Postponement of review of Economic programme in cooperation with IMF

In recent months, the Icelandic government has devoted concerted efforts to the first quarterly review of its Economic programme in cooperation with IMF.

Important steps forward have been taken in recent weeks. They include:

• approval by the cabinet of the government’s medium-term fiscal framework;
• agreements with the Resolution Committees of the former banks;
• a programme for refinancing the banking system;
• conclusion of agreements on loans from Nordic countries;
• conclusion of agreements with the UK and Netherlands concerning Icesave accounts, subject to approval by the Icelandic parliament Althingi;
• a schedule for removal of capital controls which will be announced July 31.

Other stated objectives have also been achieved. With this progress towards reconstructing the Icelandic economy the Icelandic government has fulfilled all the conditions set by the IMF for continuing co-operation.

Despite this, the IMF Executive Board has decided not to place the review of Iceland’s Economic programme in cooperation with IMF on its agenda prior to its two-week summer vacation on 7 August as was previously announced. In the IMF’s estimation, financing of the programme through funds from outside parties, including the Nordic countries, has not been secured. The Nordic loans provided for under the agreements concluded comprise an important part of the Economic programme and access to these funds must be fully secured before the IMF considers it possible to finalise the review of the Economic Recovery Programme.

The Icelandic government will continue to make every effort to implement the Economic programme, in close co-operation with IMF experts, together with other reconstruction projects. Due to the strong foreign reserve position of the Central Bank of Iceland, a short-term delay in loan disbursement will not affect it significantly.

It is hoped that the IMF Executive Board will be able to discuss the question of Iceland on returning from its summer recess, with the resulting disbursement of the second tranche of the USD 2.1 billion loan from the Fund and the first quarter of the USD 2.5 billion loan from the Nordic countries, to be used to strengthen the country’s foreign reserves.