Medium-term Fiscal Strategy Plan 2024-2028: to counter inflation, safeguard living standards and support growth

Reykjavík, ICELAND

The government's fiscal strategy plan for the next five years lays out its strategy to utilise fiscal policy in a targeted manner to counter inflation and overheating by increasing expenditure restraint and revenue generation and postponing public investments. At the same time, important basic services that the government has significantly reinforced in recent years are maintained, based on the strong position of the Treasury. Financial support will be provided for those groups least able to withstand the impact of rising inflation, as was done with the government's support actions during the pandemic and the previous year.

The Treasury’s fiscal position has improved significantly in recent quarters , and the fiscal outlook for this year appears likely to be better than implied by the most optimistic scenarios of previous projections. Eighteen months ago, the objective was set in the government’s Fiscal policy statement to halt the increase in debt to GDP ratio no later than by year-end 2026, however this goal now appears to be within reach as early as the end of this year.

This is explained in the new Medium-term Fiscal Strategy Plan for 2024-2028. The Treasury's primary balance is expected to be ISK 74 billion better this year than anticipated in the budget, and to show a surplus of ISK 24 billion if current estimates prove correct. A positive primary balance means that government revenues for the year are higher than expenditures excluding interest income and expenses. It would be the first positive primary balance since 2019 with this milestone being achieved a year earlier than anticipated in the last fiscal strategy. The surplus in the primary balance is important to ensuring the arresting of the rise in the debt to GDP ratio and is a major step towards returning a positive overall balance by the end of the plan period.

If the current estimates prove correct, the improvement will mean that the Treasury will dampen demand and thus reduce inflationary pressure in 2023.

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