Treasury outcome affected by the pandemic

The results of the Government accounts for 2020 have now been published and the accounts sent to Parliament. According to the accounts, the outcome was negative by ISK 144bn, as compared with a surplus of ISK 42bn in 2019. Revenues totalled ISK 802bn and operating expenditures ISK 990bn. Net financial expense totalled ISK -46bn, and the share in earnings of Government-owned companies was ISK 90bn.
In spring 2020, all of the key premises for economic and fiscal planning were shattered because of the COVID-19 pandemic. By that time, the economic expansion accompanying the rapid growth of tourism had already begun to ease. Tourist numbers had fallen, partly because of airline WOW Air’s reduced operations and subsequent collapse. Reduced economic activity quickly showed in a deterioration in the Treasury outcome. Nevertheless, the outlook was for the economy to regain its momentum at the beginning of the year. But as 2020 progressed, it grew clear that Iceland, like the rest of the world, was facing a deep economic crisis. 
From the outset, the Government was determined to apply fiscal policy aggressively so as to support the economy, preserve jobs, protect households’ financial position, and create the resilience needed for value creation in the wake of the crisis. Wielding fiscal strength in this manner helped to mitigate the economic contraction and dilute its impact on households and businesses. In part because of this strong response, domestic demand contracted by only 2% and households’ disposable income increased in 2020. 
“Because of the Treasury’s strong position, we did not need to cut public services, and transfer systems were safeguarded despite the steep drop in revenues. As a consequence, basic Government services were preserved at a time when broad-based economic measures were adopted in response to the impact of the pandemic, with the aim of protecting household incomes and providing shelter and resilience to firms. Extensive infrastructure investment was undertaken and spending on research and development was increased substantially, in order to stimulate economic activity and create the conditions for a robust post-pandemic recovery. The effects of these conditions and these necessary actions can be seen clearly in the 2020 Government accounts,” said Bjarni Benediktsson, Minister of Finance and Economic Affairs, about the accounts. 

Revenues in 2020

Revenues excluding financial income contracted by ISK 28bn year-on-year, to a total of ISK 802bn. Of that total, taxes, payroll taxes, and other Government revenues declined by ISK 29bn, while revenues from operations increased by ISK 1bn. Most tax revenue items showed a contraction, particularly value-added tax and investment tax. Payroll taxes also contracted, as did investment income, fines, and various other revenues. When the outcome is adjusted to the budgetary presentation, which is based on the Government Finance Statistics (GFS) standard, it can be seen that revenues from taxes and payroll taxes were ISK 76bn below the original budgetary estimate. Nevertheless, the outcome is more favourable than the last updated estimates indicated. Overall, it is ISK 13bn above the year-end estimate.

Outcome for 2020

The outcome for the year was negative by ISK 144bn, whereas it was positive by ISK 42bn in 2019. Expenditures before financial items totalled ISK 990bn, an increase of ISK 181bn year-on-year. The rise stems mainly from increased expenditures due to unemployment and support measures for businesses, in the amount of ISK 81bn. Other pandemic-related expenditures came to ISK 35bn. In addition, State pension obligations increased by ISK 33bn year-on-year as a result of negotiated wage agreements. 
At year-end 2020, assets totalled ISK 2,613bn, an increase of ISK 258bn year-on-year. Cash and cash equivalents increased by ISK 108bn year-on-year, and shares in companies increased by ISK 106bn, including ISK 70bn due to the Central Bank of Iceland. Fixed assets increased by ISK 30bn, mostly because of investments in transport infrastructure. Equity totalled ISK 238bn, a decline of ISK 124bn from the prior year. Long-term liabilities increased by ISK 143bn and short-term liabilities by ISK 215bn. Cash from operations was negative by ISK 110bn, after contracting by ISK 164bn. At the year-end, cash and cash equivalents totalled ISK 378bn, an increase of ISK 108bn. Financing activities were positive by ISK 266bn, as compared with ISK 27bn in 2019.

Treasury outcome for 2020 better than previously expected

It should be noted that the operating results in the Government accounts are published on the basis of the International Public Sector Accounting Standards (IPSAS), whereas the overall outcome in the fiscal plan and the fiscal budget is presented according to the GFS standard. Both methods are intended to ensure consistency and international comparability. In order to compare the Treasury performance according to the Government accounts with the performance targets in the fiscal plan and the fiscal budget, it is therefore necessary to adjust the outcome of the Government accounts to the GFS. On this basis, it was assumed in the 2020 fiscal budget that the overall outcome would be negative by ISK 10bn. The outcome for the year turned out negative by ISK 218bn, however, owing almost entirely to the impact of the pandemic. It should be noted, however, that according to the last estimates prepared during the year, the outcome was expected to be poorer by an additional ISK 50bn. The fact that the outcome turned out better than was feared at one time is due in part to successful economic measures, which greatly mitigated both the economic contraction and the impact on the Treasury. 

Foundations for a strong recovery

The adverse impact of the 2020 results is nevertheless significant and will make its mark on the Treasury outcome and debt position in coming years. It is therefore important to bear in mind the guiding principle behind the Government’s responses and measures: to address the repercussions of the pandemic decisively, but without shunting the cost to future generations. This strong response has enabled the authorities to minimise pandemic-related losses and lay the foundations for a robust recovery when the pandemic has passed. 

New, accessible website

Concurrent with the publication of the Government accounts, a new website focusing on Government finances and human resources information is being launched: rikisreikningur.is. The site is an update of the previous website, and the plan is to publish a range of information on Government operations and human resources, with the aim of simplifying the general public’s access to this information. The website contains highlights from the Government accounts, as well as more detailed analysis of specific topics. Information on Government finances by function, type, ministry, and Government entity can be found there. Also available are various key figures, including those relating to human resources; i.e., summaries of Government staffing numbers and full-time position equivalents.