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Icelandic Government to Establish National Reserve Fund

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Icelandic Government to Establish National Reserve Fund

Bjarni Benediktsson

Minister of Finance Bjarni Benediktsson. Photo: Golli.

A bill proposing the establishment of a national reserve fund will be put before the Icelandic parliament in the fall, RÚV reports. Dividends from energy companies will be diverted to the fund, which could reach ISK 250-300 billion ($2.1b/€1.8b) in only 15 to 20 years. A temporary provision will allocate some of the dividends to healthcare infrastructure and innovation in the business sector.

The establishment of such a fund has been on the agenda of the last several governments, though its proposed name and purpose has changed over time. In 2015, then Minister of Finance Bjarni Benediktsson said such a fund would serve as a kind of reserve to stabilise fluctuations in the Icelandic economy. He suggested it could be used to pay off debt and finance important infrastructure projects, as well as for unforeseen emergencies, such as natural disasters that could cause economic damage beyond he scope of the country’s existing emergency funds.

The Ministry of Finance’s recent statement on the fund, however, states that it would not be used to maintain economic stability, as previously proposed. The conclusion was made that such a fund is not necessary. Instead, a portion of the fund will be used to support start-up businesses and for building up nursing home infrastructure. Most of the dividends will come from the National Power Company of Iceland.

The government accepted the submission of comments on the proposed fund during a seven-day period. The Icelandic Association of Local Authorities criticised that more time was not given. Though the organisation stated they are not against the fund, they propose it also be used toward the implementation of EU legislation, as well as waste management and public transportation.

The SA Confederation of Icelandic Enterprise is against the establishment of the fund, stating the government should prioritise paying down the treasury’s pension obligations, which currently amount to one quarter of GDP, as well as repaying national debt.

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