The European Commission published Wednesday its staff assessment following the fourth review of the EU and IMF-supported financial assistance programme for Ireland, carried out in Dublin from 11 to 20 October 2011. The report concludes that important progress has been made in the areas of fiscal consolidation, strengthening of the domestic financial sector and growth-enhancing structural reforms, as requested by the Council of Ministers (implementing Decision 2011/77/EU). This paves the way for the third instalment of €4.2 billion in European funding to Ireland in January 2012.
So far this year, fiscal performance has been on target and the budget deficit for 2011 as a whole is now projected to be well below the 10.6% of GDP ceiling, as required in the programme.
The European Commission said it welcomes last week’s presentation of the 2012 budget by Ireland, in particular its objective to reach the programme ceiling of no more than 8.6% next year. New medium-term caps on spending will underpin the fiscal adjustment strategy to secure a deficit of below 3% of GDP in 2015. Progress has been made on reforming the budgetary framework and Ireland plans to adopt legislation to reform the budgetary process early next year.
Recapitalization of the banking sector has been substantively completed at a lower than expected cost to the budget, benefiting from private investor participation and burden-sharing with the holders of subordinated bank debt. Deleveraging of the banking sector is progressing as planned, despite challenging market conditions. Banks have obtained secured-term funding, reflecting improved confidence. Further progress is needed in these areas so that banks can fulfil their essential role in the economy.
The Irish authorities are implementing structural reforms to support job creation and growth. To help reduce unemployment, reforms to sectoral wage-setting mechanisms are being prepared, together with a more investment in training. Legislative changes have been introduced to enhance competition in the medical and legal sectors with the view to bringing down costs. The long-term cost of public service pensions is also being reduced.
Economic growth has returned in 2011, after three years of contraction. While Ireland’s domestic economy is still re-adjusting, the export sector is seeing expansion. Risks to global growth next year will weigh on the continuing recovery. The programme remains on track and is well-financed. Despite the market turbulence of recent months, strong programme performance has seen Irish yields reduce substantially from the highs of mid-July. Continued implementation of the agreed fiscal and financial package will help keep Ireland on course to re-achieve market entry in 2013.
The mission for the next programme review is scheduled for January 2012.