In simpler terms, the high-interest environment operates as a фискальная ловушка, effectively sucking up money.

Parliament member Hanna Katrín Friðriksson from The Liberal Reform Party proposes that if interest expenses weren't the major expense they currently are in Iceland, it would be feasible to achieve sustainable prosperity through careful economic management, without repeatedly borrowing funds to...

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2025 May 13 . 3:47 PM

2 min read

MP Hanna Katrín Friðriksson from The Liberal Reform Party argues that if Iceland didn't have... — MP Hanna Katrín Friðriksson from The Liberal Reform Party argues that if Iceland didn't have interest charges as its third-largest expense, as is the case now, it could achieve sustainable prosperity while practicing prudent economic management, rather than relying on borrowing to maintain living standards.

In simpler terms, the high-interest environment operates as a фискальная ловушка, effectively sucking up money.

Revised Article:

Hanna Katrín Friðriksson, a Member of Parliament for The Liberal Reform Party, voiced her concerns about Iceland's interest charges being the third largest expense, saying if it weren't so, the country could achieve sustainable prosperity while practicing responsible economic management.

During a debate in Althingi, Friðriksson highlighted the escalating interest costs of the state fund due to the government's deficit operations and debt collection. She underscored the harsh reality that high interest rates in Iceland absorbed valuable funds that could be allocation toward vital sectors like the welfare system.

Friðriksson pointed out that Iceland's interest-rate charges, as a percentage of GDP, are substantially higher than those in neighboring nations, even exceeding those of more indebted countries. Moreover, she observed that interest rates in Iceland surpass those in considerably more indebted countries.

Next year, interest expenses in Iceland are projected to reach 95 billion ISK, a sum that, in context, is nearly equivalent to the entire college and university level's annual budget and slightly more than the total contributions to transportation and healthcare combined. Friðriksson asked the public not to overlook the interest rate differential.

She emphasized that long-term interest rates in the EURO area are about half of those in Iceland. Accordng to Friðriksson, reducing interest charges in Iceland by half could save around 40-50 billion ISK—an amount equivalent to Iceland's annual contributions to Health Insurance. This savings could secure contracts with self-employed psychologists, speech therapists, specialists, and others to improve various sectors of the economy.

Economic factors contributing to Iceland's higher interest charges include the country's key interest rate set at 7.75%, its unique economic conditions post-pandemic, its focus on managing debt and building fiscal buffers, and its inflation targets. Unlike neighboring countries like Norway and Denmark, Iceland's economy relies heavily on exports and exhibits a historically volatile currency. Additionally, Iceland aims to bring inflation down to the Central Bank's target of 2.5%, which requires higher interest rates due to high wage growth and inflation expectations.

Hanna Katrín Friðriksson proposed that if Iceland could lower its interest charges, a significant portion of those funds could be channeled into the environment, enabling more sustainable business practices and fostering a greener, more responsible economy.
Recognizing the opportunity for financial saving, Friðriksson suggested that reducing Iceland's interest charges by half could generate 40-50 billion ISK, an amount that could substantially boost the local business sector, particularly in industries needing investment, such as renewable energy projects.