OECD economic surveys : Iceland / 1991/1992.

87 Pages·1992·4.788 MB·English

by  OECD

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OECD
ECONOMIC SURVEYS
ICELAND
ORGANISATION FOR ECONOMIC CO-OPERATIONANDDEVELOPMENT
ORGANISATION FOR ECONOMIC
CO-OPERATION AND DEVELOPMENT
Pursuant toArticle 1 oftheConvention signed in Paris on 14th
December 1960, and which came into force on 30th September 1961,
the Organisation for Economic Co-operation and Development
(OECD)shallpromotepoliciesdesigned:
to achieve the highest sustainable economic growth and
employment and a rising standard of living in Member
countries,whilemaintainingfinancial stability, andthusto
contributetothedevelopmentoftheworldeconomy;
to contribute to sound economic expansion in Member as
well as non-membercountries in theprocess ofeconomic
development;and
to contribute to the expansion of world trade on a
multilateral, non-discriminatory basis in accordance with
internationalobligations.
The original Member countries of the OECD are Austria,
Belgium, Canada, Denmark, France, Germany, Greece, Iceland,
Ireland,Italy,Luxembourg,theNetherlands,Norway,Portugal,Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the United
States. The following countries became Members subsequently
through accession at the dates indicated hereafter: Japan (28th April
1964), Finland (28th January 1969), Australia (7th June 1971) and
New Zealand (29th May 1973). The Commission of the European
Communities takes part in the work ofthe OECD (Article 13 ofthe
OECD Convention). Yugoslavia has a special status at OECD
(agreementof28thOctober 1961).
Publiéégalementenfrançais.
©OECD 1992
Applicationsforpermissiontoreproduceortranslate
allorpanofthispublicationshouldbemadelo:
HeadofPublicationsService,OECD
2,rueAndré-Pascal,75775PARISCEDEX 16,France
Contents
Introduction 9
I. Recent developments, policies, and prospects 11
Recent developments ] 1
Policies 22
Prospects 30
II. Structural reform 32
Implications of the European Economic Area for Iceland 32
Fisheries 34
Agriculture 36
III. The role of government in financial markets 38
The role of government in the allocation of credit 39
The government securities market 46
IV. Public-sector finances 48
Government expenditures, revenues and deficits 48
V. Conclusions 58
Notes and references 61
Annex: Main economic events 63
Statistical and structural annex 65
Tables
Text
1. Demand and output 13
2. Saving, investment and the current account 17
3. Exports by commodity group 19
4. Labour market conditions 21
5. Treasury finances 22
6. Public sector borrowing requirement 25
7. Interest rates 39
8. Who lends in Iceland? 40
9. Ownership of financial assets 41
10. Assets of Investment Credit Funds 49
1 1. General government spending 54
12. Budget concepts 55
13. Central government debt 55
14. The structure of municipal revenue and expenditure 56
Statistical and structural annex
A. Supply and use of resources, current prices 67
B. Supply and use of resources, constant 1980 prices 68
C. Production and employment 69
D. Gross fixed asset formation and national wealth, current prices 70
E. Gross fixed asset formation and national wealth, constant 1980
prices 71
F. Balance of payments, OECD basis 72
G. Central government and social security income and expenditure 73
H. Fish catch, wages and prices 74
I. Foreign trade, total and by area 75
J. Foreign trade by commodity group 76
K. Money and credit 77
L. Public sector 78
M. Labour market 79
Diagrams
Text
1. Aggregate economic performance 12
2. The fish catch 14
3. Export prices and the terms of trade 16
4. Real wages and unemployment 20
5. Inflation performance 21
6. Treasury budget deficit 23
7. Interest rates 26
8. Money supply and velocity 27
9. Effective exchange rate of the krôna 28
10. General government spending and receipts 50
11. Comparative direct and indirect taxes (as a percentage of total tax
revenue) 51
12. Direct and indirect taxes (as a percentage of GDP) 52
LU
CD
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CQ
