Iceland Can Finance Budget Deficit, Sigfusson Says
Iceland is “hopeful” that it can finance its budget deficit internally and will draw on reserves both from the central bank and pension funds to do so, Finance Minister Steingrimur Sigfusson said in an interview.
Iceland’s budget deficit will be 150 billion kronur ($1.31 billion) to 160 billion kronur this year, Sigfusson said today. The government has reserves of the same amount at the central bank and can draw on those as well as national pension funds that have “considerable investment capacity,” he said.
The North Atlantic island’s economy capsized in October after the three biggest banks failed to finance their short-term debt, precipitating the collapse of the krona and forcing the government to turn to the International Monetary Fund and the Nordic countries for a loan. Should the government struggle to cover its deficit internally, it may once again call on its neighbors for help, Sigfusson said today.
“We will try to get away without taking out more foreign loans,” Sigfusson said. “We will lower the deficit as quickly as we can to lower interest payments, and our most likely method is to cut down on spending no faxing payday loans.”
There’s a “good outlook” to cut interest rates soon because inflation has started to come down, and the currency has had a “good development,” the minister said in Reykjavik.
Iceland will have gross debt of between 80 percent and 100 percent of its gross domestic product at the end of this year, Sigfusson said. The central bank said it bowed to IMF demands to keep the key rate on hold at 18 percent at a Jan. 29 meeting.
Inflation surged to a 19-year record of 18.6 percent last month. Price gains slowed to 17.6 percent in February, the statistics office said on Feb. 25.
Sigfusson is a member of Prime Minister Johanna Sigurdardottir’s coalition of Social Democrats and Left Greens, which took office on Feb. 1 following weeks of protests demanding the former government step down.