A new report from the Organisation for Economic Co-operation and Development (OECD) on Iceland’s economy gives praise to the recovery process, as well as suggestions regarding how the country could improve efforts.
“Iceland is resolving the economic problems left by the financial crisis,” the report begins. “It is well advanced in implementing the comprehensive programme agreed with the IMF to overcome these problems. Iceland is slowly emerging from a deep recession following the collapse of its main banks. The economy stopped contracting by late 2010 and a consumption and business investment-led recovery is projected to gather momentum, lifting economic growth to 3 per cent by 2012. Inflation is projected to remain low and the underlying current account surplus to be sustained.”
At the same time, the OECD believes monetary policy needs to be seriously revamped, and that Iceland needs to take up the euro fast.
“Monetary policy alone has not been very effective either in countering the credit cycle or in delivering price stability. To improve performance, the [Central Bank of Iceland] should adopt an inflation targeting regime that places greater weight on smoothing fluctuations in the exchange rate and is supported by fiscal policy and macro-prudential regulation. In the event that Iceland joins the EU, it should seek to adopt the euro as quickly as possible.”
Another point of criticism regarded fishing policy, supporting the quota system and believing the government needs to “strengthen political consensus on the quota system,” namely by restructuring the tax system pertaining to fishing.
Overall, the OECD was positive about how the government has been bringing Iceland out of its recession.
“The financial crisis wreaked havoc with Iceland’s public finances. … To restore Iceland’s public finances to a sustainable path, the government is implementing a fiscal consolidation programme agreed with the IMF. The budget deficit is set to fall below 3% of GDP in 2011, and a small surplus is projected by 2013.”
The full report can be read on the OECD’s website.