Economic response to COVID-19
The Government of Iceland’s action plan to respond to the economic impact of COVID-19 aims to reduce and shorten the impact on business and the economy while also creating the conditions for a swift recovery.
The current expectation is that COVID-19 would have a short-term significant impact but with clear measures outlined and with the stable economy, the country will be well placed to return to business as usual in the medium to long-term.
Due to the change in economic conditions, the annual five-year fiscal strategy plan will be delayed by two months, until May.
The COVID-19 epidemic will have a direct impact on the economy and the state of the Treasury. Iceland's economy is strong enough to respond to the outbreak, however the effect of the virus on the global economy is hard to predict and will shape the impact on the country.
In order to protect the Icelandic economy, the Government is implementing a systematic and wide-ranging response through the following measures:
- Businesses experiencing temporary difficulties due to a fall in revenue will be given flexibility, e.g. extended deadlines for taxes and other public charges.
- Efforts will be made to provide temporary relief to the tourism industry, including temporarily reducing industry-specific tax payments.
- Once the situation returns to normal, a marketing campaign will be launched to promote Iceland as a tourist destination and Icelanders will be encouraged to travel domestically.
- Measures to stimulate private consumption and demand will be enacted, e.g. tax reduction or increased benefits.
- Ongoing and planned infrastructure projects will be accelerated.
- The Government will cooperate with the Icelandic Financial Services Association on their response to foreseeable liquidity and payment difficulties of tourism companies.
- The HF-Fund (former HFF-Fund) will transfer funds from the Central Bank to increase the ability of banks and creditors to provide credit to both companies and individuals.
Fiscal strategy plan delayed
Due to the worsening economic outlook, the economic assumptions of the current fiscal policy statement will not hold and will need to be substantially revised. The Minister of Finance and Economic Affairs will request the Parliament to consider a revised fiscal statement in conjunction with a deferred fiscal strategy plan. The plan should remain unchanged before April 1, but the plan is to submit it by mid-May, provided the necessary criteria have been clarified.
In conjunction with the revision of the fiscal policy statement, a special investment effort is under way which will significantly increase the Treasury's investment level in the coming years. The plan will be financed by selling Íslandsbanki, a government-owned bank, in part or in full if conditions are favourable. In the spring session of Parliament, a bill will be presented providing for a number of public-private investments in the road system, contributing to an even stronger growth capacity for the future.