## cr18194 ## Source details **Canonical URL:** [cr18194](https://www.imf.org/-/media/files/publications/cr/2018/cr18194.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18194.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18194.pdf.json) --- ### Filtering the Impact of Globalization on the National Accounts — Main findings and implications - Headline GDP and GNP no longer provide an accurate measure of domestic economic activity owing to significant globalization and large presence of foreign-owned MNEs. - CSO complementary metric: Modified Gross National Income (GNI*): - excludes the profits of re-domiciled companies, the depreciation of intellectual property (IP) products, and aircraft leasing; - currently available only in current prices and at an annual frequency; - shows the Irish domestic economy is about 30 percent smaller than measured by GDP. - Adjustments made to current account (CA) and to domestic demand; modified domestic demand correlates strongly with employment growth. - Note: 2017 is an estimate for GNI*. - Headline CA and NIIP distortion by MNEs: - 2017 headline CA surplus: 12½ percent of GDP; - modified current account balance (CA*): estimated at 5 percent of GDP. - Staff assessment: after controlling for MNE effects, Ireland’s external position is moderately stronger than implied by fundamentals; given measurement difficulties, no changes in policy settings recommended for now. ### Context, cyclical assessment, and outlook - Recovery highlights: - Growth resumed after the crisis, led by exports then broadened and became job-rich. - Budget deficit in 2017: 0.3 percent of GDP despite a general government reclassification. - Ireland fully repaid outstanding IMF debt and bilateral loans from Sweden and Denmark in December 2017 ahead of schedule. - NAMA redemption of senior debt completed October 2017, three years ahead of schedule. - Remaining vulnerabilities: - Public debt: 68 percent of GDP and 99 percent of GNI* (reported level). - Household debt ratio declined to just below 140 percent (lowest since 2004). - Banks’ NPL ratio remains well above the EU average. - Housing supply recovery tepid; average annual house price increase of 13 percent in March 2018; rents increased 6 percent as of end-2017; underlying housing demand about 35,000 units per year; completions well below demand. - Cyclical assessment: - Staff calculates potential output using GNI*; results point to strong potential output growth and a rapidly widening positive output gap. - Baseline outlook: - Growth projected at about 5 percent in 2018 and to gradually converge to an estimated potential rate close to 3 percent over the medium term. - Unemployment declining to around 5 percent by the end of the forecasting period. - Headline inflation expected to reach 2 percent over the medium term. - Current account surplus projected to taper to around 6½ percent of GDP by 2023. - Main risks: - Volatility of MNE activities; - Domestic vulnerabilities from full capacity: tightening labor market, sectoral wage pressures, housing boom-bust risk; - Political context (minority government). ### Macroeconomic projections and key indicators (selected, Real/Percent series) - Real GDP: 5.1 7.8 5.0 4.1 3.5 3.0 2.8 2.8 - Final domestic demand: 21.2 -7.8 5.7 4.3 3.6 2.9 2.7 2.6 - Private consumption: 3.1 2.1 2.4 2.5 2.5 2.4 2.4 2.3 - Fixed investment: 60.0 -21.8 12.1 7.7 5.9 4.1 3.5 3.5 - Current account (percent of GDP): 3.3 12.5 9.9 8.7 7.7 7.3 6.9 6.5 - Unemployment rate (percent): 8.4 6.7 5.5 5.2 5.0 5.0 4.9 4.9 - Output gap: 1.1 1.8 1.8 1.6 1.4 1.0 0.6 0.2 - Consumer prices (HICP): -0.2 0.3 0.9 1.3 1.7 1.9 1.9 1.9 - Memorandum item: Modified total domestic demand: 4.8 4.0 (ellipsis in source for subsequent years) ### External risks, Brexit, and international tax changes - External risks predominantly downside and largely external to Ireland. - Hard Brexit: - Deep trade, financial, and labor links with the U.K.; a hard border remains a potential flashpoint. - Estimated potential long-run output reduction from a hard Brexit: up to 4½–7 percent (ESRI, OECD, DBEI). - Changes in international tax landscape: - U.S. CIT reform could alter investment and tax planning of U.S. MNEs; staff estimates cut in the U.S. CIT rate plus investment expensing might reduce CIT revenue by approximately 0.25 percent of GDP. - OECD/G-20 BEPS implementation, including EU ATAD, may reduce profit shifting into Ireland and possibly increase real investment. ### Authorities’ stance and hedging - Authorities concurred with staff’s outlook and risks; plan to: - Put aside resources in a Rainy-Day Fund (RDF); - Continue Brexit preparations for all modalities; - Boost investment spending over the medium term; - Halve annual RDF contributions to €500 million starting in 2019; - Push out public debt reduction target beyond next decade after capital projects completion. ### Fiscal stance, vulnerabilities, and staff recommendations - 2018 budget target: headline deficit of 0.2 percent of GDP. - Spending and revenue measures largely offset; stamp duty on CRE transactions raised to 6 percent from 2 percent. - Structural deficit Medium-Term Objective attainment postponed to 2019 due to output gap revision. - Staff estimates: - Fiscal stance broadly neutral during 2018–19 under current policies. - Structural balance reaching a surplus of 0.6 percent of GDP by 2023 in staff projections. - Additional structural effort required: at least an additional 0.3 percent of GDP in 2019 and thereafter through raising revenue to reach an overall budget surplus of 0.2 percent of GDP in 2019 and reduce public debt ratio close to 50 percent of GDP over the medium term. - Key fiscal and vulnerability indicators: - CIT proceeds increased from 7 to 11 percent of total revenue in 2014–17; nearly two-fifths of CIT paid by top-10 taxpayers. - Public debt (percent of GDP) projections (staff): 68.1, 65.9, 63.5, 59.9, 58.3, 55.5, 52.5 (2017–2023 in projections table). - Social Insurance Fund (SIF) projected deficits: SIF deficits estimated to reach 3.1 percent of GDP in 2055 (Actuarial Review). - Tax expenditure costs: almost 10 percent of GDP in 2015 (up from about 8 percent in 2004–05). ### Fiscal policy recommendations (selected) - Tighten fiscal policy to alleviate demand pressures and rebuild buffers. - Medium-term targets and actions: - Aim for overall budget surplus of 0.2 percent of GDP in 2019. - Reduce public debt ratio close to 50 percent of GDP over the medium term. - Require additional structural effort of at least 0.3 percent of GDP in 2019 and thereafter via revenue measures. - Keep spending growth moderate while addressing infrastructure gap and growth-enhancing needs. - Revenue-side measures: - Gradually eliminate VAT preferential rates and exemptions (streamlining VAT could yield between 0.2–0.8 percent of GDP); mitigate distributional concerns with means-tested allowances. - Better target tax expenditures and raise revenue from property and environmental taxation (adjust self-assessed valuations, revisit preferential diesel excise). - Governance and one-offs: - Avoid using temporary revenue gains for permanent measures; use windfalls to reduce public debt or increase RDF contributions. - Spending-side measures: - Improve integration of strategic planning and capital budgeting; enhance PPP evaluations; fully factor in lifecycle costs; establish Infrastructure Projects Steering Group and publish Capital Tracker. - Pension and SIF sustainability: - Strengthen SIF financial soundness; consider reviewing social security contributions. ### Housing market assessment and policy - Housing dynamics: - Price-to-income and price-to-rent ratios modestly exceed historical average. - Model-based measures inconclusive (ESRI shows undervaluation to small overvaluation in different models). - No immediate financial stability risks identified; upward pressure likely to persist as demand outpaces supply. - Supply constraints and government measures: - Constraints: high building costs, impaired construction firm balance sheets, skill shortages, land hoarding. - Government measures: fast-track planning for large developments; infrastructure fund; Affordable Purchase Scheme (land-for-equity, not launched); new apartment guidelines; HBFI financed by ISIF (€750 million, equivalent to 0.25 percent of GDP) to fund constrained residential developers. - Rental measures: tax deduction for pre-letting expenses up to €5,000 per property; increase Housing Assistance Payment limits; Rebuilding Ireland Home Loan (RIHL) for low-income First-Time Buyers. - Policy recommendations: - Rationalize building regulations and planning; address skills gaps; restructure distressed viable construction firms; keep HBFI limited in scope with robust governance; introduce and review vacant site levy rates: 3 percent first year, 7 percent second and subsequent years; consider surcharge on vacant urban properties. - Re-calibrate Help-to-Buy (tax rebate up to 5 percent for FTBs) toward low-income households. - Ensure rent stabilization measures are well-targeted; avoid measures that deter new construction. - Macroprudential and data: - Central Bank kept core macroprudential parameters intact and halved proportion of new non-FTB loans allowed to exceed 3.5 LTI limit to 10 percent. - Central Credit Registry operational in 2018 encouraged shift from LTI to debt-to-income limit when data permit. ### Banking sector resilience and NPLs - Bank improvements: deleveraging continues; capital and liquidity buffers strengthened; profitability broadly stable and above euro area average. - Tracker mortgage examination costs to banks: about €1 billion, equivalent to about 40 percent of their 2017 pre-tax profits. - NPL resolution priorities: - Adopt specific binding guidelines on NPL write-offs and increase provisioning; - Accelerate legal proceedings and reduce court adjournments; - Strengthen borrower-creditor engagement and increase uptake of PIAs (creditor rejections at 25 percent); - Enhance Insolvency Service powers and promote Abhaile service. - State banking divestment: - IPO of 28.8 percent of AIB ordinary shares (€3.4 billion) in June 2017. - Government recovered about 62 percent (€18.6 billion) of past banking-sector investment; government holdings remain above 70 percent in AIB and Permanent TSB, about 14 percent in Bank of Ireland. - Recommendation: gradually scale down government ownership. ### Public Debt Sustainability Analysis (DSA) — baseline, GFNs, and stress scenarios - Nominal gross public debt (percent of GDP, by year): 82.8, 72.9, 68.1, 65.9, 63.5, 59.9, 58.3, 55.5, 52.5. - Public gross financing needs (percent of