IMF Completes Fifth Review Under the Extended Arrangement with Ireland and Approves €3.2 Billion DisbursementPress Release No. 12/60
February 27, 2012
The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Ireland’s performance under an economic program supported by a three-year, SDR 19.47 billion (about €22.6 billion; or US$30.23 billion) arrangement under the Extended Fund Facility (EFF), or the equivalent of about 1,548 percent of Ireland’s IMF quota. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 2.786 billion (about €3.23 billion; or US$4.33 billion), bringing total disbursements under the EFF to SDR 13.836 billion (about €16.05 billion; or US$21.49 billion).
The arrangement for Ireland, which was approved on December 16, 2010 (see Press Release No. 10/496) is a part of a financing package amounting to €85 billion (about US$114 billion) also supported by Ireland’s European partners through the European Financial Stabilization Mechanism and European Financial Stability Facility, and bilateral loans from the United Kingdom, Sweden and Denmark, and Ireland’s own contributions.
The Irish authorities continue to advance wide-ranging reforms to restore the health of the financial system so it can support Ireland’s recovery. Major progress in downsizing the banking system has been made, with the two largest banks disposing of almost €15 billion in mainly foreign assets in 2011 at better prices than anticipated. A comprehensive strategy for personal insolvency reform has been announced, including an out-of-court debt settlement mechanism that would cover mortgages and other secured debts.
The substantial fiscal consolidation targeted for 2011 was achieved with a margin, with the general government deficit reduced to 10 percent of GDP, well within the program target of 10.6 percent. This result was attained despite weaker domestic demand, reflecting the authorities' strong revenue administration and firm expenditure control. Budget 2012 targets further fiscal consolidation 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.
Steps to support growth and job creation are being put in place. Reforms of sectoral wage agreements have been submitted to parliament to make wage-setting in occupations hard hit by recession more responsive to economic conditions. The authorities are also strengthening the effectiveness of activation and training policies to help job seekers get back to work. The government recently announced the disposal of €3 billion in state assets to enhance competitiveness while securing value for the state and reinvesting one-third of the proceeds.
Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“The Irish authorities have continued strong implementation of their program despite deteriorating external conditions, meeting 2011 fiscal targets with a margin and advancing structural reforms to support growth and job creation. After three years of contraction, Ireland’s growth is estimated at almost 1 percent in 2011, with exports leading the current account into surplus. Ireland’s bond spreads have declined significantly in recent months, although they remain relatively high.
“At the same time, the challenges Ireland faces have intensified since the outset of the program, with growth expected to ease to about ½ percent in 2012 owing to a slowing in trading partner activity. The Irish authorities have responded by raising the fiscal consolidation effort adopted in Budget 2012, and the budget remains on track to meet an unchanged general government deficit target of 8.6 percent of GDP. If growth should weaken further, the automatic stabilizers should be allowed to operate to help avoid jeopardizing the fragile recovery.
“To support a renewal of sound lending and domestic demand recovery, financial sector reforms must continue to rebuild long-term viability of the banks and improve the quality of their balance sheets. Banks’ implementation of restructuring plans and loan portfolio resolution strategies will require vigorous supervision, while allowing them to operate on a commercial basis. The proposed reform of the personal insolvency framework is important to help address household debt distress over time, and it needs to be well designed and adequately resourced.
“Continued strong implementation of fiscal consolidation, and financial and structural reforms by the Irish authorities will be critical for the government to regain timely and substantial access to market funding. Continued strong European support remains essential to the effectiveness of the authorities’ efforts.”