A concluding statement of the International Monetary Fund visit to Iceland states that Iceland’s dependence on tourism to fuel its economy has made the country “highly exposed to health, economic, and financial contagion from the COVID-19 pandemic”.
While saying that Iceland “stands out favorably in its handling of the pandemic”, the IMF takes a worrying view of the lack of economic diversity in the country.
“Nonetheless, the collapse in global tourism flows has significantly affected Iceland’s engine of growth, which relies heavily on contact-intensive sectors,” the statement says in part. “Real GDP contracted by 6.6 percent and unemployment reached 6.4 percent in 2020.”
The IMF did have praise for Iceland’s fiscal and monetary policies, saying that the country has offered “unconditional support to the health sector to fight the pandemic, raised unemployment benefits and dismissal-related transfers, extended grants to companies, eased the tax burden, offered state guarantees, increased public investment allocations, and encouraged domestic tourism.”
That said, our current heavy reliance on tourism has not helped us, and it will likely be years before the country experiences tourism revenue comparable to the pre-pandemic era.
“Nonetheless, Iceland’s economic outlook remains challenging,” the statement reads. “A modest recovery is projected to take hold this year, with real GDP growth remaining significantly below its pre-COVID trend. The ongoing fiscal stimulus will support domestic demand, while exports will grow only modestly. With border controls still in place in Iceland and its main trading partners in 2021, tourism revenue is expected to remain subdued in the near term. Tourism is expected to recover gradually and experience sizable persistent output losses. Overall, real GDP is projected to return to its 2019 level only in 2022 and remain below its pre-COVID trend even in 2026.”
The full statement can be read here.
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