GDP, by year): 16.3, 6.9, 9.4, 7.0, 7.4, 8.0, 3.1, 4.8, 3.7. - NTMA funding 2017: raised €17 billion, average maturity 13.2 years, average interest rate 0.88 percent. - GFNs average about 6 percent of GDP (about 8 percent of GNI*) over 2018–23; peak GFNs around 8 percent of GDP (11½ percent of GNI*) in 2020. - Stress scenarios and outcomes (selected): - CFL shock: debt-to-GDP almost reaches 85 percent threshold; GFNs briefly surpass 20 percent of GDP; debt-to-GDP remains close to 75 percent in 2023. - Growth-shock, combined macro-financial, and customized scenarios: debt burden returns to around 63 percent of GDP. - Interest rate and primary balance shocks have modest impacts due to long maturity and limited GFNs. - When metrics measured relative to GNI* vulnerabilities are more evident; debt burden falls below 80 percent of GDP benchmark toward end of projection only in baseline. - Mitigants: - Non-resident holders mainly real-money investors; Exchequer cash balances provide buffer covering 6–10 months of GFNs. - Debt maturity extended to 10 years; mostly at fixed rates. - NAMA repayment and prospective banking disposals present upside. ### External stability and current account details (Annex II highlights) - 2017 headline CA surplus: 12.5 percent of GDP. - Staff-estimated CA* for 2017: 5.0 percent of GDP. - EBA model results: - Cyclically-adjusted CA norm (2017): 3.1 percent of GDP. - Cyclically-adjusted CA (headline): 13.1 percent of GDP; based on CA* staff judgement: 5.6 percent of GDP. - Total CA gap: based on headline CA 10.0 percent; based on CA* 1.9 percent. - Total CA gap ranges: [8.5%, 11.5%] based on headline CA; [0.4%, 3.4%] based on CA*. - NIIP and external debt: - NIIP worsened to -195 percent of GDP in 2015, recovered to -156 percent of GDP in 2017. - Non-IFSC gross external debt in 2017: 256 percent of GDP; projected to fall to 152 percent of GDP by 2023. - Staff conclusion: external position in 2017 moderately stronger than fundamentals imply; large uncertainty about underlying CA due to MNEs; continue monitoring and deepen understanding. ### Risk Assessment Matrix — principal risks and policy responses (selected) - Principal risks include: retreat from cross-border integration, policy uncertainty and divergence, tighter global financial conditions, changes in corporate taxation, budgetary pressures, and a possible correction in housing prices. - Policy recommendations across risks: - Let automatic stabilizers work short-run; smooth debt issuance using cash buffers; - Rebuild fiscal buffers; accelerate NPL reduction; strengthen bank resiliency; - Facilitate SME trade diversification and investment in skills; structural reforms to strengthen potential growth; - Monitor Brexit risks and update contingency plans; maintain prudent macroprudential settings. ### Annex IV — Taxation of Labor Income (structure, issues, and reform considerations) - Three main taxes on labor income: - Personal Income Tax (PIT): two rates 20 percent and 40 percent; standard rate cut-off points: - 20 percent: €34,550 (Single person); €38,550 (One parent family); €43,550 (Couple with one income); €43,550 & €25,550 for second earner (Couple with two incomes). - Main tax credits: Personal tax credit (single) €1,650; Personal tax credit (married) €3,300; Widowed €2,190; Single person child carer credit €1,650; Home carer credit €1,200; Pay As You Earn credit €1,650; Earned income credit €1,150. - Entry point to income tax for a single worker: €16,500 (almost 90 percent of minimum wage and about 45 percent of average total earnings in 2016). - Universal Social Charge (USC): incomes below €13,000 exempt; USC brackets: - First €12,012: 0.50% - Next €7,360: 2.00% - Next €50,672: 4.75% - Balance: 8.00% - over €100,000 (self-employed): 11.00% - Pay Related Social Insurance (PRSI): employee rate 4 percent; employer contribution 8.6 percent on weekly earnings up to €376 and 10.85 percent on weekly earnings over €376. - Distributional features: - Ireland’s PIT is highly progressive; top decile pay about 59 percent of total income tax while their share of market income is about 37 percent. - Share of income earners exempt from PIT in 2017: about 37 percent (down from 45 percent in 2010). - 2018 Budget measures: - Entry point for higher PIT rate raised by €750 per annum. - Two middle USC rates trimmed: reduced to 2 percent and 4.75 percent. - Inter-Departmental working group examining amalgamation of USC and PRSI; considerations include fiscal transparency and SIF sustainability. - SIF projections under unchanged policies: - Modest surplus of [0.2] percent of GDP in 2016 shifting to deficit of almost 1 percent of GDP in 2030 and 3 percent of GDP by 2055. - Reform considerations: - Broaden the tax base while protecting low-income households (means-tested cash transfers); - Consider introducing one or two intermediate income brackets to smooth progressivity; - Preserve revenue neutrality; use property taxation to offset revenue needs; - Improve work incentives (taper WFP more gradually; reduce high marginal tax rate on second earners; consider individualization of tax filing); - Strengthen SIF by reviewing contribution rates and pension reform roadmap 2018–2023. *Source: IMF staff presentation and analysis in "IRELAND" (Selected Issues and Article IV material) as contained in the provided content.* ### 1. Filtering the Impact of Globalization on the National Accounts _________________________________6 ### 1. Filtering the Impact of Globalization on the National Accounts ### Main findings on globalization and national accounts - Owing to the significant globalization of its economy and the large presence of foreign-owned multinational enterprise (MNEs), Ireland’s headline GDP and GNP figures, although computed in line with international statistical standards, no longer provide an accurate measure of domestic economic activity. - The Central Statistics Office (CSO) has produced a complementary metric — the Modified Gross National Income or GNI* — which: - excludes the profits of re-domiciled companies, the depreciation of intellectual property (IP) products, and aircraft leasing; - is currently available only in current prices and at an annual frequency; - shows that the Irish domestic economy is about 30 percent smaller than measured by GDP. - Corresponding adjustments have been made to the current account (CA) and to domestic demand; modified domestic demand shows a strong correlation with employment growth. - The Box notes that 2017 is an estimate for GNI*. ### Implications for measurement, analysis, and policy - Headline CA and NIIP metrics are distorted by MNE activities: in 2017 the headline CA surplus widened to 12½ percent of GDP, while the modified current account balance (CA*), which filters out MNE activities with limited domestic impact, is estimated at 5 percent of GDP. - After attempting to control for MNE effects, staff assesses Ireland’s external position to be moderately stronger than implied by its medium-term fundamentals and desirable policies; nevertheless, given difficulties in assessing Ireland’s “underlying” CA balance, staff considers that no changes in Ireland’s policy settings are required at this juncture. - Staff will continue work to deepen understanding of Ireland’s underlying external position. ### Context: recovery, remaining vulnerabilities, and cyclical assessment - Recovery highlights: - Economic growth resumed after the crisis, led initially by exports and becoming more broadly based and job-rich. - Public finances improved by broadening the tax base and containing expenditure; the budget deficit came in at 0.3 percent of GDP in 2017 despite a general government reclassification. - Ireland fully repaid outstanding IMF debt and bilateral loans from Sweden and Denmark in December 2017 ahead of schedule. - NAMA completed redemption of its senior debt in October 2017, three years ahead of schedule. - Remaining vulnerabilities: - Alternative metrics show public debt remains elevated compared to peers (public debt declined slightly to 68 percent of GDP and 99 percent of GNI*). - Households have reduced indebtedness but remain overleveraged compared to the euro area average; household debt ratio declined to just below 140 percent (its lowest level since 2004). - Banks’ NPL ratio remains well above the EU average despite improvements. - Housing supply recovery is tepid, triggering rapid increases in housing prices and rents; regional disparities persist. - Assessing the cyclical position: - Several features complicate cyclical assessment: small open economy, large MNE presence, flexible labor market, and responsive migration flows. - Staff applies a suite of models to calculate potential output for the domestic economy as measured by GNI*; results point to strong potential output growth and a rapidly widening positive output gap. ### Outlook and risks - Baseline outlook: - Growth is projected at about 5 percent in 2018 and to gradually converge over the medium term to an estimated potential rate close to 3 percent. - Domestic demand is expected to be the main driver; tightening labor market conditions with unemployment declining to around 5 percent by the end of the forecasting period would underpin rising earnings and support household consumption. - Headline inflation is expected to reach 2 percent over the medium term. - Ireland’s current account surplus is projected to taper off to around 6½ percent of GDP by 2023. - Main risks: - High uncertainty due to volatility of MNE activities. - Domestic vulnerabilities from the economy reaching full capacity: tightening labor market, wage pressures in some sectors, and potential re-ignition of boom-bust dynamics in the housing market. - Political context (minority government) could complicate policy making. ### Key projections and indicators (Macroeconomic Projections, 2016–23) - Real GDP: 5.1 7.8 5.0 4.1 3.5 3.0 2.8 2.8 - Final domestic demand: 21.2 -7.8 5.7 4.3 3.6 2.9 2.7 2.6 - Private consumption: 3.1 2.1 2.4 2.5 2.5 2.4 2.4 2.3 - Public consumption: 5.2 1.8 2.4 1.7 1.4 1.3 1.3 1.3 - Fixed investment: 60.0 -21.8 12.1 7.7 5.9 4.1 3.5 3.5 - Change in stocks (contribution to growth): 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Net exports (contribution to growth): -9.1 14.5 1.2 1.1 1.0 1.0 1.0 1.0 - Exports: 4.7 6.8 4.9 4.5 4.3 4.3 4.2 4.2 - Imports: 16.4 -6.2 5.4 4.8 4.6 4.6 4.5 4.6 - Current account (percent of GDP): 3.3 12.5 9.9 8.7 7.7 7.3 6.9 6.5 - Unemployment rate (percent): 8.4 6.7 5.5 5.2 5.0 5.0 4.9 4.9 - Output gap: 1.1 1.8 1.8 1.6 1.4 1.0 0.6 0.2 - Consumer prices (HICP): -0.2 0.3 0.9 1.3 1.7 1.9 1.9 1.9 - Memorandum item: Modified total domestic demand: 4.8 4.0 (ellipsis in source for subsequent years) *Source: IMF staff summary of Chapter 1, "Filtering the Impact of Globalization on the National Accounts."