The high interest environment is like a magic trap that literally absorbs money

Hanna Katrín Friðriksson, Member of Parliament for The Liberal Reform Party, says that if interest charges in Iceland were not the third largest item of expenditure, as they are today, then it would be possible to ensure sustainable prosperity alongside responsible economic management instead of continuing to borrow money to keep up the standard of living.

Deficit operations and debt collection

In Tuesday’s debates in Althingi, Friðriksson pointed out how the interest costs of the state fund had increased rapidly in recent years due to the government's deficit operations and debt collection. The citizens are then reminded of "the cold, hard fact reality that follows the high interest environment in Iceland. "This environment is some sort of a magic trap that literally absorbs money that would be better spent elsewhere, e.g. in our welfare system," she said.

Higher interests than in more indebted countries

She says that as a percentage of GDP, interest-rate charges in Iceland are significantly higher than in neighbouring countries, five to six times higher than in the other Nordic countries and in other international countries. Furthermore, she points out that the interest rates are higher than in countries that are considerably more indebted than Iceland.

Interest expense expected to be $95 billion next year

In the last few years, interest expenses here have increased by 50–60 billion ISK and next year they are expected to be 95 billion ISK. If we put this ISK 95 billion in the context of other expenditure categories, this is a little less than the entire college and university level receives in the annual budget and a little more than the contributions to transportation and our healthcare combined. We can only imagine what can be done with these funds,” said Hanna Katrín, asking people not to forget the interest rate differential.

She points out that, for example, that long-term interest rates in the EURO area are about half of long-term local interest rates in Iceland.

“It would certainly be better that the interest charges in Iceland would be half of their current rate. The 40–50 billion ISK that could be saved in this way is on par with our annual contributions to Health Insurance, and could secure contracts with self-employed psychologists, speech therapists, specialists and others.”

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