Capital controls in place in Iceland since the financial crisis there some seven years ago, which saw the banking sector collapse, look set to be removed.
This follows an announcement in May from the country’s central bank, and a visit from the International Monetary Fund on 20 May, during which it said the country was ready for liberalisation of its capital account strategy.
“Despite some likely near -term instability, Iceland appears ready to finalise its updated capital account liberalization strategy,” the IMF wrote in a note that concluded its sixth post-crisis monitoring visit.
“Considerable effort has been made to better understand the size, complexity, range of options, risks , and benefits surrounding gradual liberalization and international financial re-integration. Iceland looks ready to move ahead with a comprehensive strategy that alleviates balance of payments pressures, consistent with advancing liberalization. The strategy should maintain emphasis on a cooperative approach with incentives, which could include reliance on statutory powers, non-discriminatory measures when possible, and consistency with Iceland’s international obligations.”
“The pace of implementation should remain conditions-based, with careful calibration with external balances and macroeconomic and financial stability. Implementation should be supported by sound macroeconomic and financial sector policies and frameworks to help mitigate risks and support growth and stability. These include upgrading the fiscal, financial, and macro prudential policy frameworks and core policies that a im for lower debt, stable inflation, and adequate buffers.”
The IMF statement was followed on 27 May by one from Iceland’s government, noting that it had paid off early a loan from Poland worth some 204m zloty (€49m). The loan maturity originally extended from 2015-2022. The repayment concluded Iceland’s efforts to repay bilateral loans from other countries, offered at the time of its financial crisis. Final payments to Nordic countries were made through 2014.
The central bank recently reported a positive balance of payments position for Iceland in the first quarter of 2015 of some ISK3.3bn (€22.2m)The role of the financial services sector in the crisis that hit Iceland was outlined at last year’s InvestmentEurope Autumn Pan-European Fund Selector Summit in Hamburg, by former prime minister Geir Haarde
Previously, the challenges and opportunities from the removal of capital controls were outlined by InvestmentEurope following a visit to the country back in November 2011.