## 1irlea2021001 - 2021

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### KEY ISSUES
- Pre-pandemic performance and vulnerabilities
  - GDP grew by an annual average of 8 percent during 2017-19.
  - Unemployment fell to 5 percent.
  - Fiscal surplus rose to ½ percent of GDP, with the primary balance in surplus for six consecutive years.
  - Public debt declined to 57 percent of GDP but remained close to 100 percent of GNI* (excluding MNEs).
  - Private sector deleveraging: household and SME indebtedness falling.
  - Banks: increased capitalization but persistent crisis legacies, including elevated NPLs and low profitability.
  - Inflation subdued at below 1 percent.

- Pandemic response and impact
  - Government deployed a fiscal package amounting to 10 percent of GDP in 2020-21.
  - Instruments included expanded unemployment benefits, wage subsidies, grants, tax deferrals, tax cuts, and corporate loan guarantees.
  - Above-the-line expenditure measures were the second largest in the euro area.
  - Fiscal deficit contained at around 5 percent of GDP in 2020 despite large expenditure measures.

### CONTEXT: TWO-SPEED ECONOMY
- COVID epidemiology and containment
  - Ireland experienced high COVID infection rates and one of the most stringent containment regimes.
  - Third lockdown in January through April 2021 with tighter restrictions, including the closure of schools and most construction sites.
  - Government announced gradual reopening starting in May 2021.

- Sectoral outcomes and labor market
  - Output of labor-intensive domestic sectors fell by about 10 percent in 2020 (excluding manufacturing and ICT).
  - Sectoral extremes: agriculture -1.6 percent; entertainment and arts -54 percent; hospitality large declines.
  - Private consumption declined by 9 percent in 2020.
  - Unemployment reached 30 percent at the peak of the first infection wave; rose to 25 percent during the third wave.
  - “COVID-adjusted” unemployment rate for the year registered almost 20 percent.
  - Annual average inflation for the year was -0.5 percent.

- Multinational enterprise (MNE) effects
  - Export-oriented IT and pharmaceutical sectors (MNE-dominated): output growth of 18 percent in 2020.
  - GDP grew by 3.4 percent in 2020, making Ireland the only EU country with positive GDP growth in 2020.
  - Employment in multinational companies increased by 3.6 percent in 2020.
  - CIT revenues increased by 8 percent in 2020.
  - External position moderately stronger than implied by medium-term fundamentals due to strong MNE performance.

- Policy orientation
  - New government (Fianna Fáil, Fine Gael, Green Party) took office end-June 2020.
  - Budget 2021 includes extra €4 billion allocation for health and an additional €500 million of capital expenditure (including construction of 9,500 social housing units and social housing retrofits).

### OUTLOOK AND RISKS
- Staff projections and outlook
  - Staff project 2021 growth at 4.6 percent.
  - Private consumption projected to recover quickly following mass vaccination and easing of restrictions.
  - Output gap expected to remain negative for a couple of years and close in the medium-term.
  - Export growth of pharmaceuticals, medical devices, and IT products expected to remain resilient through 2022.

- Major risk categories and potential impacts
  - COVID-19 and domestic risks
    - Rapid and widespread vaccine delivery would likely limit scarring to within zero to 2 percent range.
    - New virus variants and fatigue with public health measures could delay recovery, cause labor market hysteresis, increase inequality, and weigh on potential growth and social cohesion.
    - Upside: improved household balance sheets and unwinding of pent-up demand could boost consumption.
  - International trade and external risks
    - Pharmaceutical and computer services sectors are highly concentrated, exposing economy and budget to company-specific risks.
    - Possible changes in international taxation, including a global minimum CIT rate and digital taxation, constitute an important medium-term risk.
    - Mitigant: Ireland’s non-tax comparative advantages likely to continue attracting FDI.
    - Sudden shifts in global investor sentiment could affect the large non-bank financial sector; commercial real estate (CRE) a notable domestic spillover channel.
  - Brexit-related risks
    - Post-Brexit implementation details remain a key source of risk due to strong trade, financial, and labor linkages with the U.K.
    - Trade subject to customs and other controls, loss of “passporting” rights for UK-based services suppliers, and tensions around the Northern Ireland Protocol.
    - Short-term mitigation from precautionary pre-stocking and the U.K.’s postponement of enforcement of customs procedures on its EU imports.
    - Ireland could benefit from displaced FDI; government put in place a comprehensive package to support affected businesses and consumers.