* ### 9. External risks are tilted to the downside. Despite the growth momentum in the global ### 9. External risks are tilted to the downside. Despite the growth momentum in the global ### External risks and channels - Main external risks are predominantly downside and mostly external to Ireland (Annex III). - Escalation in protectionism: - Ireland is vulnerable due to deep integration into global value chains and a highly concentrated industrial base. - Vulnerability amplified by still high public and private sector debt. - Hard Brexit: - Given deep trade, financial, and labor links with the U.K., Brexit spillovers are expected to be negative; ultimate scale depends on future U.K.-EU relationship. - A hard border with Northern Ireland remains a potential flashpoint despite commitments to avoid it. - Important sectors likely to be substantially affected under a WTO-type arrangement: agri-food, clothing, footwear, and tourism. - Uncertainty could hold back domestic consumption and investment decisions. - Estimated potential long-run output reduction from a hard Brexit: up to 4½–7 percent (ESRI, OECD, DBEI). - Changes in the international tax landscape: - The recent U.S. CIT reform could alter investment decisions and tax planning of U.S. MNEs, important for Irish economy and CIT revenue. - The reform could make the U.S. more attractive for future investment but U.S. MNEs are unlikely to repatriate existing IP on a significant scale. - OECD/G-20 BEPS implementation, including EU ATAD, should better align reported profits with location of productive factors, making profit-shifting into Ireland more difficult but possibly increasing real investment. ### Authorities’ views on external risks and cyclical position - Authorities broadly concurred with staff’s outlook and risk assessment: - Expect continued growth momentum driven by domestic demand and net exports supported by multinationals. - Agree growth will gradually decelerate toward potential over the medium term. - Aware of need to avoid another boom-bust cycle and ready to deploy policies for sustainable high growth. - Acknowledge risks to growth and fiscal revenues from international trade and corporate tax uncertainties. - Hedging against risks: putting aside resources in a Rainy-Day Fund (RDF). - Continue preparations for all possible Brexit modalities. ### Fiscal stance, developments, and vulnerabilities - 2018 budget targets headline deficit of 0.2 percent of GDP, marginally lower than in 2017. - Spending measures (social protection, wages, social housing) and some personal income tax reductions are almost compensated by revenue-raising measures, including stamp duty on CRE transactions raised to 6 percent from 2 percent. - Achievement of a structural deficit of 0.5 percent of GDP (Medium-Term Objective) postponed to 2019 due to output gap revision under EU methodology. - Government intends to: - Boost investment spending over the medium term after mid-term review of Capital Plan. - Achieve a structural surplus of 0.3 percent by 2021. - Halve annual contributions to RDF to €500 million (from previously higher level) to be established in 2019. - Push out target of reducing public debt to 45 percent of GDP (60 percent of GNI*) beyond next decade after capital projects completion. - Staff estimates: - Fiscal stance broadly neutral during 2018–19 under current policies. - Staff estimates a higher output gap over the medium term than authorities. - Consolidation expected to resume in outer forecast years with structural balance reaching a surplus of 0.6 percent of GDP by 2023. - Structural effort required: at least an additional 0.3 percent of GDP in 2019 and thereafter through raising revenue to reach an overall budget surplus of 0.2 percent of GDP in 2019 and reduce public debt ratio to close to 50 percent of GDP over the medium term. Key fiscal and vulnerability indicators (preserved as reported) - CIT proceeds increased from 7 to 11 percent of total revenue in 2014–17; nearly two-fifths of CIT paid by top-10 taxpayers (many affiliates of U.S. MNEs). - Staff estimates cut in the U.S. CIT rate plus investment expensing might reduce CIT revenue by approximately 0.25 percent of GDP. - Public debt metrics: - Public debt remains elevated compared to EU peers and sensitive to macro-fiscal shocks (Annex I). - Public debt projections (staff): Public debt (percent of GDP) across 2017–2023 listed in figure: 68.1, 65.9, 63.5, 59.9, 58.3, 55.5, 52.5 (as presented in projections table). - Social Insurance Fund (SIF) projected deficits: - Ageing-related pressures: SIF deficits estimated to reach 3.1 percent of GDP in 2055 (Actuarial Review). - Tax expenditure costs: - Total costs of tax expenditures amounted to almost 10 percent of GDP in 2015, up from about 8 percent of GDP in 2004–05. - Housing market indicators: - Average annual house price increase of 13 percent in March 2018. - Rents increased 6 percent as of end-2017 and surpassed pre-crisis level. - Estimated underlying housing demand: about 35,000 units per year; house completions remain well below this. ### Fiscal policy recommendations and priorities - Tighten fiscal policy to alleviate demand pressures and rebuild buffers to use if major external risks materialize. - Medium-term fiscal targets and required actions: - Aim for overall budget surplus of 0.2 percent of GDP in 2019. - Reduce public debt ratio close to 50 percent of GDP over the medium term. - Require additional structural effort of at least 0.3 percent of GDP in 2019 and thereafter through raising revenue. - Keep spending growth moderate while addressing infrastructure gap and other growth-enhancing needs. - Revenue-side measures to broaden the tax base in a growth-friendly way: - Gradually eliminate VAT preferential rates and exemptions; streamlining VAT could yield between 0.2–0.8 percent of GDP (DoF). - Income distribution concerns could be mitigated by means-tested allowances for low-income households. - Better target tax expenditures: reduce costs and reorient support away from top income groups. - Raise additional revenue from property and environmental taxation: - Consider gradual adjustment of self-assessed property valuations (last valuation dates to 2013) to new market values. - Revisit preferential excise rate on diesel compared with petrol. - Fiscal governance and one-offs: - Avoid using temporary revenue gains to fund permanent measures; use tax windfalls to reduce public debt or increase RDF contributions. - Spending-side measures to improve quality and effectiveness: - Improve integration between strategic planning and capital budgeting. - Enhance evaluations of public-private partnerships. - Fully factor in future costs for management and maintenance of infrastructure assets. - National Development Plan 2018–2027 actions: establish Infrastructure Projects Steering Group and publish Capital Tracker to enhance transparency. - Enhance spending-review effectiveness by introducing specific savings objectives. - Pension and social insurance sustainability: - Strengthen financial soundness of SIF to avoid future government subventions; consider review of social security contributions. ### Tax policy and corporate tax reforms - Continue active engagement in international corporate tax reform agenda: - Ireland engaged in OECD BEPS initiative and complies with international standards on transparency and cooperation in tax matters. - Government committed to transpose EU ATADs according to agreed timetable. - Consider broader review of personal income taxation: - Staff sees merit in merging the Universal Social Charge into a more comprehensive Personal Income Tax with a broader base and one or two additional income brackets to more evenly distribute tax burden (Annex IV). ### Housing: developments and policy response - Housing market developments: - House prices and rents rebounded rapidly; mortgage lending recovering strongly. - Mortgage lending indicators: mortgage drawdowns and approvals rapidly increased from a low base; cash transactions remain relevant. - Supply shortfall is the main driver of price increases (unlike pre-crisis period where bank credit played central role). - Underlying demand estimated about 35,000 units per year; house completions far below estimated demand. - Constraints on supply: high building costs, impaired construction firm balance sheets and funding difficulties, skill shortages, land hoarding. - CRE: high yields attracted strong investment, largely from abroad; supply response in CRE faster, returns moderated to peer levels. - Recent government measures to boost supply and affordability (small budgetary impact): - Fast-track planning process for large developments and establishment of an infrastructure fund. - Provision of land at low or no cost in exchange for state equity share (Affordable Purchase Scheme, not launched yet). - New apartment guidelines relaxing building restrictions. - Establishment of Home Building Finance Ireland (HBFI) financed by Ireland Strategic Investment Fund (750 million, equivalent to 0.25 percent of GDP) to provide direct funding to financially-constrained residential developers. - Measures to develop rental market and affordability: - Encourage development and investment projects for rental accommodation. - Introduce tax deduction for pre-letting expenses up to €5,000 per property. - Increase Housing Assistance Payment limits and administrative measures to stabilize rents in designated Rent Pressure Zones. - Provision of subsidized mortgages by local authorities to low-income First-Time Buyers via Rebuilding Ireland Home Loan (RIHL). Italic source attribution line: *Source: IMF staff presentation and analysis in "IRELAND" (Selected Issues and Article IV material) as contained in the provided content.