Economic surveys and country surveillance

Economic Survey of Iceland 2009

 

Contents | Executive summary | How to obtain this publication | Additional information

     

 

The next Economic Survey of Iceland will be prepared for 2011.

 

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared.

The OECD assessment and recommendations on the main economic challenges faced by Iceland are available by clicking on each chapter heading below.

 

Bookmark this page : >www.oecd.org/eco/surveys/iceland

 

Contents

 

Chapter 1: The financial and economic crisis

The global financial and economic crisis has struck Iceland with extreme force. Iceland’s three main banks, accounting for almost all of the banking system, failed in October 2008. They were unable to resist the deterioration in global financial markets following the failure of Lehman Brothers. The banks had pursued risky expansion strategies – notably borrowing in foreign capital markets to finance the aggressive international expansion of Icelandic investment companies – that made them vulnerable to the deterioration in global financial markets. They had also grown to be too big for the government to rescue. When access to foreign capital eventually closed, the banks failed. Non-financial firms and households were also vulnerable to the deterioration in global financial conditions, having taken on a lot of debt in recent years based on inflated collateral values. In some cases, the debt was foreign-currency denominated, without matching foreign currency assets or revenues. In the wake of the banking crisis, the government obtained an IMF Stand By Arrangement to provide favourable access to foreign capital markets and creditability for the recovery programme. Even so, the recession is likely to be deeper in Iceland than in most other OECD countries owing to the seriousness of the banking crisis and the weakness of private sector balance sheets.

 

Chapter 2: Challenging times for monetary and fiscal policies

Monetary and fiscal policies face huge challenges: the banking sector has collapsed; the economy is in the midst of a deep recession; the exchange rate has plunged; capital flows have been frozen; inflation is elevated; public debt has risen; source of revenues have disappeared; social needs have increased; and the unemployment insurance fund has been nearly depleted. Against this difficult background, this chapter discusses what policy makers should do in order to restore balance in the Icelandic economy and lay out the foundations for a sustainable recovery. The key recommendations are to seek entry in the euro area and implement the fiscal consolidation measures necessary to comply with the IMF programme.


 

How to obtain this publication

 

The complete edition of the Economic Survey of Iceland is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

Additional information

For further information please contact the Iceland Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by David Carey and Andrea De Michelis under the supervision of Patrick Lenain. Research assistance was provided by Roselyn Jamin.

 

 

 

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