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Iceland will need more measures to meet fiscal targets, says IMF

5th March | Category: News

According to the International Monetary Fund, Iceland is in need of further measures to meet it fiscal targets amid overspending and projected budgetary regression.

In a statement released by the IMF last week, it expressed concern about budgetary deviations, “especially in light of considerable risks to the revenue projections in 2012 and the medium term.” The IMP also expressed concern regarding over-expenditures, which might also affect the medium term.

Iceland completed a 33-month long IMF program in August following the country’s 2008 financial collapse, and has outperformed members of the euro area in its economic recovery. It is projected that the $12 billion economy will grow 2.5 percent this year. Still, the IMF has recommended additional measures this year, equivalent to 0.5 percent of its GDP to achieve a fiscal goal of an overall budgetary balance by 2014. This would enable debt to decline from approximately 100% GDP to around 80% by 2016.

Iceland has started easing capital controls that were implemented after its collapse to protect the county’s currency. The Central Bank has started currency auctions as it scales back the krona controls. However, the gradual lifting of these controls while tightening monetary policy remains a key challenge for the country moving forward. The IMF has suggested that, given the uncertainty in the global markets, consideration be given to an extension of the capital controls to beyond 2013.

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