* ### 21. While house prices are not ### 21. While house prices are not ### Housing market assessment and dynamics - Price-to-income and price-to-rent ratios have steadily increased in recent years and at present modestly exceed their historical average. - Model-based measures of house price misalignment are inconclusive with results ranging from some undervaluation (ESRI) to a small overvaluation. - No immediate financial stability risks identified, but upward pressure on prices is likely to persist over the medium term as demand growth is likely to continue outpacing supply. - Rapid house price increases are experienced countrywide; price expectations remain bullish. ### Policy recommendations to boost housing supply and utilization - Further rationalization of building regulations and streamlining of planning processes are warranted. - Address skills gaps in the construction sector; advance debt restructuring of distressed but viable construction firms; improve their access to financing. - The establishment of the HBFI could provide funding to financially-constrained developers in the residential market, but: - Its operations should remain limited in scope. - It should be subject to prudent risk assessment and a robust governance structure to minimize risks for public finances. - To reduce land hoarding, a vacant site levy will be introduced starting in 2019; its rates are: - 3 percent for the first year and 7 percent for the second and subsequent years. - These rates should be reviewed periodically to ensure effectiveness. - Consider adopting a surcharge on properties left vacant in urban areas to ensure greater utilization of vacant dwellings in locations with demand and infrastructure. ### Housing affordability measures — targeting and risks - Re-calibrate the Help-to-Buy scheme, which provides a tax rebate of up to 5 percent of the dwelling purchase price for FTBs, toward low-income households. - Measures to stabilize rents should be reconsidered as they may deter new construction; support for disadvantaged groups should be delivered through well-targeted housing assistance payments. - The RIHL, which provides loans to risky borrowers outside the banking system, should remain of limited scope and subject to stringent risk assessment because its use might breach the central bank’s loan-to-income (LTI) limits. ### Macroprudential framework and data improvements - Following last November’s review, the central bank has kept core macroprudential parameters intact while halving the proportion of new non-FTB loans allowed to exceed the 3.5 LTI limit to 10 percent. - Macroprudential limits should be adjusted pre-emptively to ensure bank and household balance sheets remain resilient to shocks. - As the Central Credit Registry becomes operational in 2018, staff encourages a shift from a LTI to a debt-to-income limit once comprehensive data on household debt are available. ### Commercial Real Estate (CRE) market risks and monitoring - Upswing in the CRE market requires close attention: - Domestic banks’ exposure to CRE declined, but non-domestic investment and funding has increased markedly. - Irish CRE cyclical pattern is highly correlated with other countries and shows wider amplitude, reflecting strong sensitivity to external conditions. - Calls for enhanced monitoring and closing data gaps to ensure resilience to drops in collateral values and reversals in foreign investment flows. - Maintain prudent lending practices as bank lending recovers and continue using taxation measures to dampen sensitivity to international CRE prices. - Transposition of the EU Fourth Directive on Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) would strengthen the AML/CFT framework and mitigate financial integrity risk related to the property market. ### Authorities’ views on property and housing policy - Authorities regard property prices as broadly in line with fundamentals but recognize supply shortages are likely to continue exerting pressure on housing prices. - Affirm commitment to support faster expansion of housing supply and view HBFI as a temporary vehicle subject to periodical evaluations. - Agree that affordability measures should be targeted at low-income households and will keep schemes under review. - View the macroprudential framework as vital to manage risks and stressed proactive approach to financial system resilience to house price reversals. ### Banking sector resilience and key developments - Domestic banking system has further improved resiliency: deleveraging continues, capital and liquidity buffers strengthened, profitability broadly stable and above the euro area average. - Headwinds to profitability include costs associated with the tracker mortgage examination, introduction of regulatory changes (e.g., the minimum requirement for own funds and eligible liabilities), and potential impact of Brexit. - NPLs have declined across loan categories but remain relatively high and weigh on bank balance sheets and operations. ### Tracker mortgage examination impacts - The examination reviews cases where banks mishandled tracker mortgages. - Banks are bearing significant costs from high administrative expenses and sizeable ad-hoc provisions: - about €1 billion, equivalent to about 40 percent of their 2017 pre-tax profits. - Shifting customers back to tracker mortgages may adversely impact net interest margin and squeeze profitability; fast resolution is important to support public trust. ### NPL resolution priorities and policy actions - Improving bank asset quality remains a key priority; mortgage arrears declined at a reduced pace with mortgages in deep arrears (over 720 days) remaining elevated. - Priority actions: - Enhancing supervisory efforts: adopt specific and binding guidelines on NPL write offs, including on increasing loan-loss provisions. - Accelerating legal proceedings: streamline legal process and reduce high frequency of court adjournments; explore greater use of enhanced mortgage-to-rent scheme. - Strengthening borrower-creditor engagement: increase uptake of Personal Insolvency Arrangements (PIAs); note that the number of approved PIAs remains low with creditor rejections at 25 percent. - Continue enhancing the powers of the Insolvency Service and increasing participation in Abhaile service, which provides distressed mortgage holders free legal and financial advice. ### State involvement in banking and divestment progress - Government completed an Initial Public Offering of 28.8 percent of Allied Irish Banks’ (AIB) ordinary shares (€3.4 billion) in June 2017. - To date, the government has recovered about 62 percent (€18.6 billion) of its past investment in the banking sector. - Government remains a key market player with: - above 70 percent shareholding in AIB and Permanent TSB, - about 14 percent in the Bank of Ireland. - Recommendation: gradually scale down government ownership in the banking sector to reduce public debt and contain potential liabilities. ### Brexit preparedness for the financial sector - Domestic banks are highly exposed to the British economy via direct lending and indirect exposure through SMEs. - Sterling weakness could adversely affect banks’ profitability. - Banks’ contingency plans should be reviewed to ensure business model suitability for material changes. - Persistent reduction of NPLs with conservative collateral valuation would improve resilience to a possible slowdown of the British economy. - Insurance sector linkages with the U.K. warrant close engagement to improve readiness for regulatory changes and mitigate contract continuity risk. ### Structural gaps and policies to promote sustainable growth - Four main structural gaps identified: - Infrastructure gap: - Weak pre-crisis investment effectiveness and cuts led to a significant public investment efficiency gap. - The National Development Plan for 2018–27 envisages an increase in public investment by one percentage point to 4 percent of GNI* by 2024 and beyond. - Investment must be properly prioritized to achieve value-for-money. - Productivity gap: - High measured productivity largely driven by large MNEs; local firms lag and spillovers are limited. - Salaries in MNEs are 60–70 percent higher than in domestic companies. - Public sector R&D spending was 0.35 percent of GDP in 2016 and is on a downward trend, less than half the euro area average. - Recommend encouraging higher innovation among domestic SMEs via greater direct public support and enhanced SME partnerships with education and research institutions. - Labor skills gap: - Skill shortages emerging in ICT, financial services, and engineering. - Qualification and field-of-study mismatches are worse than many OECD countries. - Migrant skills underutilized, facing pay and occupational gaps (ESRI, 2017). - High share of young people not in education, employment, and training (NEET) risks social exclusion. - Policies needed to make education and training more responsive to labor market needs and accessible to disadvantaged regions. - Gender gap: - Female labor participation lags the EU average despite higher female educational attainment (43 percent of females have a third level qualification compared to 40 percent of males). - Pay gap increases with educational attainment. - Closing the employment gap could uplift potential GNI* by about 10 percentage points. - Policy measures: provide affordable child care, reduce high second-earner marginal tax rates, remove gender pay gaps, and foster women’s entrepreneurship. *Source: IMF staff summary of Ireland country report chapter.* ### 34. The authorities are committed to advancing the complex structural agenda. They were ### The authorities are committed to advancing the complex structural agenda. They were ### Structural agenda and implementation - Continued implementation of the National Planning Framework to promote sustainable and balanced regional growth out to 2040. - Additional budget room allocated for the National Development Plan 2018–2027, the Government’s long-term capital investment plan to underpin the National Planning Framework over the next 10 years. - The NDP includes proposals to address infrastructure gaps across transport, housing, healthcare, and education. - Labor activation program aimed at increasing labor force participation, especially for women. - National Skill Strategy provides for upskilling and reskilling of the labor force, taking account of survey-based needs of SMEs. - Small Business Innovation Research projects and partnerships with research centers support SMEs’ innovation. - Strategic Banking Corporation of Ireland’s risk-sharing products aimed at providing SMEs access to cheaper credit; products have been in high demand and could facilitate productivity growth in the SME sector. ### Staff appraisal: macroeconomic outlook and risks - Ireland has made great strides in recovering from the crisis; the economy is on a strong growth path with a broad-based, job-rich expansion and unemployment at its lowest level in more than a decade. - Remaining challenges: - Economy rapidly approaching full employment. - Subdued construction resulting in severe housing shortages, fueling price hikes and stretching affordability. - Alternative metrics for domestic activity (adjusting for large global activities of MNEs) indicate debt ratios remain elevated. - Downside risks: escalation in global protectionism, a possible hard Brexit, and changes in international corporate taxation. - External position: moderately stronger than implied by medium-term fundamentals and desirable policy settings; measurement issues related to MNE activities add uncertainty. - Recommendation on consultation: next Article IV consultation to take place on the standard 12-month cycle. ### Fiscal policy recommendations - Pursue a countercyclical fiscal stance to alleviate demand pressures and build buffers. - Staff recommends pursuing a small budget surplus in 2019. - Aim to reduce the public debt ratio to close to 50 percent of GDP over the medium term. - Make room for infrastructure investment by broadening the tax base in a growth-friendly manner, including: - Phasing out VAT preferential rates and exemptions. - Better targeting tax expenditures. - Increasing property and green taxes. - Reduce reliance on concentrated and volatile corporate income taxes. - Use corporate tax windfalls to further reduce public debt or increase contributions to the forthcoming Rainy-Day Fund. - Improve expenditure quality and efficiency to contain spending growth. - Strengthen the financial soundness of the Social Insurance Fund, including by reviewing social contribution rates, in view of rising population ageing costs. ### Housing policy recommendations - Ramp up housing supply to reduce price pressures and improve affordability by: - Further streamlining planning processes. - Reducing skills gaps in construction. - Restructuring the debt of distressed but viable construction firms. - Implement effective policies to counter land hoarding. - Expand social housing with means-tested eligibility. - Ensure measures to support housing affordability are well-targeted to avoid exacerbating price pressures or stunting supply response (noting rent controls can stunt supply). - Closely monitor the upswing in commercial real estate and use tax measures to dampen market volatility. ### Banking system resilience and Brexit preparedness - Further improve banking system resilience and continue Brexit preparations. - Significant progress in reducing NPLs, but distressed mortgage resolution remains difficult. - Recommended measures to speed cleanup of bank balance sheets: - Accelerate legal processes. - Encourage creditor-borrower engagement. - Increase provisioning requirements. - Provide binding supervisory guidelines on NPL write-offs. - Ensure bank business models are sufficiently nimble to respond to all Brexit outcomes. - Insurance companies should prepare for possible regulatory framework changes and mitigate contract continuity risk. ### Structural impediments and productivity - Address structural impediments to promote high, sustainable growth and strengthen resilience to shocks, including Brexit. - National Development Plan 2018–27 is a positive step toward reducing infrastructure gaps, contingent on well-prioritized and efficient investments. - Boost productivity of domestic firms through greater support for innovation and enhanced SME partnerships with research institutions. - Better align educational paths with business needs and increase female employment. ### Key quantitative fiscal and balance-sheet notes (selected explicit figures from the analysis) - Recommendation: small budget surplus in 2019. - Public debt ratio medium-term target: close to 50 percent of GDP. - Rainy-Day Fund: accumulation of €0.5 billion starting in 2019 (noted in staff projections). - DSA-related figures: - Early and in full repayment of outstanding IMF loan together with bilateral loans from Denmark and Sweden: in total about €5.5 billion. - Estimated reduction in interest burden from those repayments: about €150 million over the remaining lifetime of the loans. - NAMA’s winding down in 2020 might generate a profit of some €3 billion. - Short-term financial conditions: bond yields and CDS spreads expected to remain low, owing to the ECB’s QE policy. ### Annex I — Public Debt Sustainability Analysis (summary) - Ireland’s public debt sustainability has continued to improve. - Factors supporting debt sustainability: - Prudent fiscal stance and relatively long maturity of public debt leading to moderate gross borrowing requirements with a small uptick in 2019–20. - Early repayment of IMF and bilateral loans reducing interest burden and smoothing debt maturity profile. - Reduced contingent risks as banking sector resilience improves; NAMA redeemed senior debt in October 2017 three years ahead of schedule. - Prospective return of interest rates to normal levels estimated to have negligible short-term impact because most public debt is at fixed rates and with medium-term maturity. - Further disposal of government stakes in the banking system presents an upside risk. *International Monetary Fund — Excerpts from staff appraisal and Annex I (Public Debt Sustainability Analysis) contained in the provided unit.* ### 2. However, the debt burden remains ### 2. However, the debt burden remains ### Elevated debt burden and persistent vulnerabilities - Alternative scaling metrics such as GNI*, government revenue, or per-capita terms show that Ireland’s public debt burden remains high. - Debt dynamics are vulnerable to macro-financial and contingent liability shocks. - The relatively high share of debt held by non-residents poses potential vulnerabilities, but a sudden-stop scenario represents a tail risk since non-resident holders are mainly real-money investors with long-term investment plans. - NTMA funding activity: - In 2017, the National Treasury Management Authority (NTMA) raised €17 billion from the market with an average maturity of 13.2 years and an average interest rate of 0.88 percent. - In 2018, the NTMA has a funding range of €14–18 billion. - As of mid-April 2018, the NTMA has issued €10.3 billion with a weighted average maturity of 12.3 years and a weighted average yield of 1.1 percent. ### Baseline scenario (Section B) - Ireland’s public debt burden is projected to decline steadily over the medium term under staff’s forecast. - Projected gross public debt: - 53 percent of GDP by 2023 (46 percent of GDP in net terms) from about 68 percent (59 percent in net terms) in 2017 and 120 percent (87 percent in net terms) in 2012. - Conventional debt metrics overstate the debt improvement because of known problems with Ireland’s headline GDP figures. - Expressed in terms of GNI* or general government revenue, the improvement path is slower and the debt burden would continue to compare unfavorably with EU peers. - Potential additional resources for debt reduction not incorporated into current projections: - Privatization proceeds. - Any potential funds related to a settlement of the EC ruling on Apple Inc. ### Box. Main Working Assumptions 1. The share of debt denominated in foreign currency is small (about 2 percent of the outstanding stock) and fully hedged; the DSA is carried out as if all public debt were denominated in euros. 2. About 10 percent of Ireland’s public debt is represented by the State Savings Scheme; for gross financing needs calculations it is assumed that 20 percent of the stock of these liabilities falls due each year of the projection period and is fully rolled-over with a medium-term maturity beyond the projection period. A similar assumption is made for another small portion (2 percent of the total) due to local authorities and other general government entities. Both components are kept constant at their (estimated) 2017 level. 3. With the phasing out of the ECB’s QE policy, the 10-year bond spread between Ireland and Germany is projected to gradually widen to 125 basis points from the current 30 basis points. As a result, the real interest rate on new issuances becomes closer to real output growth, although the growth-interest rate differential remains positive. ### Gross financing needs (GFNs) and fiscal vulnerabilities - GFNs estimated to average about 6 percent of GDP (about 8 percent of GNI*) over the 2018–23 period. - Peak GFNs around 8 percent of GDP (11½ percent of GNI*) in 2020. - About 20 percent of the estimated GFNs (equivalent to about one percent of GDP) is represented by stable liabilities that have historically been fully renewed. - Vulnerabilities: - The economy is highly integrated into the world economy and concentrated in a small number of sectors, leaving public finances vulnerable to common and idiosyncratic shocks. - Corporate Income Tax (CIT) proceeds account for about 11 percent of total revenue and are highly concentrated: the top ten payers account for about 40 percent of CIT receipts. - Staff estimates that more than 50 percent of Ireland’s total CIT revenue is paid by affiliates of U.S.-based MNEs; the U.S. corporate tax reform might affect Ireland’s public finances. ### Risk assessment and stress scenarios (Section C) - Shocks were calibrated to consider Ireland-specific features: - Growth shock: standard approach adjusted because of the 2015 national accounts revision; standard deviation calculated over 2004–13. The shock implies growth contracting by an average of about 0.3 percent in 2019–20 (could represent a very negative Brexit scenario). - Primary balance shock: modeled as half of the historical standard deviation (2008–17) recalculated excluding financial support to the banking sector; implies a shift from a surplus of almost 1½ percent of GDP in 2018 to an average deficit of about 0.6 percent in 2019–20. - Interest rate shock: scaled down to 200 basis points (bp) from an unscaled value of over 800 bp implied by crisis-era rates; 200bp would imply issuing government bonds at an interest rate almost three times the current one. - Combined macro-fiscal shock: estimates impact of the above shocks together. - Contingent financial liability (CFL) shock: combines a growth shock with a one-time increase in public expenditure equal to 10 percent of banks’ assets (likely a tail risk given stronger bank capital buffers). - Customized shock: assumes a permanent decline in CIT revenue by 20 percent, equivalent to about two-thirds of the difference between actual and expected CIT revenue in 2015, about half of the CIT proceeds from the ten largest companies, and almost half of estimated CIT losses if Irish affiliates of U.S.