Iceland’s private sector running out of cash to repay debts

Iceland’s private sector is running out of cash to repay its foreign currency debt, according to the nation’s central bank.

Non-krona debt owed by entities besides the Treasury and the central bank due through 2018 totals about 700 billion kronur (€4.3 billion), the bank said yesterday.

The projected current account surpluses over the next five years aren’t estimated to reach even half of that and will equal a shortfall of about 20 per cent of gross domestic product.

The nation faces a “repayment risk of foreign debt by private entities in the economy, who don’t have access to foreign financial markets,” Sigridur Benediktsdottir, head of financial stability at the Reykjavik-based central bank, said yesterday in an interview.

“We view this as being exacerbated or made worse by the fact that our current account is actually declining.”

Prime minister Sigmundur David Gunnlaugsson has said Iceland’s foreign exchange shortfall is “a matter of huge concern” as he tries to scale back currency controls in place since 2008.

The government’s biggest challenge is to allow capital to flow freely without triggering a krona sell-off that would cause Iceland’s foreign debt to spike and undermine the nation’s economic recovery.

Bloomberg