Excerpts from the Ministry's Weekly Web Release September 13, 2001.

A Continuing Slowdown in the Economy
The latest economic indicators confirm that domestic demand continues to decline and that economic growth is slowing down. Current account figures for the first half of the year show a dramatic change from last year. The general services deficit has decreased considerably and is nearing equilibrium in the second quarter, compared to a deficit of over 4 billion kronur same time last year. This is largely due to decreased spending of Icelanders travelling abroad. At the same time, income from foreign tourists in Iceland has increased.

The trade balance shows the same trend; the deficit for the first half of the year has not been lower since 1997. On the other hand, the negative factor income balance increases considerably from last year, mainly due to the impact of the devaluation of the krona on foreign debt and, thereby, on interest expenses.

These figures further support the opinion that the current account deficit this year will be less significant than previously predicted, or close to 55 billion kronur, compared to projections of 70 billion made by the National Economic Institute in June. This development is a definite indication of a continuing slowdown in the economy and there is more reason to fear a slowdown than an overheating in the economy over the coming months.

Wage Development of the State and General Market
It has often been argued that collective agreements between the state and the public sector unions include higher pay rises than collective agreements in the private sector. This comparison does not include a distinction between wages according to the rates of wages negotiated in collective agreements and actual wages, nor does it consider whether the jobs are comparable. Actual wages on the general market are often said to be higher than the minimum rate in collective agreements. The cost effect of collective agreements is, therefore, less than the raise of the minimum rate as wages above the minimum rate rise less than the minimum wage. Companies say they will not pay less than the minimum rate, not defining what the actual wages are. On the other hand, the state bases its agreements with trade unions on pay grids that are used, without exception, when calculating wages. It is therefore difficult to compare the pay-rate rises of the state and the general market.

State jobs, such as jobs in the health and education sectors, require a good deal of specialisation. More than half (51%) of state employees have higher education, compared to less than one fifth of the whole labour market, including the state. It is important to compare the different make-up of the employment forces of the state and general market when comparing wage developments.

Finally, it should be noted that according to a survey of the labour market by Statistics Iceland in April 2001, the total work force of the country counts almost 161 thousand people. State employees are about 19 thousand, or just over one half of employees in the public sector. In light of the small share of the state in the labour market, its part in general wage development may be overestimated in public discussion.

Performance Management in Government Operations
In recent years, over a hundred agreements on performance management have been made between ministries and government institutions. The Ministry of Finance has been at the forefront of the project, running dozens of courses around the country for managers and other employees of institutions.

An agreement on performance management defines mutual obligations of institutions and ministries. On the basis of the agreement, which lasts 3 to 5 years, the institution needs to provide a long-term plan, an annual plan and give an annual report. The long-term plan seeks to answer questions regarding objectives, the status of projects, standards, attitude and development of the institution's environment in the coming years. The annual plan lists the projects and issues of the year ahead, i.e. measurable objectives, budget and issues of economy and reform. The annual report is a short exposition accompanying the institution's balance sheet and profit and loss account. It includes a comparison of the measurements and objectives in the annual plan and explains variations.

The outcomes of the performance management agreements vary. Some institutions, the smaller ones especially, have had little success, while others have completely changed their methods and obtained great results as a result of the performance management. However, the definite outcome is that this is an important step towards increased efficiency in government operations.


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Weekly Web Release, Arnarhvoll, 150 Reykjavik, Iceland