-based MNEs allocate profits more in line with activity in Ireland. This scenario assumes a severe one-time drop in headline GDP calculated to be about 12 percent; non-CIT revenues and public expenditure are kept unchanged in nominal terms compared to the baseline. - Stress scenario outcomes using traditional GDP-based metrics: - All debt metrics expressed in terms of GDP remain within risk assessment benchmarks except for the CFL shock scenario. - CFL shock: debt-to-GDP ratio almost reaches the 85 percent threshold; GFNs briefly surpass the 20 percent of GDP vulnerability mark. Debt-to-GDP would remain close to 75 percent in 2023—more than 20 percentage points higher than in the baseline and about 10 percentage points above the starting point. - Growth-shock, combined macro-financial, and customized scenarios: debt burden would return approximately to around 63 percent of GDP (near the level at the beginning of the scenario analysis). Achieving the government’s goal of bringing debt-to-GDP below 60 percent in the early part of the next decade would require additional fiscal measures. - Interest rate and primary balance shocks have modest impacts on debt dynamics due to relatively long debt maturity and limited GFNs; the primary balance shock’s impact would be smaller if increased spending translated into higher growth. - In all scenarios, GFN-to-GDP ratios remain well below the vulnerability threshold and decline over time. - When metrics are measured relative to GNI*: - Vulnerabilities become more evident. - Debt burden would fall below the 80 percent of GDP benchmark towards the end of the projection period only in the baseline scenario. - GFN-to-GNI* ratios remain relatively low except in the CFL shock scenario, though in some scenarios they would be closer to vulnerability thresholds. ### Mitigants and authorities’ views - Mitigating considerations regarding non-resident holdings and external financing requirements: - Non-resident holders are mainly real-money investors with long-term investment plans; the likelihood of a sudden stop is a tail risk. - Exchequer’s cash balances provide a buffer to cover 6–10 months of GFNs. - Substantial external financing requirements largely reflect intra-company and intra-group operations of large MNEs, which also hold large financial assets. - Authorities’ perspectives (broad agreement with staff analysis): - Headline GDP overstates underlying activity; metrics beyond traditional debt-to-GDP are useful. - Emphasized importance of net debt given policy of pre-funding. - Noted IMF repayment and Floating Rate Notes buy-backs have simplified the product mix and reduced refinancing risk. - Factors mitigating risks: - Debt (weighted) maturity extended to 10 years, one of the longest among EU countries. - Debt is mostly at fixed rates, locking in benefits of ECB quantitative easing. - Investor base is wide and diversified. - Liquidity position is strong. - Contingent liabilities have been reduced substantially as banking sector soundness improved. - NAMA completed repayment of its senior debt three years ahead of schedule and is estimated to deliver a surplus of around €3 billion at the end of its mandate. *International Monetary Fund* ### 2020. Finally, the authorities emphasized that estimates of external financing needs are heavily ### cr18194 - 2020. Finally, the authorities emphasized that estimates of external financing needs are heavily ### Public DSA — Baseline and Key Debt Indicators - As of end-January, total Exchequer cash and other liquid short-term assets amounted to about €17 billion, equivalent to about 9 months of the average GFNs in 2018–19. - Nominal gross public debt (percent of GDP, by year): 82.8, 72.9, 68.1, 65.9, 63.5, 59.9, 58.3, 55.5, 52.5. - Public gross financing needs (percent of GDP, by year): 16.3, 6.9, 9.4, 7.0, 7.4, 8.0, 3.1, 4.8, 3.7. - Real GDP growth (percent, by year): 4.1, 5.1, 7.8, 5.0, 4.1, 3.5, 3.0, 2.8, 2.8. - Nominal GDP growth (percent, by year): 4.5, 5.2, 7.5, 5.5, 5.1, 4.9, 4.6, 4.5, 4.5. - Effective interest rate (percent, by year): 4.1, 3.1, 2.9, 2.7, 2.6, 2.4, 2.2, 2.2, 2.4. - Change in gross public sector debt (percent of GDP, cumulative): -15.5. - Identified debt-creating flows (percent of GDP, cumulative): -16.1. - Primary deficit (percent of GDP, by year and cumulative): 7.2, -1.6, -1.6, -1.4, -1.5, -1.7, -1.6, -1.8, -2.0; cumulative -10.1. - Primary (noninterest) revenue and grants (percent of GDP, cumulative): 32.7, 26.6, 25.7, 25.4, 25.2, 24.8, 24.5, 24.4, 24.2; cumulative 148.4. - Primary (noninterest) expenditure (percent of GDP, cumulative): 39.9, 24.9, 24.1, 23.9, 23.7, 23.1, 22.9, 22.6, 22.2; cumulative 138.4. - Automatic debt dynamics (percent of GDP, cumulative): -1.4, -1.6, -3.1, -1.8, -1.6, -1.6, -1.4, -1.3, -1.1; cumulative -8.8. - Real interest rate contribution (percent of GDP, cumulative): 2.2, 2.2, 2.2, 1.4, 1.0, 0.6, 0.3, 0.3, 0.4; cumulative 3.9. - Real GDP growth contribution (percent of GDP, cumulative): -3.6, -3.8, -5.3, -3.2, -2.6, -2.1, -1.7, -1.6, -1.5; cumulative -12.7. ### Composition of Public Debt and Alternative Scenarios - Baseline and scenario assumptions (selected): - Baseline Real GDP growth (percent, 2018–2023): 5.0, 4.1, 3.5, 3.0, 2.8, 2.8. - Baseline Inflation (percent, 2018–2023): 0.5, 1.0, 1.4, 1.5, 1.6, 1.7. - Baseline Primary Balance (percent of GDP, 2018–2023): 1.4, 1.5, 1.7, 1.6, 1.8, 2.0. - Baseline Effective interest rate (percent, 2018–2023): 2.7, 2.6, 2.4, 2.2, 2.2, 2.4. - Alternative scenarios shown include Historical, Constant Primary Balance, with corresponding variations in Real GDP growth, Inflation, Primary Balance, and Effective interest rate. - Debt composition charts indicate breakdowns by maturity (short-term vs. medium and long-term) and by currency (local currency-denominated vs. foreign currency-denominated). ### Stress Tests and Vulnerability Analysis - Stress-test scenarios presented include: - Primary Balance Shock (2018–2023 assumptions: Real GDP growth 5.0, 4.1, 3.5, 3.0, 2.8, 2.8; Inflation 0.5, 1.0, 1.4, 1.5, 1.6, 1.7; Primary balance path shows temporary deteriorations). - Real GDP Growth Shock (example path: Real GDP growth 5.0, 0.1, -0.5, 3.0, 2.8, 2.8). - Real Interest Rate Shock. - Real Exchange Rate Shock. - Combined Macro-Fiscal Shock. - Contingent Liability Shock and a Customized shock (example: Real GDP growth 5.0, -11.3, 3.5, 3.0, 2.8, 2.8). - Stress-test outputs include projected trajectories for Gross Nominal Public Debt (percent of GDP and percent of revenue) and Public Gross Financing Needs (percent of GDP) under each shock. - Stress-test visualizations report percentile bands (10th-25th, 25th-75th, 75th-90th) for projected outcomes. ### Risk Assessment and Market Perception - Heat-map style assessment covers vulnerabilities across: Debt level, Gross financing needs, Real GDP growth shock, Primary balance shock, Real interest rate shock, Exchange rate shock, Contingent liability shock, External financing requirements, Debt profile, Market perception. - Benchmarks and thresholds used: - Bond spread upper/lower early warnings: 400 and 600 basis points. - External financing requirement thresholds: 17 and 25 percent of GDP. - Annual change in share of short-term debt thresholds: 1 and 1.5 percent. - Public debt held by non-residents thresholds: 30 and 45 percent. - Market perception indicators cited: bond spread 38 bp (long-term bond spread over German bonds, average over last 3 months 23-Dec-17 through 23-Mar-18). ### Annex II — External Stability Assessment: Key Findings - 2017 headline current account (CA) surplus: 12.5 percent of GDP. - Modified current account (CA*) (staff estimation following CSO methodology) for 2017: 5.0 percent of GDP. - Rationale: headline CA inflated by large-scale operations of MNEs (aircraft leasing, IP-related imports, redomiciled incomes, IP depreciation). - Table highlights (billions of euros, selected): - Inflows A (years shown): 392,553; 409,700; 438,943. - Exports (selected years): 200,327; 194,071; 194,253. - Outflows B and adjustments produce CA and CA*: 28,603 / 7,682; 9,194 / 13,382; 37,090 / 14,860. Corresponding percent of GDP: 10.9 / 2.9; 3.3 / 4.9; 12.5 / 5.0 (for 2015, 2016, 2017 respectively). - Staff assessment: Ireland’s external position in 2017 was moderately stronger than implied by medium-term fundamentals and desirable policies, but given uncertainty about the “underlying” CA, no changes in policy settings are recommended at this juncture. - EBA model results: - Cyclically-adjusted CA norm (percent of GDP, 2017): 3.1. - Based on headline CA, cyclically-adjusted CA (percent of GDP): 13.1; based on CA* staff judgement: 5.6. - Total CA gap (cyclically-adjusted balance minus norm): based on headline CA 10.0; based on CA* 1.9. - Identified policy gaps (percent of GDP): total 2.5 (Credit gap 2.4; Fiscal gap 0.6; Other gaps -0.5). - Unexplained residual (percent of GDP): 7.5 based on headline CA; -0.6 based on CA*. - Total CA gap range: [8.5%, 11.5%] based on headline CA; [0.4%, 3.4%] based on CA*. - Sectoral savings-investment balances: - Non-financial corporations’ savings-investment balance: 12.3 percent of GDP in 2017 (driven by decline in corporate investment and large MNE influence). - Post-crisis deleveraging led general government, households, and financial institutions to virtually balance their savings-investment gap since 2015. - REER and competitiveness: - REER appreciated about 0.5 percent in 2017. - EBA REER Index suggests a negative REER gap of 11.2 percent; EBA REER Level points to a gap of 18.5 percent in the opposite direction. - Staff estimates REER moderately undervalued in the range of ½ to 3½ percent. - Net International Investment Position (NIIP) and external debt: - NIIP worsened to -195 percent of GDP in 2015, recovered to -156 percent of GDP in 2017. - IFSC NIIP in 2017: -48 percent of GDP; non-IFSC NIIP in 2017: -107 percent of GDP. - Non-IFSC gross external debt in 2017: 256 percent of GDP; projected to fall to 152 percent of GDP by 2023. ### Staff Conclusions and Policy Recommendations - Overall assessment: - Ireland’s external position in 2017 moderately stronger than fundamentals imply, but large uncertainty around “underlying” CA due to MNE activities means no change in policy settings is warranted now. - Competitiveness improved; external balance sheets strengthened; FDI inflows remain strong; productivity concentrated in large foreign-owned firms. - Potential policy responses and priority areas: - Continue balance sheet repair and restoration of fiscal buffers used during the crisis. - Broaden access to finance for indigenous SMEs. - Increase direct public support of innovation. - Continue targeted Active Labor Market Policies (ALMPs). - Expand technical and vocational training. - Improve infrastructure, including transport and housing. - Staff will continue to deepen understanding of Ireland’s underlying external position and to monitor the influence of MNEs on headline external indicators. *Source: IMF staff (content unit: cr18194).