsed banks. Two of them have foreign majority ownership, while the State holds a
majority of the shares of the third. British and Dutch authorities have pressed claims
totaling over $5 billion against Iceland to compensate their citizens for losses suffered on
deposits held in the failed Icelandic bank, Landsbanki Islands. Iceland agreed to new terms
with the UK and the Netherlands to compensate British and Dutch depositors, but the
agreement must first be approved by the Icelandic President. Iceland began accession
negotiations with the EU in July 2010; however, public support has dropped substantially
because of concern about losing control over fishing resources and in reaction to
measures taken by Brussels during the ongoing Eurozone crisis.
GDP (purchasing power parity):
$11.82 billion (2010 est.)
country comparison to the world: 145
$12.24 billion (2009 est.)
$13.15 billion (2008 est.)
note: data are in 2010 US dollars
GDP (official exchange rate):
$12.59 billion (2010 est.)
GDP - real growth rate:
-3.5% (2010 est.)
country comparison to the world: 210
-6.9% (2009 est.)
1.4% (2008 est.)
GDP - per capita (PPP):
$38,300 (2010 est.)
country comparison to the world: 25
$39,900 (2009 est.)
$43,200 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 5.5%
industry: 24.7%
services: 69.9% (2010 est.)
Exports - commodities:
fish and fish products 40%, aluminum, animal products, ferrosilicon, diatomite
Exports - partners:
Netherlands 30.71%, UK 12.73%, Germany 11.21%, Norway 5.75%, Spain 4.82% (2009)
Imports - commodities:
machinery and equipment, petroleum products, foodstuffs, textiles
Imports - partners:
Norway 12.97%, Netherlands 8.62%, Germany 8.3%, Sweden 8.03%, Denmark 7.27%, US
6.94%, China 4.98%, UK 4.55%, Brazil 4.09% (2009)
Summary extracted from IMF Report - Iceland: Sixth Review Under the SBA
and Proposal for Post-Program Monitoring (August 2011)
The exchange rate has stabilized. After a sharp depreciation at the onset of the crisis,
the krona settled at a competitive level, boosting net exports and avoiding a further
deterioration in private and public sector balance sheets which would have had a
severe adverse impact on domestic demand. Capital controls played a vital role in
preventing exchange rate overshooting, and the orderly current account adjustment
and incipient return of confidence has enabled the authorities to begin liberalizing the
controls.
Significant progress has been made in putting public finances on a sustainable path.
The authorities have taken 10 percent of GDP in revenue and expenditure measures,
corresponding to a primary balance improvement of 6 percent between 2009
and 2011. This very impressive consolidation program—undertaken in the midst of
the deepest recession in Iceland’s modern history—has placed the public debt ratio on
a declining path and made the authorities’ goal of a public debt ratio of 60 percent of
GDP over the longer-term achievable.
A new and significantly smaller banking system has emerged from the crisis, with
substantial private sector involvement. The banking system now holds assets of about
200 percent of GDP (one-fifth the size of the system pre-crisis) and is comprised of
14 institutions (23 before the crisis). This downsizing was largely achieved by
transferring domestic assets and deposits to new institutions and imposing losses on
general unsecured creditors. Work to address legacy vulnerabilities in the financial
system (including the high level of nonperforming loans, loan and deposit
concentration, and financial imbalances) is progressing. In particular, household and
corporate debt restructuring is finally advancing and will help restore bank and
private sector balance sheets.
Recent economic developments
A tentative economic recovery is underway. The economy returned to modest growth in
the first quarter of 2011, mainly on account of an increase in inventories of marine
products, which will be released as exports over the course of the year.
High frequency indicators suggest a strong pickup in the second quarter. Consumption is
supported by higher wages, social benefits, and a temporary interest rate subsidy; and
investment is being boosted both by projects in the power-intensive sectors and a
broad-based pickup in other sectors. However, the positive impact on GDP growth is being
moderated by rapid import growth (driven mainly by higher domestic demand). The
unemployment rate dropped to 6.7 percent in June from 7.6 percent in the same period
last year (and from 7.4 percent in May).