BASICSTATISTICSOFICELAND
THELAND
Area(1000sq.km) 103 Unproductivearea(1000sq.km) 82
Productivearea(1000sq.km) 21 ofwhich:
ofwhich: Glaciers 12
Cultivatedarea 1.1 Otherareadevoidofvegetation 70
Roughgrazings 20
[PEOPLE
Population.1stDecember1991 581 Occupationaldistribution,1989(percent):
Netincrease1981-90,annualaverage Agriculture 5.1
(percent) 1.1 Fishingandfishprocessing 11.8
Othermanufacturing 12.9
Construction,total 10.7
Commerce 14.9
Communications 6.8
Servicesandother 37.8
100.0
GOVERNMENTANDPARLIAMENT
1987 1991
Parliament,numberofseats:
IndependenceParty(Lib.Cons.) 18 26
ProgressiveParty(Agrarians) 13 13
Peoples'Alliance(Socialists,Communists) 8 9
SocialDemocraticParty 10 10
Citizen'sParty 7 -
Women'sAlliance 6 5
Other 1 -
63 63
Lastgeneralelection: April1991
PRODUCTIONANDCAPITALFORMATION
Grossnationalproductin1991: Grossfixedcapitalformationin1991:
IKrmillion 367532 IKrmillion 72700
Perhead.USdollars 23917 PercentofGNP 19.8
FOREIGNTRADE
Exportsofgoodsandservicesin1991, Importsofgoodsandservicesin1991,
percentofGNP 34.5 percentofGNP 35.5
Mainexportsin1990(percentofmerchandise Importsin1990,byuse(percentofmerchandise
exports): imports):
Fishproducts 75.5 Consumergoods 31.0
Aluminium 10.4 Investmentgoods 32.0
Othermanufacturingproducts 10.0 Intermediategoods(excl.fuels) 27.3
Agriculturalproducts 1.9 Fuelsandlubricants 9.7
Miscellaneous 2.2
THECURRENCY
Monetaryunit: Krona CurrencyunitsperUSdollar,
averagesofdailyfigures:
Year1991 59.2
March1992 59.6
Note: Aninternationalcomparisonofcertainbasicstatisticsisgiveninanannextable.
This Survey is based on the Secretariat's study pre¬
pared for the annual review ofIceland by the Eco¬
nomic and Development Review Committee on
6thApril1992.
After revisions in the light ofdiscussions during the
review, final approval ofthe Surveyforpublication was
given by the Committeeon22ndApril1992.
The previous Survey of Iceland was issued in
June1991.
Introduction
There was a modest respite in 1991 from the economic slump, which began
in 1988, but in 1992, output is expected to drop, and little growth can be expected
in 1993. Although fish prices have been strong, the cod and capelin catches are
down, depressing export income. The near-term outlook for the fishery is one of
poor catches and, probably, falling prices; and softness in the world aluminium
market resulted in the postponement ofthe project to build a new smelter, which
had been set to begin in late 1992. The 1991 budget deficit proved to be larger
than planned, as fiscal policy was loosened in the run-up to the election in April
1991. Partly as a result, demand pressures built up toward the middle of 1991,
and the inflation rate began to rise again. Nevertheless, this was reversed in the
second half of the year, and the striking reduction of inflation, which followed
the wage-price agreement between firms, unions and government in early 1990,
was maintained. The wage agreement expired in September 1991 and, atthe time
of writing, negotiations were underway to replace it.
As measured by revenues or expenditures as a fraction of GDP, Iceland's
public sector is small by comparison with other OECD countries. Nevertheless,
the Treasury deficit remains uncomfortably large, and reducing it has proved
difficult in the depressed economic climate. The public sectorborrowing require¬
ment is very large and has been growing rapidly, but this has mainly been due to
the growth of private-sector mortgage borrowing. Iceland is unusual in that the
government still plays a predominant role in the mortgage market, and includes
this form of financial intermediation in its borrowing requirement.
The government has historically played a large role in the economy, espe¬
cially through its control of capital markets. As recently as ten years ago, the
domestic allocation of capital, international financial transactions and interest
rates were almost entirely determined by the government or by public-sector
institutions. Since then, large strides have been made to liberalise these markets,