Central Bank of Iceland publishes 2025 balance of payments and external position report highlighting NIIP at 44% of GDP and reserves at 19%

The Central Bank of Iceland issued its Balance of Payments, External Position and Vulnerabilities 2025, reviewing recent developments in Iceland’s balance of payments and capital flows and their implications for the economy’s external position and the foreign exchange market. The report describes a modest but widening current account deficit driven by higher domestic investment, alongside a historically favourable net international investment position and reserve buffer. The current account deficit has been between 1% and 2.5% of GDP since 2021 and has widened in tandem with increased domestic investment, with the Bank noting the króna has been less affected than might have been expected because the deficit largely reflects investment financed with foreign capital. It reports that the króna has appreciated despite recent global shocks and that exchange rate volatility has been modest in international context. As of Q2 2025, Iceland’s net international investment position stood at a positive 44% of GDP, supported by pension funds’ substantial assets; international reserves equalled 19% of GDP and were assessed as ample against reserve adequacy benchmarks; and external liabilities totalled 98% of GDP at mid-year, the lowest ratio since the turn of the century. In the scenario set out, the current account deficit rises in 2025 and narrows in 2026, while reserves are projected to be 19% of GDP at end-2025 and decline marginally in 2026, with the NIIP remaining favourable. The publication was last issued in 2023 and forms part of the Central Bank of Iceland’s regular reporting on the balance of payments, the exchange rate and the foreign exchange market.