- Authorities’ views
  - Authorities broadly concurred with staff on outlook and risks.
  - Emphasized pre-pandemic robust performance, prudent policies, and comprehensive pandemic support measures as strong foundations for recovery.
  - Expectation of a strong rebound in domestic demand driven by private consumption.
  - Authorities engaged in international dialogue on CIT and determined to preserve Ireland’s non-tax attractive features.

### FISCAL: AVOIDING CLIFF-EDGE EFFECTS
- Fiscal stance and recent developments
  - Discretionary measures plus automatic stabilizers contributed to a fiscal deficit of around 5 percent of GDP in 2020.
  - Strong growth in CIT intake and resilient PIT revenues helped limit the deficit.
  - Budget 2021 contains additional support of around 3.3 percent of GDP (including a large contingency reserve fund).
  - Following adverse virus developments early in 2021, most support programs were extended to mid-2021 and likely to be extended further by several months.
  - 2021 budget deficit projected at around 5½ percent of GDP.
  - Most discretionary measures are temporary and pandemic-contingent, implying the fiscal deficit could decline by half next year if measures are withdrawn as planned.

- Fiscal composition (highlights)
  - Large support package instruments included health sector spending, income support, deferred revenue measures, equity/loans, and guarantees.
  - Use of contingency reserves to extend support in response to tightened containment measures.

- Fiscal support magnitudes (selected entries)
  - Total above the line measures 30.8 18.2 12.6 8.4
  - Tax measures 2.1 1.4 0.7 0.6
  - Expenditure measures 28.7 16.8 11.9 7.8
  - Income supports 13.6 10.4 3.2 3.7
  - Health 4.4 2.5 1.9 1.2
  - Business supports 1.0 0.9 0.1 0.3
  - Housing, local govt 1.2 1.1 0.1 0.3
  - Other 8.5 1.9 6.6 2.3
  - incl. Covid/Brexit contingency 5.0
  - Total below the line and contingent 7.0 7.0 0.0 1.9
  - Tax deferrals 2.0 2.0 0.0 0.5
  - Lending and guarantees 5.0 5.0 0.0 1.4
  - Total support 37.8 25.2 12.6 10.3
  - in % of GNI* 12.5 6.2 18.7

### FINANCIAL AND MACROPRUDENTIAL POLICIES
- Banking sector resilience and dynamics
  - Banks increased capitalization but still face legacy issues: elevated NPLs and low profitability.
  - Impairment charges and NPLs have slightly increased to 3.5 percent (but remain below the EU average); arrears in banks’ mortgage portfolios have continued to decline.
  - Banks nearly doubled loan loss provisions in 2020, significantly weighing on profitability.
  - Aggregate CET1 capital ratio would decline by about 4 percentage points to 14.1 percent by end-2021 under staff analysis but remain above minimum requirements.
  - Lending to households and non-financial firms declined by about 4 percent year-on-year during the second half of 2020.
  - Payment breaks: incidence for SME loans still twice as high as for other loans; about half now repaying under extended terms (compared to less than 10 percent for other loans).
  - Partial rejection rates for SME loans increased, suggesting credit rationing in sectors with large SME shares such as hospitality and retail trade.
  - Banks continue to build excess reserves; no general credit supply constraints.

- Unwinding support, provisioning, insolvency, and NPL resolution
  - Loans that benefitted from debt moratoria are more than twice as likely to be classified as unlikely to pay (UTP), creating legacy risks.
  - Recommendations:
    - Borrower support remain available until the recovery takes hold.
    - Gradually tighten eligibility for corporate guarantees and apply payment breaks case-by-case to better target viable but illiquid firms.
    - Normalize prudential standards for loan provisioning and communicate realistic usability of capital buffers to incentivize timely recognition of problem assets.
    - Enhance supervisory monitoring and banks’ capacity to resolve rising NPLs.
    - Bolster bankruptcy and insolvency system resources; develop streamlined liquidation procedures (with debt discharge), especially for SMEs.
    - Make debt forgiveness nontaxable and encourage loss carryovers for debt haircuts.
    - Promote out-of-court workouts and fast-track procedures.