Click here to view full report
Banking
The Icelandic State took control of the three largest Icelandic banks following the
financial collapse in October 2008. Most of the domestic assets of these banks were
moved to new entities established for this purpose. A deal was negotiated with the
creditors of two of the old banks whereby they acquired majority ownership in the new
banks as compensation for transferred assets; creditors of the third bank acquired a
minority stake in its new bank. As of publication, the receivership committees of the old
banks, on behalf of its creditors, control their stakes in the new banks while the recently
established State Bank Shares Management Company controls the state’s shares. The
banks are run as profit-seeking companies and it is the policy of the government to
ensure fair competition. A number of smaller banks and financial institutions are also
active on the market.
Stock Exchange
The OMX Nordic Exchange operates the market for securities in Iceland and trades
various products. Activity has been limited since the crash, but the infrastructure is in
place. In 2010 99% of all volume on the OMX exchange in Iceland was in bonds. Daily
turnover was around $100 million in bonds and $1 million in equities. The Central Bank
frequently issues and auctions ISK-denominated government bonds and welcomes
foreign participation.
Iceland's Scandinavian-type social-market economy combines a capitalist structure and
free-market principles with an extensive welfare system. Prior to the 2008 crisis, Iceland
had achieved high growth, low unemployment, and a remarkably even distribution of
income. The economy depends heavily on the fishing industry, which provides 40% of
export earnings, more than 12% of GDP, and employs 7% of the work force. It remains
sensitive to declining fish stocks as well as to fluctuations in world prices for its main
exports: fish and fish products, aluminum, and ferrosilicon. Iceland's economy has been
diversifying into manufacturing and service industries in the last decade, particularly within
the fields of software production, biotechnology, and tourism. Abundant geothermal and
hydropower sources have attracted substantial foreign investment in the aluminum sector
and boosted economic growth, although the financial crisis has put several investment
projects on hold. Much of Iceland's economic growth in recent years came as the result of
a boom in domestic demand following the rapid expansion of the country's financial sector.
Domestic banks expanded aggressively in foreign markets, and consumers and
businesses borrowed heavily in foreign currencies, following the privatization of the
banking sector in the early 2000s. Worsening global financial conditions throughout 2008
resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign
exposure of Icelandic banks, whose loans and other assets totaled more than 10 times the
country's GDP, became unsustainable. Iceland's three largest banks collapsed in late
2008. The country secured over $10 billion in loans from the IMF and other countries to
stabilize its currency and financial sector, and to back government guarantees for foreign
deposits in Icelandic banks. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in
February 2009. GDP fell 3.4% in 2010. Since the collapse of Iceland's financial sector,
government economic priorities have included: stabilizing the krona, reducing Iceland's
high budget deficit, containing inflation, restructuring the financial sector, and diversifying
the economy. Three new banks were established to take over the domestic assets of the
collapsed banks. Two of them have foreign majority ownership, while the State holds a
majority of the shares of the third. British and Dutch authorities have pressed claims
totaling over $5 billion against Iceland to compensate their citizens for losses suffered on
deposits held in the failed Icelandic bank, Landsbanki Islands. Iceland agreed to new terms
with the UK and the Netherlands to compensate British and Dutch depositors, but the
agreement must first be approved by the Icelandic President. Iceland began accession
negotiations with the EU in July 2010; however, public support has dropped substantially
because of concern about losing control over fishing resources and in reaction to
measures taken by Brussels during the ongoing Eurozone crisis.
GDP (purchasing power parity):
$11.82 billion (2010 est.)
country comparison to the world: 145
$12.24 billion (2009 est.)
$13.15 billion (2008 est.)
note: data are in 2010 US dollars
GDP (official exchange rate):
$12.59 billion (2010 est.)
GDP - real growth rate:
-3.5% (2010 est.)
country comparison to the world: 210
-6.9% (2009 est.)
1.4% (2008 est.)
GDP - per capita (PPP):
$38,300 (2010 est.)
country comparison to the world: 25
$39,900 (2009 est.)
$43,200 (2008 est.)
note: data are in 2010 US dollars
GDP - composition by sector:
agriculture: 5.5%
industry: 24.7%
services: 69.9% (2010 est.)
