|Tuesday, January 11, 2011||Publisher: Íslandsbanki Research - email@example.com - Resp.Editor: Ingólfur Bender|
Fourth IMF review approved
Yesterday the Executive Committee of the International Monetary Fund (IMF) approved the fourth review of Iceland's economic programme, releasing the fifth tranche of the IMF loan facility, which amounts to USD 160 million, or ISK 19 bn. To date, the IMF has disbursed USD 1.7 bn (ISK 176 bn) of its loan facility to Iceland. The Icelandic authorities are now eligible for the latter half of the Nordic loan facility in the amount of EUR 890 million. Iceland has already drawn the first half of the Nordic loan. The time limit for drawing the remainder has been extended until year-end 2011. Moreover, the loan from Poland, in the amount of EUR 162 million, is now fully accessible. A third of that amount has already been drawn. Following the fourth review, the Central Bank's foreign exchange reserves (less current obligations) have increased by over EUR 4 bn, the equivalent of over ISK 600 bn. Iceland's foreign exchange reserves have never been larger. That being the case, it is safe to assume that the foreign reserves are large enough to justify the resumption of capital account liberalisation. The Central Bank is expected to publish a revised liberalisation strategy in March 2011.
The IMF programme is just over half-finished. Three quarterly reviews
remain, and if the programme remains on track, Iceland's collaboration
with the Fund will be formally concluded in August.
According to yesterday's announcement from Government Debt Management (GDM), the monthly auction of Treasury bills will take place at 11:00 on Thursday. In accordance with GDM's new Treasury bill issuance structure, Thursday's auction will feature six-month bills maturing on 15 July 2011. As before, the lowest accepted price (and therefore the highest yield) will determine the sale price for all accepted bids.
Changed issuance structure
Investors interested in Treasury bills
Non-residents and mutual funds prominent
According to figures released by the Central Bank (CBI) yesterday, Icelandic pension funds' net assets for payment of benefits totalled ISK 1,893.5 bn at the end of November, after increasing by ISK 41.2 bn during the month, or 2.2%. This is an unusually large month-on-month increase, as the average for the last 11 months was just under ISK 10 bn per month. The startling rise is due in large part to the increase in pension fund holdings of Housing Financing Fund (HFF) bonds, which rose by ISK 50 bn MoM. The pension funds' foreign securities holdings declined by ISK 27 bn in November, however. Presumably, this change is due to their purchase of the so-called Avens package of Icelandic bonds appropriated by the Banque centrale du Luxembourg after the banks failed in 2008.
By end-November, the funds' net assets had grown by just under ISK 145
bn year-on-year. Of that amount, domestic securities holdings increased by
ISK 190 bn and foreign securities by ISK 28 bn. The pension funds' assets
have therefore risen by 8.3% YoY in nominal terms, whereas their real
value has increased by 5.5%. It should be borne in mind, however, that
pension fund contributions are much higher than paid-out benefits and
third-pillar pension fund withdrawals combined. Consequently, the funds'
real return is lower than the above figures indicate. It should be noted
that the final valuation of pension fund assets remains uncertain, and any
estimate of net assets should be interpreted with caution.
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