Economy Minister Gylfi Magnusson also said the centre-left government was very far from a solution which could lead to a new repayment deal and allow the government to cancel a planned referendum in Iceland on the issue.

Obviously the Icelandic goverment is trying everything it can to prevent a delay (to the IMF programme), but I think the odds are against us, Magnusson said in a Reuters interview, pointing to delays last year due to the drawn-out dispute.

And unfortunately there are indications that something like that might happen again now.

Magnusson said a delay in aid payments could dent investment and growth while creating the need for further fiscal austerity.