therefore no wonder that concerns about icelandic sovereign debt default have largely evaporated. this can be seen in the spread on iceland ’ s sovereign credit default swaps, which has fallen significantly this year and is currently at 288 basis points, well below those of ireland and portugal. before turning to the outlook and near - term policy challenges, let me mention two important problems that iceland will not face if present policies remain on course. the first is an unsustainable public debt level. as graph 6 shows, the gross debt of iceland ’ s general government ( central and local government ) exceeded 100 % of gdp at the end of 2009. that is very high, of course, although there are countries with higher gross debt, as the graph shows. however, iceland ’ s net public debt is significantly lower and is sustainable given the prospects for repayment of treasury debt in net terms from 2013 onwards. in addition, if we factor in the central bank ’ s foreign exchange reserves, the bulk of net public debt is denominated in icelandic kronur. but what about the unsettled icesave debt? the answer is that it will not fundamentally change the picture, as present estimates of the amount and speed of recovery of the assets of the failed landsbanki and indications of what might be on the table in terms of financing costs in a new settlement suggest that the net present value of the settlement will be significantly lower than in previous agreements. the same applies to net foreign debt, where iceland will be even more of a middle - of - theroad country when the dust has settled and the failed banks have been wound up, as can be seen from graph 7. when the economy has stabilised and sovereign debt concerns have subsided, what are the key economic challenges facing iceland? at the most fundamental level, they could be captured in one sentence : create the conditions for robust growth and reintegrate iceland into international capital markets. but there are many elements that must fall into place if this is to happen. the central bank has been predicting that recovery will take hold in the second half of this year, which means that recovery should have started by now. there are actually signs, but not hard data, to support this. but it is not a strong or a robust recovery. if it is to turn into a robust recovery, we need much more progress on internal private sector debt restructuring and we must increase business investment from its present historically low level. this, in turn, requires a

13 april 2023 monetary and fiscal dimensions of responding to multiple global shocks presentation at the 15th annual meeting of the oecd working party of parliamentary budget officials and independent fiscal institutions by rannveig sigurðardottir, deputy governor for monetary policy, central bank of iceland it is a pleasure to join you here to discuss the role and interaction of monetary and fiscal policy - a topic that deserves our full attention today in times of high inflation. the global economy had barely recovered from the financial crisis when it was hit again by two subsequent shocks that have had enormous impact on both monetary and fiscal conditions around the globe. i want to give you a snapshot of how the icelandic economy has weathered these shocks relative to other oecd economies, firstly, during the covid - 19 pandemic and subsequent supply - chain disruptions, and then, following russia ’ s invasion of ukraine, the ensuing energy and food crises. finally, i will discuss the role played by monetary and fiscal policies in response to these shocks. iceland was among the countries most severely hit by the global financial crisis ( gfc ). prior to the crisis, the country was uniquely vulnerable due to macroeconomic imbalances, including a large current account deficit, unfavourable net international investment position, highly indebted households and business sector, inflated asset prices, and an oversized and undercapitalized banking sector. iceland ’ s strength, on the other hand, was the relatively strong position of its public finances. this set iceland apart from several other countries that also suffered badly from the gfc, mainly because of vulnerability of public finances. in the aftermath of the crisis, the economy was rebalanced ; the current account transformed from a deficit to a surplus ; the international investment position changed from large net debt to significant net assets ; a major share of private debt was wiped out ; the banking system recapitalized ; and asset prices deflated. the economic consequence of the pandemic as a result of the rebalancing of the economy following the financial crisis, iceland ’ s economy was in a position of relative strength when the pandemic struck. the macroeconomy remained broadly balanced, despite a negative shock to exports in 2019. unemployment was low, private sector indebtedness relatively benign, inflation moderate and public finances had recovered significantly from the turmoil following the gfc. the human suffering from the pandemic was also less pronounced than in many advanced economies. iceland ’ s