Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Dublin during January 10-19 for the regular quarterly review of the government’s economic programme. The teams’ assessment is that the program is on track but challenges remain and continued steadfast policy implementation will be key. The EC and IMF missions will seek approval for the completion of this review from the relevant EU bodies and the IMF Executive Board respectively.
Program implementation remains strong. The front-loaded fiscal consolidation is on track, with the 2011 deficit significantly below the program targets. The Irish authorities have continued to advance wide-ranging reforms to restore the health of the financial system so it can support Ireland’s recovery. Reforms to enhance competitiveness and support growth and job creation are moving forward.
The substantial fiscal consolidation targeted for 2011 has been achieved with a margin. Budgetary measures of 3½ percent of GDP reduced the estimated general government deficit to about 10 percent, well within the program target of 10.6 percent. This result was achieved despite weaker domestic demand, reflecting the authorities’ strong revenue administration and firm expenditure control. Budget 2012 targets further consolidation of 2¾ percent of GDP to lower the deficit to 8.6 percent of GDP, and sets out a clear path to reach the 3 percent of GDP deficit target by 2015.
Major progress in strengthening and downsizing the banking system was made in 2011. The two pillar banks met the 2011 deleveraging targets with almost €15 billion of predominantly foreign assets sold at a better price than anticipated. Implementation of the strategy to restore the viability and solvency of the credit union sector is underway. More conservative, provisioning and disclosure guidelines will enhance the transparency of the banks’ 2011 financial statements.
Steps to support growth and job creation are being put in place. Reforms of sectoral wage agreements, to make wage-setting in occupations hard hit by recession more responsive to economic conditions, have been submitted to parliament. Asset disposal plans are being finalized with the primary goal of strengthening competition and efficiency in key sectors while securing value for the state.
Looking ahead, nonetheless, Ireland continues to face considerable challenges. Domestic demand remains subdued, unemployment high, and trading partner growth is slowing. As a result, projected GDP growth for 2012 has been revised down to ½ percent, from an estimated 1 percent in 2011.
In this more challenging environment, maintaining Ireland’s track record of strong program implementation remains key to sustaining recovery and achieving Ireland’s return to capital markets. Accordingly, the authorities priorities in first half of 2012 include publishing a fiscal responsibility bill to underpin the achievement of the budgetary consolidation. They are also working with lenders to promote efforts to address loan arrears, and they will publish a modernization of personal insolvency framework. The authorities are also strengthening the effectiveness of activation and training policies to help job seekers get back to work.
The objectives of Ireland’s EU-IMF supported programme are to address financial sector weaknesses and to put Ireland’s economy on the path of sustainable growth, sound public finances, and job creation, while protecting the poor and most vulnerable. The programme includes loans from the European Union and EU member states amounting to €45.0 billion and a €22.5 billion Extended Fund Facility with the IMF. Ireland’s contribution is €17.5 billion. Approval of the conclusion of this review will allow the disbursement of €3.2 billion by the IMF and €6.5 billion by the EU. The mission for the next program review is scheduled for April 2012.