Balance of payments and the external position in the third quarter of 2004

The deficit on Iceland's current account in the third quarter of 2004 amounted to 5.3 billion kr. according to preliminary figures from the Central Bank. In the third quarter of 2003 the current account deficit was 10.3 b.kr. The current account deficit in the first nine months of 2004 was 36.3 b.kr., compared with 23.8 b.kr. in the corresponding period the previous year. Measured at fixed exchange rates[1], exports of goods and services increased year-on-year by 10.5% over the first nine months of 2004, while imports increased by 16.6%. The merchandise balance deteriorated year-on-year, and so did the balance on services despite an improvement in the third quarter when exports of services increased by more than imports of services. In the first nine months of 2004, the deficit on income was 5.8 b.kr., compared with 9.3 b.kr. in the same period the preceding year. The reduced deficit on income is explained by increased investment income from abroad at the same time as interest rates in foreign credit markets remained low. Net current transfers, which largely consist of public sector contributions to international agencies and development aid, rose considerably year-on-year to 0.9 b.kr.

[1] The trade-weighted exchange rate index was 0.8% lower in the first nine months of 2004 than in the corresponding period a year before.

Balance of payments in b.kr.

July

- Sept.

January -

September

2003

2004

2003

2004

Current Account

-10.3

-5.3

-23.8

-36.3

Exports of goods and services

80.2

91.5

219.0

240.1

Imports of goods and services

-87.4

-97.0

-233.1

-269.7

Income and current transfer, net

-3.1

0.2

-9.7

-6.7

Capital and Financial Account

4.9

6.7

25.8

51.3

Financial account excl. reserves

14.7

10.0

35.8

65.1

External assets, net

-31.1

-145.0

-99.7

-302.0

External debt, net

45.8

155.0

135.6

367.0

Reserve assets (- increase)

-9.6

-3.2

-9.8

-13.6

Net errors and omissions

5.3

-1.4

-2.0

-15.0

Capital movements have rarely taken place on the scale experienced in the third quarter of 2004. Net capital inflow measured 51.3 b.kr. over the first nine months, largely explained by debt securities issues abroad. Outflows in connection with portfolio investment abroad amounted to 48.9 b.kr. and foreign direct investment by residents to 135.3 b.kr. over the first nine months. Other investment outflows were also heavy, in particular due to increased deposits and foreign lending by Icelandic banks. The Central Bank's foreign reserves amounted to 71.1 b.kr. at the end of September 2004 and had risen by 13.6 b.kr. since the beginning of the year.

Iceland's net international investment position was negative by 623.2 b.kr. at the end of September. Foreign assets of residents were close to one thousand b.kr., an increase of 280 b.kr. since the beginning of the year. This capital formation and the current account deficit were met by an increase in foreign debt: Iceland's gross external liabilities were close to 1,600 b.kr. at the end of September, or almost double GDP for the year. Detailed information on the balance of payments and the external position in 2004 is presented in the attached tables, along with revised figures for the period 2002 and 2003 in which direct investment and returns on it have been adjusted in light of late data collection.

On Monday December 6, 2004, the Central Bank will publish tables showing the balance of payments and external position on the Statistics page of its website (www.sedlabanki.is). A table showing Iceland's gross external debt will also be published in accordance with the IMF's Special Data Dissemination Standard. Other data will include the foreign position of the Central Bank and more detailed statistics for foreign travel receipts and expenditures, trade in foreign and Icelandic securities, and foreign direct investment.

For further information contact Jakob Gunnarsson, Division Chief at the Statistics Department of the Central Bank of Iceland, tel. (+354) 569-9600.

Press release with tables (pdf-31kb)

No. 33/2004

December 2, 2004