- Money Market Funds (MMFs) and investment funds
  - Data snapshots (end-March 2021): MMF EUR 608 billion; Investment Funds (ex MMFs)* EUR 3,391 billion. */ includes real estate assets (approx. EUR 19 billion).
  - MMF vulnerabilities: large market footprint in private money markets; high portfolio overlap among MMFs raises contagion risk.
  - MMF regulatory features and facts:
    - Total net asset value of Irish MMFs: more than €600 billion at end-March 2021.
    - MMFs comprise 10 percent of total financial sector assets in Ireland.
    - Share of EU MMFs domiciled in Ireland: almost 40 percent.
    - Share of MMFs that are LVNAVs: more than 80 percent.
    - Funding by U.K. investors: 57 percent.
    - Combined funding from domestic banks, non-financial corporations, and households: slightly more than one percent of total assets.
    - LVNAV liquidity ratio thresholds: daily 10 percent; weekly 30 percent.
    - CNAV vs. LVNAV NAV-deviation thresholds: 50-basis-point threshold for CNAVs vs. 20-basis-point threshold for LVNAVs.
    - Redemptions at onset of COVID-19: almost 10 percent of total assets withdrawn.
  - Recommended actions: strengthen regulatory measures, improve data collection, enhance liquidity risk management, and contribute to EU macroprudential framework developments; consider pre-emptive liquidity policies and NAV regime adjustments.

### BANK PROFITABILITY, STRUCTURE, AND REQUIRED ACTIONS
- Profitability and business model challenges
  - Aggregate return on equity dropped to -6.2 percent last year.
  - Irish banks face large operational costs and high capital requirements as legacy effects from the past crisis.
  - Without bold actions to reduce operating costs, profitability likely to remain subdued.

- Recommended bank actions and supervisory focus
  - Reduce operating costs and streamline operations, including boosting digital capabilities.
  - Enhance non-interest revenues.
  - Review business models and provide prescriptive guidance on unprofitable non-core assets, noting announced withdrawal of two retail banks.
  - Supervisors should ensure potential consolidation does not concentrate market power or reduce incentives for efficiency.
  - Supervisory focus: sustainability of banks' business models.

### MINIMIZING SCARRING AND BUILDING UP BETTER
- Labor market, households, and corporate vulnerabilities
  - Despite a six-fold increase in unemployment at the peak, household balance sheets improved on aggregate.
  - Impact asymmetric: youth and less educated most affected; more than half of 15–24 years-old out of work in February.
  - Around 50 percent of workers benefited from pandemic income support at the peak.
  - Households' aggregate income increased in 2020 and indebtedness declined, but financial distress indicators remain above the euro area average.
  - CBI estimate: one-in-six Irish SMEs would have been financially distressed at end-2020 without policy support; fiscal support during first three quarters of 2020 reduced SME debt by two-fifths compared to a no-support scenario.

- Policy recommendations to minimize scarring
  - Provide targeted support incentivizing labor re-allocation to expanding sectors.
  - Strengthen active labor market policies: reskilling, employment services, transportation stipends, job search assistance, and localized investment.
  - Address financial disincentives to work and empower women to raise low participation (including increasing availability of affordable childcare).
  - Target business support to affected but viable firms; limit eligibility to firms likely profitable on a forward-looking basis.
  - Shift income support toward reskilling and subsidizing new hiring in expanding sectors.
  - Keep insolvency and bankruptcy systems under review and enhance as needed; introduce timely, less costly summary rescue process for small businesses.

### HOUSING AFFORDABILITY AND GREEN RECOVERY
- Housing policy diagnostics and recommendations
  - Reducing shortages in affordable housing requires a multi-pronged approach: release more land for development; streamline approval processes; assess incentives to build rental properties; increase supply including social housing.
  - Land Development Agency (LDA) establishment a positive step.
  - Resist stimulating demand given supply-demand imbalances; avoid short-term solutions that increase household borrowing via relaxed prudential regulations.
  - Home purchase subsidy program needs careful design and limited size to minimize financial sector risks.
  - Public spending on social rental housing can increase.

- Housing and market indicators
  - Overall fall in residential construction only 2 percent in 2020.
  - If increasing household pandemic savings are directed to housing, upward pressure on house prices could occur.

- Green transition and climate policy
  - Ireland missed 2020 EU climate targets: required 20-percent reduction in GHG emissions by 2020 relative to 1990; GHG emissions in Ireland declined by merely 4 percent.
  - Climate Action Bill aims to halve emissions by 2030 and achieve carbon neutrality by 2050.
  - Carbon tax increased by €7.50 to €33.50 in Budget 2021; planned trajectory includes increase to €100 per ton from previous commitment of €80.
  - Projected investment needs about 1.5 percent of GDP each year over the next decade.
  - Ireland’s cumulative share of RRF grants is 0.2 percent of GDP.
  - High share of emissions from agriculture (about 1/3 of emissions) makes reduction goals particularly challenging.
  - Policy priorities: low-carbon transportation infrastructure and charging stations (with feebates), off-shore wind and smart grids, energy-efficient housing, low-emission agronomic technologies, peatland restoration, and using higher carbon price to catalyze private investment.

