(Bloomberg) -- Iceland postponed its budget surplus target by two years, while the Atlantic nation’s government still pledged to focus on bringing down inflation and paving the way to reduce the western Europe’s highest borrowing costs.

Overall public deficit is set to remain at 1.8% of gross domestic product this year and decline gradually through 2028, with a surplus of 0.1% of GDP seen in 2029, according to the new budget plan unveiled by the finance ministry on Tuesday. Last year, the three-party government spanning the political spectrum aimed for a surplus by 2027.

“The government’s most important task is to create an environment where inflation and rates can go down,” Sigurdur Ingi Johannsson, who was appointed finance minister earlier this month as part of a government reshuffle, told journalists in Reykjavik.

The Icelandic central bank has been battling price growth that still remains the fastest among the rich European nations as the north Atlantic economy has run hot since recovering from the pandemic. The policymakers have kept the benchmark rate at 9.25% since last August after 850 basis points of tightening since May 2021.

Read More: Iceland Holds Rates as Volcano Impact, Wages Fan Price Fears 

Since December, four volcanic eruptions have shaken Iceland’s south-west corner and left 1% of the nation without a home as a nearby town became uninhabitable. The government has proposed around 61 billion Icelandic kronur ($440 million) in compensation for the loss of their homes, and also offered a 80 billion kronur welfare package to facilitate collective wage agreements which were reached last month.

©2024 Bloomberg L.P.