Sustainable Policies


Economic Policies

With the aftereffects of economic crisis easing, Iceland falls into the upper-middle ranks (rank 19) with regard to economic policies. Its score on this measure represents a decline of 0.2 points relative to 2014.

Undercut by a slowdown in tourist arrivals, growth has declined, but remains positive. The government has run small surpluses in recent years, but the balance was expected to fall into deficit in 2019. The central bank lowered interest rates to counter the slowdown in economic activity.

The unemployment rate has remained quite low, at between 3% and 4%. Given the small size of the economy, the bankruptcy of WOW Air boosted the unemployment rate quite significantly. Tax revenues have been stable at 42% of GDP, and public debt levels have fallen to sustainable levels after ballooning during the banking crisis.

The government still owns two-thirds of the country’s banking assets, and has yet to propose a plan for restructuring the sector. Banking oversight has been folded back into the central bank, a model that produced weak supervision in the past. The irrevocability of the withdrawal of Iceland’s EU application remains in question. R&D spending is very strong.

Social Policies

With good general outcomes despite some lingering crisis-era concerns, Iceland scores well (rank 7) with regard to social policies. Its score on this measure has declined by 0.1 point since 2014.

Crisis-era funding cuts for public education institutions have largely been retained, though universities have received some budget increases since. PISA scores have declined since 2000, and are now well below the OECD average.

Income inequality dropped significantly in the financial crisis’ wake. Poverty levels are low. Pensions and welfare benefits were cut in the crisis, and have not yet been fully restored. Substantial increases in housing costs have put particular pressure on young people in Reykjavik. Pension funds have largely recovered from the declines suffered during the crash, and are again able to invest internationally.

The generally high-quality healthcare system has suffered from cutbacks, though public concern has led to some new funding. Paternal and maternal leave is provided, and women’s labor-market participation rates are high. The country takes in a small number of refugees every year.

Environmental Policies

Despite a growing focus on the issue of environmental conservation, Iceland receives comparatively low rankings (rank 29) with regard to environmental policies. Its score on this measure is unchanged in comparison to 2014.

The government’s recently adopted climate strategy contains the ambitious goal of making the country carbon-neutral by 2040. It focuses on phasing out fossil fuels in the transport sector, and increasing carbon sequestration through afforestation, revegetation and wetlands restoration.

Significant new funding will be dedicated to climate mitigation measures, and a general carbon tax already in place will be gradually increased.

The country is active in Arctic-region environmental affairs. Whaling and fishing practices remain sources of serious contention with the EU and other international bodies.

Robust Democracy


Quality of Democracy

Showing a mixed pattern of strengths and weaknesses, Iceland falls into the lower-middle ranks (rank 28) for the quality of its democracy. Its score on this measure has declined by 1.0 points relative to 2014.

Parties receive public and private funding. Some circumventions of funding limitations, such as reimbursements for election-related travel costs, have come to light. Referenda are called if the president refuses to sign bills. Government politicians have accused the state-run broadcasters of bias, largely due to the exposure of political scandals.

A proposed new constitution and voting system were supported by strong majorities in a non-binding public referendum in 2012. It was never ratified, and the government has launched a parallel process reviewing aspects of the existing constitution. The government has been secretive about releasing potentially compromising information.

Civil rights are protected. Despite robust non-discrimination laws, some gender and other discrimination persists. Legal certainty is generally robust, though the judicial appointment process has been criticized by external bodies. Abuse of office does occur, and links between politicians and banks remain a concern.

Good Governance


Executive Capacity

With a period of political scandal and tension now behind it, Iceland falls into the middle ranks (rank 20) with respect to executive capacity. Its score on this measure is unchanged relative to 2014.

The Prime Minister’s Office has relatively minimal sectoral expertise. Ministries have considerable autonomy in drafting policy, but must present proposals to the cabinet before going to the parliament. Long-term strategic planning is often vague, with inconsistent follow-through.

Recently enacted regulations mandate RIAs, with a methodology for assessment approved in early 2017. Consultation with employer and labor associations is traditionally robust. Parliament’s continuing disregard for the results of a 2012 constitutional referendum is viewed by many as undemocratic.

After a period of political tension marked by the concealment of information within government circles, the current cabinet’s tenure has been more stable. Ministry monitoring is strong, but oversight of agencies is weak. The status of the government’s official withdrawal of Iceland’s EU accession application remains unclear, but all three current coalition parties oppose membership.

Executive Accountability

With monitoring having become more robust in the post-crisis period, Iceland scores well overall (rank 10) in the area of executive accountability. However, its score on this measure has declined by 0.3 points since 2014.

Parliamentarians have limited resources, but sufficient oversight powers. The audit office and ombudsman are independent and well regarded, with audit-office resources now nearly restored to their pre-crash levels. A data-protection authority deals with cases submitted either by public authorities or private individuals.

Despite a generally well-informed public, voter turnout has dropped significantly, particularly among young people, in parallel with a decline in policy interest and trust in politicians. The media provides in-depth information on state policy. The government operates an open consultation website that contains policy information, and where citizens can comment.

Party decision-making is typically driven by conventions attended by local party representatives, although recent sudden elections have forced alternative methods. Economic organizations are skilled and influential, with a small number of other sophisticated interest organizations also holding strong public profiles.
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