### PUBLIC DEBT, EXTERNAL POSITION, AND DSA HIGHLIGHTS
- Public debt and fiscal outlook
  - Public debt-to-GDP ratio projected to increase to 63 percent this year before declining over the medium-term to 53 percent, helped by low interest rates and growth and projected return to primary surpluses.
  - Ratios of debt to GNI* and to fiscal revenue expected to be on a decisive declining trend starting in 2023.
  - Path adequate to meet long-term target of reducing debt-to-GDP ratio below 50 percent.

- Selected fiscal projections (2017–26, percent of GDP)
  - General government gross debt: 2017: 67.0; 2018: 63.0; 2019: 57.4; 2020: 59.5; 2021: 63.0; 2022: 62.9; 2023: 60.9; 2024: 59.0; 2025: 56.9; 2026: 53.1
  - Revenue: 2017: 26.0; 2018: 25.8; 2019: 25.1; 2020: 23.4; 2021: 22.1; 2022: 22.2; 2023: 22.2; 2024: 22.3; 2025: 21.9; 2026: 21.9
  - Expenditure: 2017: 26.3; 2018: 25.7; 2019: 24.6; 2020: 28.4; 2021: 27.7; 2022: 25.1; 2023: 23.4; 2024: 23.1; 2025: 22.7; 2026: 22.2
  - Overall balance: 2017: -0.3; 2018: 0.1; 2019: 0.5; 2020: -5.0; 2021: -5.6; 2022: -2.8; 2023: -1.2; 2024: -0.8; 2025: -0.4; 2026: -0.3
  - Primary balance: 2017: 1.6; 2018: 1.7; 2019: 1.7; 2020: -4.0; 2021: -4.6; 2022: -1.9; 2023: -0.3; 2024: 0.1; 2025: 0.4; 2026: 0.5

- External position and current account
  - Current account balance (billions of euros / percent of GDP): 2017: 1.5 (0.5 percent); 2018: 19.6 (6.0 percent); 2019: -40.4 (-11.3 percent); 2020: 16.9 (4.6 percent); 2021: 22.6 (5.8 percent)
  - Balance of goods and services (2020): 109.8 (30.0 percent of GDP)
  - Primary income balance (2021): -130.6 (-33.4 percent of GDP)
  - Net International Investment Position (2021): -156.5 percent of GDP

- DSA and stress-test key points
  - Exchequer cash balances provide buffer: as of end-February 2021, total Exchequer cash balance nearly €23 billion.
  - Eurosystem holds more than 21 percent of publicly placed Irish government debt under PSPP and PEPP.
  - Tail-risk CIT shock: permanent decline in CIT revenue by 6 billion (50 percent of current intake) would delay public debt stabilization by about two years in staff’s scenario.

### ANNEX: BREXIT EFFECTS, TRANSPORT, AND TRADE
- Brexit exposure and trade arrangements
  - Ireland most exposed EU country to Brexit due to strong trade, financial linkages, and labor mobility with the U.K.
  - EU-UK TCA preserved zero-tariff and quota-free trade in goods that comply with rules of origin.
  - TCA ends free movement except for Common Travel Area and Northern Ireland Protocol.

- Transport, procedures, and trade impacts (Annex Box 1.2)
  - U.K. “land bridge” route travel time: at best 10 hours vs. 40-hour direct sea route.
  - Freight routing at ports: about 80 percent green-routed; some 15 percent orange-routed; 5 percent red-routed.
  - Estimates: a 10 percent increase in waiting time at customs reduces value of trade in goods by about 1 percent (larger for time-sensitive goods and SMEs).
  - Simulation results (IMF GIMF): growth in 2021 likely to be -0.5 percentage points lower compared to no-Brexit baseline; cumulative output loss of 1.7 percent over a five-year post-Brexit horizon under assumed additional 7.2 percent increase of non-tariff trade barriers.

- Relocation and readiness
  - Around 403 firms have relocated from the U.K.; Dublin: 28 percent share of Brexit-related financial services relocations (sample = 314 firms / 405 moves).
  - Policy measures: supports prior to Budget 2021 exceeded €800 million (Budget 2019) and more than €1 billion (Budget 2020); Budget 2021 includes €3.4 billion Recovery Fund; various Brexit-readiness and loan schemes and customs readiness packages implemented.

