The Economy of Iceland CENTRAL BANK OF ICELAND The Economy of Iceland October 1997 Published semi-annually by the International Department of the Central Bank of Iceland, 150 Reykjavík, Iceland ISSN 1024 - 0039 REPUBLIC OF ICELAND People Population.......................................269,735 (December 1, 1996) Capital.............................................Reykjavík, 105,487 (December 1, 1996) Language........................................Icelandic; belongs to the Nordic group of Germanic languages Religion...........................................Evangelical Lutheran (95%) Life expectancy...............................Females: 81 years , Males: 75 years Governmental System Government ....................................Constitutional republic Suffrage ..........................................Universal, over 18 years of age Legislature ......................................Alþingi (Althing); 63 members Election term...................................Four years Economy Monetary unit ..................................Króna (plural: krónur); currency code: ISK Gross domestic product..................487 billion krónur (US$ 7.3 billion) in 1996 International trade...........................Exports 36% and imports 36% of GDP in 1996 Per capita GDP...............................1,760 thousand krónur (US$ 26.900) in 1996 Land Geographic size..............................103,000 km2 (39,768 mi2) Highest point...................................2,119 m (6,952 ft) Exclusive economic zone ...............200 nautical miles (758,000 km2 \ 292,680 mi2) Climate Cool temperate oceanic; highly changeable, influenced by the warm Gulf Stream and Arctic currents Republic of Iceland Credit Ratings Foreign Currency Domestic Currency long-term short-term long-term short-term Moody's Investors Service Aa3 P-1 Aaa P-1 Standard & Poor's A+ A-1+ AA+ - TABLE OF CONTENTS I. The Republic of Iceland Geography and Population ....................................................................................... 7 Constitution, Government and Political Parties ....................................................... 7 Membership in International Organizations and Foreign Policy ............................. 8 II. Recent Developments and Economic Prospects Economic Growth and Expenditure ......................................................................... 10 Foreign Trade and the Balance of Payments............................................................ 11 Prices, Wages and Unemployment........................................................................... 13 Public Finances......................................................................................................... 14 Monetary Policy........................................................................................................ 16 III. The Economy Fishing and Fish Processing ..................................................................................... 18 Manufacturing........................................................................................................... 20 Agriculture ................................................................................................................ 21 Energy....................................................................................................................... 21 Transport and Communications................................................................................ 22 Tourism..................................................................................................................... 22 The Labour Force and Labour Relations.................................................................. 22 Structural Reforms.................................................................................................... 23 The Environment ...................................................................................................... 23 IV. Foreign Trade and Balance of Payments .............................................................. Foreign Trade............................................................................................................ 24 Balance of Payments................................................................................................. 25 V. Foreign Exchange...................................................................................................... Foreign Exchange Rates ........................................................................................... 31 Foreign Exchange Regulations and Direct Investments........................................... 32 Foreign Exchange Reserves...................................................................................... 32 VI. Financial Markets.................................................................................................... Financial Markets Developments ............................................................................. 34 Commercial Banks and Savings Banks.................................................................... 34 Other Credit Institutions ........................................................................................... 34 The Securities Market............................................................................................... 35 Institutional Investors ............................................................................................... 36 The Central Bank...................................................................................................... 37 Supervision and Regulations .................................................................................... 38 Monetary Policy........................................................................................................ 39 VII. Public Finance ........................................................................................................ Central Government.................................................................................................. 40 Local Government .................................................................................................... 42 Social Services.......................................................................................................... 43 VIII. Foreign Debt.......................................................................................................... Treasury Foreign Debt.............................................................................................. 44 Debt Service.............................................................................................................. 47 Debt Service Record................................................................................................. 47 Credit Ratings ........................................................................................................... 48+ TABLES Table 1: Election Results .............................................................................................. 8 Table 2: Membership in International Organizations................................................... 9 Table 3: Output and Expenditure.................................................................................. 11 Table 4: Basic Economic Indicators ............................................................................. 17 Table 5: Export by Commodity Groups ....................................................................... 26 Table 6: Imports by Economic Category...................................................................... 27 Table 7: Geographic Distribution of Foreign Trade..................................................... 28 Table 8: Balance of Payments ...................................................................................... 29 Table 9: Current Account as Percent of GDP .............................................................. 30 Table 10: Exchange Rates............................................................................................... 32 Table 11: Foreign Exchange Reserves............................................................................ 33 Table 12: Summary View of the Financial Markets....................................................... 35 Table 13: Securities in the Domestic Market.................................................................. 36 Table 14: Money Supply................................................................................................. 39 Table 15: Treasury Revenues and Expenditures............................................................. 40 Table 16: Treasury Finances ........................................................................................... 42 Table 17: Currency Composition of Treasury Debt ....................................................... 45 Table 18: External Debt Service ..................................................................................... 47 Table 19: Republic of Iceland Credit Ratings ................................................................ 48 FIGURES Figure 1: Growth in Real GDP in Iceland and OECD ................................................. 10 Figure 2: Consumer Prices and Disposable Income..................................................... 13 Figure 3: General Government Financial Balances in Iceland and Europe ................. 14 Figure 4: Short-term Interest Rates............................................................................... 15 Figure 5: Long-term Interest Rates..............................................................................