Exports - commodities:
fish and fish products 40%, aluminum, animal products, ferrosilicon, diatomite
Exports - partners:
Netherlands 30.71%, UK 12.73%, Germany 11.21%, Norway 5.75%, Spain 4.82% (2009)
Imports - commodities:
machinery and equipment, petroleum products, foodstuffs, textiles
Imports - partners:
Norway 12.97%, Netherlands 8.62%, Germany 8.3%, Sweden 8.03%, Denmark 7.27%, US
6.94%, China 4.98%, UK 4.55%, Brazil 4.09% (2009)
Summary extracted from IMF Report - Iceland: Sixth Review Under the SBA
and Proposal for Post-Program Monitoring (August 2011)
The exchange rate has stabilized. After a sharp depreciation at the onset of the crisis,
the krona settled at a competitive level, boosting net exports and avoiding a further
deterioration in private and public sector balance sheets which would have had a
severe adverse impact on domestic demand. Capital controls played a vital role in
preventing exchange rate overshooting, and the orderly current account adjustment
and incipient return of confidence has enabled the authorities to begin liberalizing the
controls.
Significant progress has been made in putting public finances on a sustainable path.
The authorities have taken 10 percent of GDP in revenue and expenditure measures,
corresponding to a primary balance improvement of 6 percent between 2009
and 2011. This very impressive consolidation program—undertaken in the midst of
the deepest recession in Iceland’s modern history—has placed the public debt ratio on
a declining path and made the authorities’ goal of a public debt ratio of 60 percent of
GDP over the longer-term achievable.
A new and significantly smaller banking system has emerged from the crisis, with
substantial private sector involvement. The banking system now holds assets of about
200 percent of GDP (one-fifth the size of the system pre-crisis) and is comprised of
14 institutions (23 before the crisis). This downsizing was largely achieved by
transferring domestic assets and deposits to new institutions and imposing losses on
general unsecured creditors. Work to address legacy vulnerabilities in the financial
system (including the high level of nonperforming loans, loan and deposit
concentration, and financial imbalances) is progressing. In particular, household and
corporate debt restructuring is finally advancing and will help restore bank and
private sector balance sheets.
Recent economic developments
A tentative economic recovery is underway. The economy returned to modest growth in
the first quarter of 2011, mainly on account of an increase in inventories of marine
products, which will be released as exports over the course of the year.
High frequency indicators suggest a strong pickup in the second quarter. Consumption is
supported by higher wages, social benefits, and a temporary interest rate subsidy; and
investment is being boosted both by projects in the power-intensive sectors and a
broad-based pickup in other sectors. However, the positive impact on GDP growth is being
moderated by rapid import growth (driven mainly by higher domestic demand). The
unemployment rate dropped to 6.7 percent in June from 7.6 percent in the same period
last year (and from 7.4 percent in May).
Click here to view full report
Banking
The Icelandic State took control of the three largest Icelandic banks following the
financial collapse in October 2008. Most of the domestic assets of these banks were
moved to new entities established for this purpose. A deal was negotiated with the
creditors of two of the old banks whereby they acquired majority ownership in the new
banks as compensation for transferred assets; creditors of the third bank acquired a
minority stake in its new bank. As of publication, the receivership committees of the old
banks, on behalf of its creditors, control their stakes in the new banks while the recently
established State Bank Shares Management Company controls the state’s shares. The
banks are run as profit-seeking companies and it is the policy of the government to
ensure fair competition. A number of smaller banks and financial institutions are also
active on the market.
Stock Exchange
The OMX Nordic Exchange operates the market for securities in Iceland and trades
various products. Activity has been limited since the crash, but the infrastructure is in
place. In 2010 99% of all volume on the OMX exchange in Iceland was in bonds. Daily
turnover was around $100 million in bonds and $1 million in equities. The Central Bank
frequently issues and auctions ISK-denominated government bonds and welcomes
foreign participation.
Background:
Settled by Norwegian and Celtic (Scottish and
Irish) immigrants during the late 9th and 10th
centuries A.D., Iceland boasts the world's
oldest functioning legislative assembly, the
Althing, established in 930. Independent for
over 300 years, Iceland was subsequently
ruled by Norway and Denmark. Fallout from the
Askja volcano of 1875 devastated the Icelandic
economy and caused widespread famine. Over
the next quarter century, 20% of the island's
population emigrated, mostly to Canada and
the US. Limited home rule from Denmark was
granted in 1874 and complete independence
attained in 1944. The second half of the 20th
century saw substantial economic growth
driven primarily by the fishing industry. The
economy diversified greatly after the country
joined the European Economic Area in 1994,
but Iceland was especially hard hit by the
global financial crisis in the years following
2008. Literacy, longevity, and social cohesion
are first rate by world standards.