* ### 12.5 percent pf GDP in 2017, drive ### 12.5 percent pf GDP in 2017, drive ### Current Account (CA) — developments and assessment - 2017 headline CA balance: 12.5 percent pf GDP in 2017, drive n by a substantial narrowing of the service deficit on the back of strong exports of royalties, financial and computer services, and weak imports of other business services. - CA projection: The CA is projected to taper to around 6½ percent of GDP by 2023. - Cyclically-adjusted CA: The 2017 cyclically-adjusted CA balance was at 13.1 percent of GDP compared to the CA norm of 3.1 percent of GDP. - Adjustment for MNE operations: The headline CA balance is inflated by large-scale operations of MNEs, which have limited links to the domestic economy. After adjusting for this impact, staff assesses Ireland’s external position to be moderately stronger than implied by its medium-term fundamentals. - Policy implication: Given the challenges in assessing Ireland’s “underlying” current account, staff considers that no changes in Ireland’s policy settings are required in light of this assessment. ### Real Exchange Rate (REER) — background and assessment - 2017 REER movements: - Despite strong appreciation in the second half of last year, the average CPI-based REER in 2017 was close to the average of 2016. - Nominal exchange rate appreciation in 2017: on average 2 percent vis-à-vis the U.S. dollar and 7 percent relative to the pound sterling during 2017. - The average ULC-based REER showed a small appreciation in 2017 when compared to the previous year. - 2018 early movements: During January-May 2018, the REER has appreciated by about 1½ percent relative to the 2017 average. - Longer-term perspective: Ireland has remained competitive, with the ULC-based REER depreciating significantly since end-2008 with increasing productivity and declining labor costs. Productivity growth is concentrated in large foreign-owned firms and obscures the assessment. - EBA estimates and staff assessment: - EBA REER Index suggests a negative REER gap (undervaluation) of 11.2 percent. - EBA REER Level points to a gap of 18.5 percent in the opposite direction. - Explanatory power of policy variables is negligible; gaps are mostly due to unexplained residuals of the econometric models. - Staff-assessed CA gap implies a REER gap in the range of [-3½, -½] with an estimated elasticity of 0.92. ### Capital and financial accounts: flows and policy measures - 2017 NIIP and flows: - Ireland’s net direct investment position was slightly positive mainly due to lower “other capital” inflows. - Large acquisition of portfolio debt instruments by the non-financial private sector also contributed to the improvement of Ireland’s NIIP. - Decline in other investment assets more than offset the fall in Ireland’s other investment liabilities during last year. - Drivers of inward FDI and demand for sovereign bonds: Ireland’s share in the EU and world’s inward FDI—as well as foreign demand for Irish sovereign bonds—have been supported by strong economic performance and a supportive business climate, including a favorable and stable tax environment. ### FX intervention and reserves - Background: The euro has the status of a global reserve currency. - Assessment: Reserves held by the euro area are typically low relative to standard metrics. The currency is free floating. ### Technical background notes (selected) - 1/ See SIP in the 2017 Article IV Consultation, “The Role of Foreign-owned Multinational Enterprises in Ireland” for more details on 2015 data revision. - 2/ Retained earnings of “redomiciled firms”—that establish their headquarters in Ireland—contribute to the current account surplus (FitzGerald, 2013, 2016). - 3/ IMF Country report 16/257 “Firm-level productivity and its determinants: The Irish case.” - 4/ EBA estimates from April 2018. EBA REER Level and Index models provide a poor fit for Ireland, and their total gap consists mostly of unexplained residuals. ### External Debt Sustainability — key metrics and projections (Non-IFSC) - Baseline external debt (percent of GDP): 2013: 275.6; 2014: 268.3; 2015: 305.2; 2016: 287.5; 2017: 256.4; 2018: 234.4; 2019: 215.0; 2020: 197.4; 2021: 181.4; 2022: 166.5; 2023: 152.4. - Change in external debt: -20.2; -7.2; 36.9; -17.7; -31.1; -22.0; -19.4; -17.7; -16.0; -15.0; -14.1 (by year sequence above). - Identified external debt-creating flows (4+8+9): -13.5; -11.1; -34.9; -14.2; -45.1; -23.2; -19.9; -17.5; -15.7; -14.8; -14.1. - Current account deficit, excluding interest payments: -14.6; -23.9; -20.6; -9.7; -16.0; -16.4; -14.8; -14.8; -14.8; -14.7; -14.3. - Deficit in balance of goods and services: -13.0; -11.6; -27.5; -15.9; -26.0; -26.5; -26.2; -25.9; -25.7; -25.6; -25.5. - Exports (percent of GDP): 92.7; 99.0; 112.0; 109.1; 107.3; 103.6; 102.9; 102.5; 102.7; 102.8; 103.1. - Imports (percent of GDP): 79.7; 87.4; 84.5; 93.1; 81.4; 77.0; 76.7; 76.6; 77.1; 77.3; 77.6. - Net non-debt creating capital inflows (negative): 1.3; 6.8; -0.9; -1.0; -11.7; -1.5; -1.4; -1.4; -1.4; -1.4; -1.3. - Automatic debt dynamics (contributions and components): contribution from nominal interest rate: 16.6; 26.3; 16.4; 10.8; 8.0; 5.8; 5.3; 5.8; 6.1; 6.2; 6.0. Contribution from real GDP growth: -4.5; -21.2; -60.8; -14.9; -20.5; -11.1; -9.0; -7.1; -5.7; -4.9; -4.5. Contribution from price and exchange rate changes: -12.3; 0.9; 31.0; 0.7; -4.9; ... - Residual, incl. change in gross foreign assets (2-3): -6.7; 3.9; 71.8; -3.5; 14.0; 1.2; 0.5; -0.1; -0.2; -0.2; 0.0. - External debt-to-exports ratio (in percent): 297.4; 271.1; 272.5; 263.5; 238.9; 226.4; 209.1; 192.7; 176.6; 161.8; 147.8. - Gross external financing need (in billions of US dollars): 244.5; 227.5; 234.2; 231.9; 198.0; 186.7; 181.7; 176.8; 171.1; 165.2; 159.2. - Gross external financing need (in percent of GDP): 135.8 117.1 89.5 84.3 66.9 59.8 55.4 51.3 47.5 43.9 40.4 (note: presented without separating commas in source). - Key macro assumptions (selected): - Real GDP growth (in percent): 1.6; 8.3; 25.5; 5.1; 7.8; 5.0; 4.1; 3.5; 3.0; 2.8; 2.8. - GDP deflator in US dollars (change in percent): 4.3; -0.3; -10.4; -0.2; 1.7; 10.3; 2.1; 2.5; 2.3; 2.4; 2.1. - Nominal external interest rate (in percent): 5.9; 10.3; 6.9; 3.7; 3.0; 2.6; 2.4; 2.9; 3.3; 3.6; 3.8. - Growth of exports (US dollar terms, in percent): 1.7; 15.2; 52.5; 2.4; 5.8; 1.8; 4.4; 4.5; 4.9; 4.6; 4.7. - Growth of imports (US dollar terms, in percent): 0.1; 18.3; 30.3; 15.9; -6.1; 0.0; 4.6; 4.8; 5.2; 4.8; 5.0. - Current account balance, excluding interest payments (percent of GDP): 14.6; 23.9; 20.6; 9.7; 16.0; 16.4; 14.8; 14.8; 14.8; 14.7; 14.3. - Net non-debt creating capital inflows: -1.3; -6.8; 0.9; 1.0; 11.7; 1.5; 1.4; 1.4; 1.4; 1.4; 1.3. - Debt-stabilizing non-interest current account: -3.0 (reported in table header context). ### Risk Assessment Matrix — principal risks, impacts, and policy recommendations - Retreat from cross-border integration (Medium likelihood, Short- to medium-term) - Impact: Ireland highly integrated into global value chains; concentrated production base; vulnerability to common and idiosyncratic shocks; MNE role may mitigate or exacerbate impacts; political fragmentation risk from disenchantment with globalization. - Policy recommendations: Participate in coordinated policy response at the European level; let automatic stabilizers work in the short run; smooth out debt issuance through use of cash buffers; strengthen growth potential through reforms including incentives for labor force participation, enhancing labor activation policies, better targeting benefits, improving SME access to financing, easing impediments to productivity growth reforms; accelerate NPL reduction and strengthen bank resiliency. - Policy uncertainty and divergence (Medium likelihood, Short- to medium-term) - Impact: Two-sided risks to U.S. growth; uncertainty about tax bill impacts; Brexit and NAFTA negotiations; market fragmentation; spillovers to Ireland via trade, financial and labor links; bank vulnerability. - Policy recommendations: Allow automatic stabilizers to work in short run; in medium term, fiscal policy should support growth within current envelope; redirect expenditure savings to pro-growth initiatives; structural reforms to strengthen potential; monitor Brexit-related risks and update contingency plans; facilitate SMEs’ trade diversification; rebuild fiscal buffers; accelerate banks’ balance-sheet repair; central bank to provide liquidity support if needed. - Tighter global financial conditions (High likelihood, Short- to medium-term) - Impact: Households and SMEs overleveraged; sharp interest rate increases could worsen debt service burdens; public debt dynamics resilient due to long maturity and limited gross financing needs. - Policy recommendations: Smooth out debt issuance using cash buffers; strengthen supervision; accelerate banks’ balance sheet repair; improve NPL resolution framework. - Further pressure on traditional bank business models (Medium likelihood, Medium-term) - Impact: Bank profitability may be affected despite stronger capital and liquidity buffers. - Policy recommendations: Strengthen supervision; accelerate balance sheet repair; encourage cost-savings policies. - Structurally weak growth in key advanced economies (High likelihood, Medium-term) - Impact: Weak export markets would significantly affect Irish economy through trade channel, undermining confidence, investment, and FDI inflows. - Policy recommendations: Strengthen growth potential through structural reforms; make tax and spending policies more growth-friendly within existing fiscal envelope; ECB policy actions to help revive growth and competitiveness. - Significant U.S. slowdown (Medium likelihood, Medium-term) - Impact: Direct and indirect spillovers could affect Irish trade, investment, and FDI. - Policy recommendations: As above, strengthen growth potential; make tax and spending policies more growth-friendly; rely on ECB policy actions. - Changes in corporate taxation in the U.S. and the EU (Medium likelihood, Short- to medium-term) - Impact: Could make Ireland less attractive for FDIs; budget repercussions substantial as 40 percent of corporate tax (equivalent to about 4 percent of total revenues) is paid by 10 MNEs. - Policy recommendations: Facilitate diversification through structural reforms; invest in education and training; maintain flexible and competitive labor market; ensure sound public finances and durable debt reduction to rebuild fiscal buffers. - Budgetary pressures and political context (Medium likelihood, Short- to medium-term) - Impact: Minority government faces public expectations; risks to fiscal consolidation and medium-term priorities. - Policy recommendations: Ensure sound public finances and durable debt reduction; prioritize growth-friendly fiscal measures; enhance communication strategy regarding policy and reform plans. - Sharp correction in housing prices (Low likelihood, Medium-term) - Impact: Could weaken bank and household balance sheets; adverse effects on financial stability and growth. - Policy recommendations: Monitor risks; review macro-prudential limits periodically; continue to expand housing supply sustainably; ensure recently introduced measures to improve housing affordability are well-targeted. *International Monetary Fund — Ireland: Annex II & Annex III (selected extracts from the provided content).