IMF Completes Eleventh Review Under the Extended Fund Facility Arrangement for Ireland and Approves €770 Million DisbursementPress Release No. 13/361
September 26, 2013
The Executive Board of the International Monetary Fund (IMF) today completed the eleventh review of Ireland’s performance under an economic program supported by a three-year arrangement under the Extended Fund Facility (EFF), for the equivalent of SDR 19.5 billion (about €22.09 billion, or about US$29.83 billion) or the equivalent of 1,548 percent of Ireland’s IMF quota. The completion of the review enables the disbursement of an amount equivalent to SDR 681 million (about €770 million, or about US$1.04 billion), bringing total disbursements under the EFF to the equivalent of SDR 18.9 billion (about €21.43 billion, or about US$28.94 billion).
The arrangement for Ireland, approved on December 16, 2010 (see Press Release No. 10/496), is part of a financing package amounting to €85 billion (about US$96.5 billion), also supported by the European Financial Stabilization Mechanism and European Financial Stability Facility, bilateral loans from Denmark, Sweden, and the United Kingdom, and Ireland’s own contributions.
The Irish economy grew 0.4 percent in the second quarter but still contracted 1.2 percent year-on-year as exports dipped and domestic demand continued to decline at the pace seen in 2012. At the same time, employment grew 1.8 percent year-on-year and recent indicators suggest a growth pick up in the second half of 2013. The unemployment rate has eased from 15 percent in early 2012 to a still high 13.4 percent in August, yet 58 percent of the unemployed have been out of work for over a year.
Fiscal results for the first eight months are in line with Budget 2013, with the fiscal deficit expected to be about 6.8 percent of GDP (excluding one-off guarantee payments) in 2013 and public debt reaching 123 percent of GDP. Irish banks are gradually returning to profitability but carry nonperforming loans of 26½ percent of their loan portfolios and credit to the private sector declined by 4.5 percent year-on-year in July. In March the authorities set targets for banks to resolve mortgages in arrears and they are conducting diagnostics of Irish banks ahead of European stress tests in 2014.
Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“The Irish authorities continue to show strong commitment to the objectives of their EU-IMF supported economic program. In light of the fragility of the recovery underway and remaining risks to debt sustainability, strong policy implementation and continued European support remain critical for the period ahead.
“Resolving nonperforming loans is key to a lasting revival in bank lending, domestic demand, and job creation. Bringing the Insolvency Service into operation, removing unintended legal barriers to repossession, and facilitating banks’ engagement with borrowers have been important steps to enable the resolution of mortgages in arrears. The authorities must be vigilant to ensure this framework functions effectively to accelerate progress on that front. Close supervisory oversight of banks’ efforts is also needed to reach sustainable resolution targets.
“Ireland’s track record of steady fiscal consolidation should be maintained to protect market access on favorable terms. While budget execution remains on track in 2013, narrow buffers make continued careful implementation essential. The budget for 2014 should set out targets for cumulative consolidation in 2014-15 consistent with prior Medium Term Fiscal Statements while allowing full operation of the automatic stabilizers. Averting a rise in structural unemployment requires a further redeployment of resources to facilitate a return to work of the long-term unemployed.”