Government type:
constitutional republic
Capital:
name: Reykjavik
time difference: UTCIndependence:
1 December 1918 (became a sovereign state
under the Danish Crown);
17 June 1944 (from Denmark)
National holiday:
Independence Day, 17 June (1944)
Constitution:
16 June 1944, effective 17 June 1944;
amended many times
Legal system:
civil law system based on Danish law; has not
accepted compulsory ICJ jurisdiction
Suffrage:
18 years of age; universal
Government:
Chief of state: President Olafur Ragnar
GRIMSSON (since 1 August 1996)
head of government: Prime Minister Johanna
SIGURDARDOTTIR (since 1 February 2009);
cabinet: Cabinet appointed by the prime
minister
elections: president, a largely ceremonial post,
elected by popular vote for a four-year term
(no term limits); election last held on 28 June
2004 (next to be held in June 2012); following
legislative elections, the leader of the majority
party or the leader of the majority coalition
usually the prime minister
note: the presidential election of 28 June 2008
was not held because Olafur Ragnar
GRIMSSON had no challengers; he was sworn
in on 1 August 2008
2004 election results: Olafur Ragnar
GRIMSSON elected president; percent of vote
- Olafur Ragnar GRIMSSON 85.6%, Baldur
AGUSTSSON 12.5%, Astthor MAGNUSSON
1.9%;
For names of current Ministers, click here.
Disputes - international:
Iceland, the UK, and Ireland dispute Denmark's
claim that the Faroe Islands' continental shelf
extends beyond 200 nm
All the information on this page sourced from
the CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
Settled by Norwegian and Celtic (Scottish and
Irish) immigrants during the late 9th and 10th
centuries A.D., Iceland boasts the world's
oldest functioning legislative assembly, the
Althing, established in 930. Independent for
over 300 years, Iceland was subsequently
ruled by Norway and Denmark. Fallout from the
Askja volcano of 1875 devastated the Icelandic
economy and caused widespread famine. Over
the next quarter century, 20% of the island's
population emigrated, mostly to Canada and
the US. Limited home rule from Denmark was
granted in 1874 and complete independence
attained in 1944. The second half of the 20th
century saw substantial economic growth
driven primarily by the fishing industry. The
economy diversified greatly after the country
joined the European Economic Area in 1994,
but Iceland was especially hard hit by the
global financial crisis in the years following
2008. Literacy, longevity, and social cohesion
are first rate by world standards.
Government type:
constitutional republic
Capital:
name: Reykjavik
time difference: UTCIndependence:
1 December 1918 (became a sovereign state
under the Danish Crown);
17 June 1944 (from Denmark)
National holiday:
Independence Day, 17 June (1944)
Constitution:
16 June 1944, effective 17 June 1944;
amended many times
Legal system:
civil law system based on Danish law; has not
accepted compulsory ICJ jurisdiction
Suffrage:
18 years of age; universal
Government:
Chief of state: President Olafur Ragnar
GRIMSSON (since 1 August 1996)
head of government: Prime Minister Johanna
SIGURDARDOTTIR (since 1 February 2009);
cabinet: Cabinet appointed by the prime
minister
elections: president, a largely ceremonial post,
elected by popular vote for a four-year term
(no term limits); election last held on 28 June
2004 (next to be held in June 2012); following
legislative elections, the leader of the majority
party or the leader of the majority coalition
usually the prime minister
note: the presidential election of 28 June 2008
was not held because Olafur Ragnar
GRIMSSON had no challengers; he was sworn
in on 1 August 2008
2004 election results: Olafur Ragnar
GRIMSSON elected president; percent of vote
- Olafur Ragnar GRIMSSON 85.6%, Baldur
AGUSTSSON 12.5%, Astthor MAGNUSSON
1.9%;
For names of current Ministers, click here.
Disputes - international:
Iceland, the UK, and Ireland dispute Denmark's
claim that the Faroe Islands' continental shelf
extends beyond 200 nm
All the information on this page sourced from
the CIA World Factbook, the US Commercial
Service and relevant FATF M.E.R.
| KnowYourCountry |
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| Last Updated: 28 September 2011 |