The deficit on Iceland’s current account in the fourth quarter of 2005 amounted to 53.1 billion krónur (b.kr.) according to preliminary figures from the Central Bank of Iceland. In the fourth quarter of 2004 the current account deficit was 35.2 b.kr. The current account deficit amounted to 164.1 b.kr. over the whole of 2005, compared with 85.3 b.kr. in 2004. Measured at fixed exchange rates , exports of goods and services grew by 12.6% while imports increased by 38.2% year-on-year. The merchandise balance deficit was 93 b.kr. and the deficit on the balance on services 40.2 b.kr. The deficit on the income account was 29.1 b.kr. in 2005, compared with 33.2 b.kr. in the preceding year, and shrank because income from foreign direct investment grew by more than the interest burden on external debt. Net current transfers were negative by 1.7 b.kr. in 2005.
Balance of payments in b.kr.
Oct.-
Dec.
January-
December
2004
2005
2004
2005
Current Account
-35.2
-53.1
-85.3
-164.1
Exports of goods and services
78.4
79.5
316.3
313.2
Imports of goods and services
-97.6
-120.3
-367.3
-446.5
Income and current transfer, net
-16.0
-12.2
-34.3
-30.8
Capital and Financial Account
68.5
-17.2
127.8
178.2
Financial account excl. reserves
69.2
-20.3
142.3
184.6
External assets, net
-197.1
-732.0
-516.1
-1,447.2
External debt, net
266.2
711.6
658.3
1.631.8
Reserve assets (- increase)
-0.6
3.7
-14.2
-4.7
Net errors and omissions
-33.3
70.4
-42.5
-14.1
Hefty capital movements took place in 2005, with a net capital inflow amounting to 178.2 b.kr. Inflows are largely explained by debt securities issued abroad by Icelandic banks and corporate borrowing for foreign investment. Foreign direct investment by residents amounted to 421.3 b.kr. in 2005 and outflows in connection with portfolio investment abroad 210.9 b.kr. Other investment outflows were also heavy due to other external asset formation, mainly foreign deposits and lending by Icelandic banks. The Central Bank’s foreign reserves increased by 4.7 b.kr. in 2005 to 67.3 b.kr. at the end of the year.
Iceland’s net international investment position was negative by 829 b.kr. at the end of 2005, after widening by 163 b.kr. over the year. External assets grew by 1,245 b.kr. to 2,398 b.kr. at the end of 2005, while total external liabilities amounted to 3,227 b.kr.
Detailed information on the balance of payments and external position in 2005 is presented in the attached tables, along with revised statistics for previous years. The balance on income has been revised from 2002 to incorporate a change in the methodology for calculating interest expense on foreign borrowing. Accrued interest is now calculated instead of interest paid, in line with international practice. The revision results in a lower figure for interest expense in 2002 but increases it for 2003 and 2004. In 2005, accrued interest was some 7 b.kr. higher than interest paid on account of growing debt and a slight increase in international interest rates. Portfolio investment abroad was also revised in light of the Coordinated Portfolio Investment Survey (CPIS) at the end of 2004.
Today, the Central Bank will publish tables showing the balance of payments and external position on the Statistics pages of its website (www.sedlabanki.is). A table showing Iceland’s external debt will also be published in accordance with the IMF’s Special Data Dissemination Standard. The Statistics pages include metadata describing the purpose, terms and definitions, and processing of data published there.
For further information contact Sveinn E. Sigurðsson, Director of the Statistics Department of the Central Bank of Iceland, or Jakob Gunnarsson, Division Chief, tel. (+354) 569-9600.
No. 8/2006
March 7, 2006