STOCKHOLM Aug 31 The risks to Iceland's fragile
recovery from a deep financial crisis have increased after
recent international market turmoil, the International Monetary
Fund said on Wednesday after its 33-month rescue programme for
the country ended.
Last week, the IMF approved the final loan payment of the
programme, saying the country had met its key objectives
including the recapitalisation of its banking system, which
collapsed in late 2008.
"There has been enormous achievement under the programme ...
largely attributed to the strong ownership of the programme by
the government and to the resilience of the people of Iceland in
the face of a crisis of unprecedented magnitude," Julie Kozack,
head of IMF's Iceland mission, told a news conference.
Iceland's recovery is still fragile, she said.
While Iceland and its markets have been largely unaffected
by recent turmoil, the IMF warned risks to recovery would
increase if global growth slows, financing for investment
projects becomes more difficult, or commodity prices decline
The IMF, which will continue to monitor Iceland, applauded
the central bank's decision earlier this month to hike interest
rates amid an acceleration of inflation and urged the country to
boost prospects for investment projects.
"Delays in investment projects continue to weigh on growth
and business confidence," the fund said in a staff report on the
last review of the programme.
"Looking ahead, it will be essential that the authorities
provide greater clarity on their growth strategy, and notably
the role of investments."
The IMF said Iceland must keep cutting budget deficits,
although maybe at a slightly gentler pace than previously seen.
"Given the significant fiscal effort that has already taken
place -- 10 percent of GDP in fiscal measures and a primary
balance improvement of over 6 percent of GDP -- there is scope
to adjust the balance between supporting the recovery and
The IMF forecasts a budget deficit of 4.0 percent of GDP in
Iceland must also continue to gradually to ease capital
controls while maintaining bond market and financial sector
stability, and complete agreed reforms to further strengthen
financial sector supervision, the IMF said.
"On private sector debt, the pace of restructuring finally
appears to be accelerating, but efforts must continue until the
process is brought to a close," it said.
The IMF also urged the country's financial watchdog to
ensure the banks, which caused the free-fall in the economy,
keep sufficient buffers to meet unexpected challenges.
(Reporting by Anna Ringstrom; Editing by Anna Willard)