On March 9, 2015 the Executive Board of the International Monetary Fund (IMF) concluded the 2014 Article IV consultation1 and Fifth Post-Program Monitoring Discussion with Iceland2.
Iceland has reached a relatively strong macroeconomic position with good growth prospects. Unemployment continues to trend down, now at 4 percent. Growth slowed last year but is expected to pick up to around 3 percent over 2015–17, supported by robust domestic demand and tourism. Consumption will be boosted by household debt relief and—together with net trade—will benefit from favorable commodity prices.
Against this positive economic backdrop, vulnerabilities remain and risks are tilted to the downside. Crisis legacies are still being unwound, including a large balance of payments (BOP) overhang contained by capital controls. The authorities expect significant progress this year in finalizing and implementing an updated capital account liberalization strategy. The current account balance is forecast at around 6 percent of GDP this year—boosted by falling oil prices—and is expected to gradually decline over the medium term to 2 percent of GDP.