Iceland and the International Monetary Fund set at positive 2-3 percent by 2010. Additionally Iceland determined that it would not support the losses of its pension funds and social service programmes in order not to take up additional obligations. One of the primary objectives of the Icelandic government in seeking an IMF programme was to stabilize the ISK and to set a path for its gradual appreciation. To stabilize short term pressures on the ISK the Central Bank of Iceland raised interest rates to 18% and prepared to back the krona with its foreign reserves, specifically for which Iceland asked for an IMF programme . The
Iceland and the International Monetary Fund reforms the authority of the FME was increased to improve the stability of the Icelandic banking sector and enforce the introduced measures. Along with regulatory and banking changes, fiscal policy was also modified to respond the the shock in the following ways. The assumption of the banking sector debt by the Bank of Iceland was one of the initial measures acted upon. As a consequence the public debt increased from 29% in 2007 to 105% of GDP by 2009. To cope with the increased debt burden the Icelandic government adopted a medium term debt reduction plan; the structural balance be