Download 28 May 2003 - Ministry of Finance

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English translation of the
Weekly Web Release
Ministry of Finance in Iceland
28 May 2003
Forecast of fisheries profits in 2003
The latest report of the Ministry of Finance on the Icelandic economy
includes a discussion of business profits. It shows that profits in fisheries
and the fish processing sector combined were excellent in 2001 when
profits before depreciation and financial items (EBITDA) amounted to
21½ per cent of income. After taxes, profits amounted to 11½ per cent of
income.
Some elements of the industry’s operating conditions have changed in
recent months with important consequences for profits. The Ministry has
therefore prepared a projection for this sector for 2002 and 2003. It relies
on the same assumptions as the forecast for the entire economy with the
main exception that the estimated exchange rate basket of foreign
currencies for 2001 is used as a basis. This basket is considerably
different from the Central Bank’s currency reference basket. It shows a
12½ per cent increase in the average exchange rate of the króna from
2001 until May 2003 as against a 13.7 per cent increase in the Central
Bank exchange rate index. It should be emphasised that this calculation
does not anticipate a change in the currency composition of foreign
exchange earnings of the fisheries sector. In fact, it is most likely that the
sector will have shifted exports into markets where currencies have
depreciated the least against the króna.
As is shown in the table 1., the króna has appreciated by 26.7 per cent
against the US dollar which means that the krónur proceeds from
cashing in dollars have declined by 21 per cent. The króna has only
appreciated by 4 per cent against the euro which means that exports to
euro-based markets have suffered less of an exchange rate loss. These
changes mean that sales to the dollar area should be declining and
increasing commensurably to the euro-area as much as possible.
Table 1. Estimated currency basket for fisheries exports
Basket in 2001
Change until May 2003*
20,9
30,3
5,2
6,5
4,8
32,0
26,7
13,9
3,7
-0,8
23,8
4,0
USD
GDP
DKK
NOK
JPY
EUR
Samtals
100,0
*a positive change indicates the appreciation of the króna.
12,4
Changes in quantities and prices constitute the other main assumptions
of this projection. The volume increase of production of the fisheries
sector is estimated at 4.3 per cent between 2001 and 2002 and is forecast
to remain unchanged between 2002 and 2003, a rather cautious forecast.
Domestic fishprices increased by 15.7 per cent between 2001 and 2002
and a slight decline is expected for this year. Export prices in foreign
currency rose by 3.5 per cent in 2002, and a 1 per cent increase is
forecast for 2003. Table 2. shows the operating results for the fisheries
sector as a whole for 2001 and the Ministry´s projection for 2002 and
2003. It should be noted that the results differ widely for different
segments of the fishing industry.
According to this projection, the operating results of the fishing industry
has deteriorated significantly since 2001 but is still turning a profit in
2003, although not much has to change for the sector as a whole for it to
incur a loss. Based on the assumptions underlying the forecast, the sector
Treasury revenue, Jan-April
2001200212-month changes
2002
2003
%
Total tax revenue
5.2
4.1
Treasury expenditure, Jan-April
2001200212-month changes
2002
2003
%
Administration
21.0
-2.0
Income taxes
8.1
0.5
Social affairs
13.9
11.1
Social security taxes
8.3
6.8
Economic affairs
-0.2
-1.3
Net wealth taxes
-9.9
-12.8
Interest
-2.0
Indirect taxes
3.9
8.0
Other
Total revenue
6.8
18.1
Total expenditure
may be expected to run at a loss if the average króna exchange rate
increases by more than 4 per cent from the estimated average for May
2003. It should be borne in mind that the fisheries sector is very flexible.
Individual companies can change their export destination rapidly in
response to market demand and currency fluctuations. These projections
do not include such shifts which undoubtedly would have a positive
impact upon operating results.
Table 2. Profits of the fisheries sector, Billion krónur
Revenue
Operating expenditure
Gross profits
in p.c. of revenue
Imputed cost of capital (6p.c.)
Net profit bef. tas
in p.c. of revenue
2001
169,2
132,6
36,6
21,6
17,1
19,5
11,5
Est.
2002
184,5
152,8
31,7
17,2
17,9
13,8
7,5
Forec
2003
174,1
151,8
22,3
12,8
18,3
4,0
2,3
Citizenship and pension rights
Rules on the transfer of pension rights between EU member states and
Iceland were recently discussed in the media. It was alleged that since
Iceland is not a member of the EU, special impediments exist with
regard to the transfer of pension rights from EU member states to
Iceland. This is not so. It follows from the EEA Agreement that the same
rules apply within the EEA as within the EU. Pension issues come under
the EEA Agreement and Iceland is a participant in cooperation on
pension issues in the EEA.
The pension systems of the EU and the EEA are based on three main
pillars. The first is the public pension system which generally is financed
with taxes. The right to such pensions is confined to the citizens and
residents of the country in question, having fulfilled certain
preconditions. The second pillars covers occupation-linked pension
funds and the third covers supplementary pension savings. As for
Iceland, these three pillars are based on rules applying to the EU,
inasmuch as the EU has issued rules pertaining thereto.
The Pension Forum of the EU constitutes a place where the member
states can discuss the alignment of their pension legislation. Iceland is an
observer to these deliberations. Discussion in the Forum centers on how
acquired pension rights can become transferable between countries.
European Community law does not provide any principles in this respect. Opinions differ on ways and means to solve this issue, since it has
been pointed out that the matter can be difficult to resolve since rules
applying to individual pension funds can differ widely within the EU.
For instance, in some cases rights can not be transferred between funds
within the same country let alone funds located in different countries.
Other issues have also come up, such as the cost of transferring pension
rights, the assessment of rights and tax impediments. The Forum has
tackled a number of these issues but a great many unresolved problems
remain. The pension rights of Icelandic citizens would not be altered by
Iceland’s entry into the EU. Nor would the right of an Icelandic citizen
be changed if he/she were to take up residence and become a citizen in
one of the EU member states as regards the transfer of pension rights.
Icelanders have the same rights as citizens of the EU member states with
respect to transferring pension rights between countries.
Economic indicators
Treasury finances, Jan-April
Million krónur
2002
2003
12-month changes, %
2001
2002
Cash from operations
Net financial balance
2,885
-2,366
-3,189
12,421
Inflation - May 2003
5.9
2.2
Core inflation May 2003
7.5
2.6
-5,642
4,279
Wage index –April 2003
8.0
5.6
-20.4
Debt redemption
-16,696
Gross borrowing requirem. -22,062
Total turnover, Jan-Dec.
12.7
-8.4
3.5
17.5
New borrowing
26,343
-550
Retail turnover,Jan-Dec.
6.2
3.9
10.5
4.4
Overall cash balance
4,281
3,728
Unemplyment in % April
2.6
3.9
Ed. Bolli Þór Bollason: mail:[email protected] - Dir. Baldur Guðlaugsson