STOCKHOLM, July 10 Iceland's economy should
expand at a healthy pace in the next few years but household
debt relief and potential balance of payments pressures pose
risks, the IMF said on Thursday.
The Nordic island, recovering from its worst-ever financial
crisis following the collapse of its top banks in 2008, is set
for economic growth of 2.9 percent this year and around 3
percent annually in the medium term thanks to domestic demand
and rising exports, the International Monetary Fund said.
But potential balance of payments pressures - contained by
capital controls introduced during the crisis to stem a massive
outflow of funds from the country - remain significant, it said.
The IMF and other lenders had to bail out Iceland as the
north Atlantic island's economy contracted more than 10 percent
over 2009 and 2010 following the collapse of its financial
Peter Dohlman, head of the IMF's mission to Iceland, said on
a call with journalists that the country had made good progress
in lowering its debt and reducing the crown overhang, noting
that it has already paid back 60 percent of loans received
during the crisis.
The key challenge for the small, highly exposed economy was
capital account liberalisation, he said.
"We continue to support a conditions-based approach to
capital account liberalisation, and for the pace to be dependent
on the size of the potential outflows and balance of payment
prospects...," he said.
In a first significant step towards removing capital
controls by the centre-right government elected in 2013, Iceland
said on Wednesday it had hired advisors to work on
"We think the authorities should push ahead with their
agenda," said Dohlman.
He said it was too early to predict any timing of a possible
outcome from liberalisation plans but he believed authorities
hoped to make significant progress on the issue this year.
(Reporting by Mia Shanley; Editing by Susan Fenton)