Iceland: 2024 Article IV Consultation-Press Release; and Staff Report

International Monetary Fund

No 2024/221, IMF Staff Country Reports from International Monetary Fund

Abstract: The 2024 Article IV Consultation with Iceland highlights that following an impressive recovery from shocks in recent years, tight monetary and fiscal policies have slowed domestic demand growth, strengthened the current account, and started to lower inflationary pressures. A coordinated tightening of macroeconomic policies has successfully narrowed domestic and external imbalances built up during the post-pandemic period. Appropriately tight macroeconomic policies are expected to dampen economic growth in the near term, while medium-term growth prospects are favorable. Reactivation of the fiscal rules in 2026 presents an opportunity to revisit their design to ensure fiscal policy is both sustainable and contributes to macroeconomic stability. An application of the IMF’s Integrated Policy Framework to Iceland suggests some benefits of foreign exchange interventions during times of stress. Structural policies should focus on gradually reducing state involvement in collective wage bargaining, accelerating the green transition, and further diversifying the economy.

Keywords: monetary policy stance; holdings of SDR; calibrating Policy; inflation expectation; EU regulations-credit bureaus; Inflation; Central bank policy rate; Housing prices; Fiscal rules; Global (search for similar items in EconPapers)
Pages: 82
Date: 2024-07-15
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