Iceland’s economy is recovering at a moderate pace and is now more balanced than before the crisis, although more remains to be done in private-sector deleveraging, reducing non-performing loans and lowering external indebtedness. Economic growth should gain momentum in 2014, led by a large increase in energy-intensive investment. To increase economic growth on a lasting basis and better manage risks, capital controls need to be removed in an orderly fashion, monetary and financial stability arrangements strengthened and the government debt-to-GDP ratio reduced to more prudent levels.