Iceland will increase its public debt because the effects of the coronavirus pandemic are forecast to cut its fiscal budget by almost a fifth next year, the government said.
The pandemic has hit Iceland’s tourism-dependant economy hard, leading the central bank to cut its main interest rate four times this year and the government to spend billions in aid to stricken businesses and individuals left jobless.
The government said it expects state revenue to be 192 billion Icelandic crowns ($1.39 billion) lower next year as a result of less economic activity during the pandemic.
That would bring the total deficit to 264 billion crowns next year, which is projected to increase public-sector debt to 48% of gross domestic product by the end of the year, compared with 28% at the end of 2019.
“The fiscal budget proposal continues the policy laid down this year with the government’s emergency measures, which focus on broad and strong measures to support the economy, save jobs and protect households,” the government said as it laid out its budget proposal for next year.
The government said it aims to “bring debt accumulation under control” in its fiscal plan until 2025, but did not say how.