In the wake of the financial crisis, the Icelandic government adopted a multi-year fiscal consolidation programme to lower public debt to more prudent levels and hence to reduce vulnerability to future adverse shocks. Considerable progress has been made in implementing the programme and debt has begun to decline. Remaining consolidation is mainly to come from reducing current expenditure. This, and the adoption of a budget law to increase discipline, would make the consolidation more sustainable. There are opportunities to reduce current expenditure by increasing efficiency, notably in the area of school education. More generally, the conduct of regular strategic spending reviews would help to identify savings, including by shifting resources to the government’s highest priorities.