Iceland Mag

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Iceland Mag

Economy

The agreement with estates of collapsed banks will reduce net debt position to below 10% of GDP

By Staff

  • Central Bank Director and Minister of Finance Már Guðmundsson (left) and Bjarni Benediktsson (right) at yesterday's press conference outlining the agreement proposal. Photo/GVA.

The agreement proposal unveiled yesterday between the Ministry of Finance and the Central bank and the estates of the failed banks would mean a drastic reduction both government debt and the net debt position of Iceland.

Read more: Agreement with estates of failed banks unveiled: Will pay 3.8 billion USD in stability payment

According to the memorandum of the Central Bank, outlining the proposed agreement which was unveiled yesterday (English summary here), government debt will fall to below 45% of GDP after the estates of the collapsed banks will have made the stability payment. Currently government debt stands at 62% of GDP.

The net debt position will also improve significantly following settlement on the basis of the stability conditions. The Central bank estimates that the debt position is projected to improve from just under a third of GDP this year to less than 10% of GDP by the end of 2016.

Már Guðmundsson, the director of the Central Bank, argued at the press conference that government debt and the net debt positon had not been as good for a long time. In fact, the net debt had not been as low, as a share of GDP, in over 50 years. The last time Iceland’s foreign net debt was this favorable was in the 1960s.

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