THE ICELANDIC GOVERNMENT has announced that it will write off household mortgage debt in order to kickstart the economy.

Under the plan, every household in the country will have €24,000 worth of debt written off.

The move was part of the election manifesto of the Progressive Party, led by Prime Minister Sigmundur David Gunnlaugsson.

The idea will cost the country €1.2 billion and will begin in mid-2014. Iceland has been burdened with debt since the 2008 financial crisis, which saw the krona collapse.

A government statement said that the plan would kick-start consumer spending.

“Currently, household debt is equivalent to 108 per cent of GDP, which is high by international comparison.

“The action will boost household disposable income and encourage savings.”

The plan has been criticised by the IMF, the OECD and various economists, with the IMF saying that the country has “little fiscal space” for the move, while the OECD says the plan should be limited to low income housing.

The measure has improved the country’s rating with Standard & Poor’s, who upgraded the economic outlook from negative to stable.