This Selected Issues paper analyses the impact of a potential rebalancing of Icelandic residents’ investment portfolios as capital controls are lifted. It applies optimal portfolio theory to calculate the potential rebalancing toward foreign assets, and then makes an estimate of the cumulative impact on the balance of payments and international reserves. Conclusions for the authorities’ capital account liberalization strategy are drawn. This paper also measures the potential budgetary savings from improving the efficiency of public spending in health and education in Iceland. A Data Envelopment Analysis is used to estimate an efficiency frontier by comparing across Organization for Economic Cooperation and Development countries the transformation rates of public spending into valuable social outcomes.
This Selected Issues paper and Statistical Appendix provides a brief assessment of Cyprus’s external position and its composition in an international perspective. It discusses estimates of Cyprus’s external position based on partial International Investment Position data as well as on cumulative flows, and compares its level and composition with advanced Organization for Economic Cooperation and Development (OECD) economies and with other accession countries. It finds that a precise assessment of Cyprus’s overall external position is hindered by the lack of data on nondebt stocks. The paper also analyzes aging and long-term fiscal sustainability in Cyprus.