Government Debt Management

The Ministry of Finance and Economic Affairs is responsible for the central government's debt management and formulates its debt management strategy.

The Minister administers borrowing by the Treasury and Part-A State entities based on budgetary authorisations and in accordance with the Act on Government Debt Management, no. 43/1990. Based on the fiscal plan, the Minister shall present a strategy each year, laying down objectives and benchmarks for Government debt management over a horizon of at least five years. The strategy shall also include priorities for Treasury security issuance and Government debt composition, as well as risk factors and information disclosure.

After the fiscal budget is approved, and no later than at the year-end, the Minister shall present an annual plan for Treasury debt financing, including information on planned Treasury issuance, instalment payments, and developments in the cash balance during the coming year.

The Medium-Term Debt Management Strategy (MTDS) lays down the Government’s plans for financing its activities during the period in question. The key objective of the strategy is to ensure that the Government's financing needs and payment obligations are met at the lowest possible cost over the medium to long term, assuming a prudent degree of risk. The strategy describes debt management objectives and guidelines, the current composition of the debt portfolio, inherent risk factors, and contingent liabilities. It also describes the institutional structure of debt management and explains how information disclosure to market agents and investors is carried out. The strategy is updated annually.

Creditworthiness reflects the assessment of borrowers’ ability to honour their commitments in full and on time. Credit ratings are therefore very important in the financial markets, and they affect the terms offered to borrowers at any given time.

A country’s sovereign credit ratings are assessed on the basis of various factors relating to fiscal and economic affairs, such as public debt, the external position of the economy, the GDP growth outlook, the structure of the economy, political risk, and so forth. Ratings assigned by professional rating agencies fall into two categories: investment-grade and speculative-grade. When agencies issue their ratings, they also assess the outlook for changes in the ratings. The outlook can be stable, positive, or negative.

Three international agencies assign the Republic of Iceland a sovereign credit rating: Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s. These agencies publish regular reports and updates of credit ratings, and their assessments are backed by detailed rationale.

The Ministry of Finance and Economic Affairs is responsible for and engages in regular communications with the agencies.