* ### Annex IV. Taxation of Labor Income ### Annex IV. Taxation of Labor Income ### Outline of the system - Three main taxes on labor income: - Personal Income Tax (PIT) - Two tax rates: a standard rate of 20 percent and a higher rate of 40 percent. - The standard rate cut-off point depends on personal circumstances: - 20 percent: €34,550 (Single person); €38,550 (One parent family); €43,550 (Couple with one income); €43,550 & €25,550 for second earner (Couple with two incomes). - 40 percent: balance. - Several tax credits are available depending on personal circumstances (main credits): - Personal tax credit (single) €1,650 - Personal tax credit (married) €3,300 - Personal tax credit (widowed person) €2,190 - Single person child carer credit €1,650 - Home carer credit €1,200 - Pay As You Earn credit €1,650 - Earned income credit €1,150 - Considering the most relevant tax credits, the entry point to income tax for a single worker is €16,500, equivalent to almost 90 percent of minimum wage and about 45 percent of average total earnings in 2016. - Two tax credits operate by means of tax relief at source (TRS): mortgage interest relief and medical insurance relief (not considered in present analysis). Mortgage interest relief applies only to mortgages taken out before 31 December 2012; extended to 2020 on a tapered basis by the 2018 budget. - Universal Social Charge (USC) - Introduced in 2011, replacing the Income Levy and the Healthy Levy; applied on a broad base with few reliefs and no credits. - Incomes below €13,000 are fully exempted. - USC applies according to four brackets: - Income First €12,012: 0.50% - Next €7,360: 2.00% - Next €50,672: 4.75% - Balance: 8.00% - over €100,000 (self-employed): 11.00% - Pay Related Social Insurance (PRSI) - For the majority of employees, PRSI is levied at a single rate of 4 percent on gross wage income with a tapered credit for low income earners. - Employer contribution: 8.6 percent on weekly earnings up to €376 and 10.85 percent on weekly earnings over €376. - PRSI proceeds finance the Social Insurance Fund (SIF) which pays pensions and benefits (unemployment, disability, maternity, illness). ### Distributional and revenue features - Progressivity and redistribution - Among advanced economies, Ireland has one of the most progressive personal income tax systems; income earners at the top decile pay about 59 percent of total income tax while their share of market income is about 37 percent. - The difference in the average tax rate between individuals earning 67 percent of the average wage and those earning 167 percent of the average wage is one of the highest (OECD). - A complete phasing out of the USC would have a regressive impact on the income distribution resulting in a significant increase of the GINI coefficient. - Tax wedge and revenues - The tax wedge in Ireland is one of the lowest among OECD countries, and social contributions by both employees and employers are below peers’ average. - Taxes on individual or household income (percent of GDP and GNI*) place Ireland relative to peers as shown in source charts. ### Criticisms and challenges of the current system - Two main criticisms: - Relatively large share of exempted income earners: - Despite broadening measures since the crisis, the income tax base remains relatively narrow. - In 2017, the share of income earners exempted from personal income tax is estimated at about 37 percent (down from 45 percent in 2010). - Insufficient work incentives and competitiveness concerns: - Individuals earning an average wage are charged at the higher tax rate, viewed as insufficiently rewarding work. - Relatively high marginal tax rate faced by high income earners is viewed as an impediment to international competitiveness and a disincentive to attract skilled labor from abroad. - Behavioral and distributional consequences: - The relatively rapid decline of family support benefits translates into high marginal tax rates for low-income households. - Charts (reported in source) indicate average and marginal effective tax rates (single person, no child) and for single parent (1 child), reflecting interactions of PIT, USC, PRSI, and social benefits. ### Government’s measures (as of 2018 Budget and policy intent) - 2018 Budget measures: - Entry point for the higher rate of PIT raised by €750 per annum. - Two middle rates of the USC trimmed: reduced by half of a percentage point to 2 percent and by one-quarter of a percentage point to 4.75 percent. - Institutional reform intent: - Government established an inter-Departmental working group to examine options for amalgamation of the USC and the PRSI. - Working group aims to preserve the tax base and address current and future challenges facing the SIF. - No change planned regarding employers’ PRSI contributions. - Main technical pros and cons of USC-PRSI amalgamation (as identified in source): - Pros: - Both USC and PRSI are individualized taxes. - Tax bases are very similar. - Cons: - USC accrues to the Exchequer whereas PRSI accrues to the SIF. - Individuals aged 66 and over are not liable to PRSI but they pay the USC. - PRSI operates on a weekly basis whereas the USC is a cumulative annual tax. - Fiscal transparency concern: - Amalgamating USC with PRSI would increase funding needs of the Exchequer and make SIF financial sustainability less transparent (de facto institutionalizing Exchequer subventions). - Projected SIF balance under unchanged policies: - Shift from a modest surplus of [0.2] percent of GDP in 2016 to a deficit of almost 1 percent of GDP in 2030 and 3 percent of GDP by 2055 (Actuarial Review). ### Considerations for reform - Policy objectives to balance in reforming labor income taxation: - Broadening the tax base: - Lowering the entry point can be achieved by streamlining tax credits and allowances while protecting low-income households (possibly through means-tested cash transfers). - Mitigating progressivity: - Introducing one or two intermediate income brackets (as in USC structure) could smooth progression; no clear optimal number of brackets is indicated. - Preserving revenue: - At least revenue-neutral reform would be first best; potential revenue losses should be compensated by increases in other tax heads (for example, real estate taxation). - Enhancing incentives to work: - Consider tapering off Working Family Payment (WFP) transfers more gradually to better reward households moving up the pay scale. - Reduce high marginal tax rate for second income earners with a view to moving to full individualization in income tax filing to improve equality and promote female labor participation. - Strengthening financial soundness of the SIF: - In absence of social benefit reform, projected deterioration in SIF balance calls for an increase in social security contributions, including making contributions more progressive with the pay scale. - To address long-term pension sustainability, government published a Roadmap for Pensions Reform 2018–2023 aiming to move from “yearly average” contributions to a “total contributions” approach to calculate pension payments. *Source: IMF staff summarization of Annex IV content.* ### 3.5 LTI limit. ### 3.5 LTI limit. ### Measures to ease housing supply and construction-sector pressures - Adopt measures aimed at reducing building costs, freeing up land for development, and accelerating loan restructuring for distressed, but viable firms in the construction sector. - The 2018 Budget comprises several measures to encourage greater home supply. - In March 2018, the Department of Housing issued new regulations about apartment building, which move away from rigidly applied blanket planning standards, including for building height and separation. - Housing completions for Q1 2018 showed a 27 percent year-on-year increase. ### Macroprudential and financial-sector context - The introduction of Macroprudential Policies in 2014 limits high LTV and LTI lending to promote financial stability and guard against systemic risks from unsustainable credit growth. - The Central Bank completed its annual review (late 2017) and assessed that the rules, as calibrated, remain appropriate. - The Central Bank publicly indicated that the case to raise the Countercyclical Capital Buffer (CCB) was now becoming compelling. - NPL reduction is a key policy issue; policy actions include a dedicated insolvency court and insolvency practitioners to arbitrate between banks and borrowers. Banks have been actively selling NPL loan books, including significant disposals recently. - The net position (after provisions) of Irish banks compares relatively well to EU peers. ### Labor market, inclusiveness, and competitiveness policies - Continue efforts to upgrade labor force skills and raise female labor force participation. - Enhance competitiveness through greater support for SME innovation and improved infrastructure. - In September 2017, the government introduced the Pathways to Work Action Plan for jobless Households, focusing on both employment activation and identifying and removing barriers that prevent people from getting a fair chance, including by further expanding access to free and subsidized child-care and reforming the welfare schemes to support working families. - Additional technology centers, which provide innovation infrastructures to SMEs, were established. ### Measurement and statistics for accurate assessment - Publish indicators of underlying economic activity which suitably account for the operations of the foreign-owned MNEs to allow a more accurate assessment of economic developments and policy-making. - In July 2017, the Central Statistics Office published the Modified Gross National Income (GNI*) and Modified Current Account (CA*). It has also started publishing the modified domestic demand, on a quarterly basis. *Source: cr18194 - 3.5 LTI limit.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18194.pdf_