### ANNEX III — MONEY MARKET FUNDS IN IRELAND (selected highlights)
- Scale and composition
  - Total net asset value of Irish MMFs: more than €600 billion at end-March 2021.
  - MMFs: 10 percent of total financial sector assets in Ireland; almost 40 percent of EU MMFs domiciled in Ireland.
  - More than 80 percent of MMFs are LVNAVs; LVNAVs have daily and weekly liquidity ratios of 10 and 30 percent, respectively.
  - MMFs funded mostly by U.K. investors: 57 percent.
  - Combined funding from domestic banks, non-financial corporations, and households: slightly more than one percent of total assets.

- COVID-19 episode and regulatory considerations
  - At onset of COVID-19: almost 10 percent of total assets withdrawn from MMFs; no Irish MMF suspended redemptions or breached key regulatory thresholds.
  - Policy recommendations: strengthen regulatory measures, enhance monitoring and data collection, consider usable liquidity requirements, consider increasing NAV-deviation collar for LVNAVs, and evaluate move to floating NAV to remove cliff-edge effects.

### STAFF RECOMMENDATIONS AND PRIORITIES (condensed)
- Maintain supportive fiscal stance near term to avoid cliff-edge effects; withdraw measures gradually as recovery takes hold.
- Preserve pandemic-targeted supports but shift focus to reallocation, reskilling, and transformation to a greener and more digital economy.
- Use fiscal space and RRF/Next Generation EU funds to accelerate green and digital public investment; improve spending quality and project implementation.
- Avoid using windfall CIT increases to finance permanent current expenditure; broaden tax base after recovery (reduce preferential VAT items, increase property tax revenue).
- Reconsider freeze of planned higher retirement age in medium term to support Social Insurance Fund soundness.
- Carefully unwind regulatory capital reliefs and maintain bank lending capacity; normalize provisioning and bolster NPL resolution capacity.
- Address banks’ low profitability via cost reduction, digitalization, non-interest income, and possible consolidation with supervisory oversight.
- Strengthen regulatory framework and data for IFs and MMFs; contribute to EU macroprudential framework for investment funds.
- Tackle housing affordability by increasing supply (land release, approvals, incentives for rental build), scale up social housing, and avoid demand-stimulating policies that raise household leverage.
- Use carbon pricing (recently legislated increases) combined with sector-specific measures and social protection to finance green transition while protecting vulnerable groups.
- Strengthen active labor market policies, lifelong learning, and measures to improve youth employment and female labor force participation.

*International Monetary Fund. Ireland: Selected sections from 2021 staff report (1irlea2021001 - 2021).*

### 2021. It comprised Khaled Sakr (head), Andreas Jobst, Anna

### 1irlea2021001 - 2021

### KEY ISSUES
- Pre-pandemic growth and vulnerabilities
  - GDP grew by an annual average of 8 percent during 2017-19.
  - Unemployment fell to 5 percent.
  - Fiscal surplus rose to ½ percent of GDP, with the primary balance in surplus for six consecutive years.
  - Public debt declined to 57 percent of GDP but remained close to 100 percent of GNI* (excluding MNEs).
  - Private sector deleveraging: household and SME indebtedness falling.
  - Banks: increased capitalization but persistent crisis legacies, including elevated NPLs and low profitability.
  - Inflation subdued at below 1 percent.

- Pandemic response and impact
  - The government deployed a fiscal package amounting to 10 percent of GDP in 2020-21.
  - Wide instruments: expanded unemployment benefits, wage subsidies, grants, tax deferrals, tax cuts, and corporate loan guarantees.
  - Above-the-line expenditure measures were the second largest in the euro area.
  - The fiscal deficit was contained at around 5 percent of GDP in 2020 despite large expenditure measures.

### CONTEXT: TWO-SPEED ECONOMY
- COVID epidemiology and containment
  - Ireland experienced high COVID infection rates and one of the most stringent containment regimes.
  - Third lockdown in January through April 2021 with tighter restrictions, including the closure of schools and most construction sites.
  - Government announced gradual reopening starting in May 2021.

- Sectoral outcomes and labor market
  - Output of labor-intensive domestic sectors fell by about 10 percent in 2020 (excluding manufacturing and ICT).
  - Sectoral extremes: agriculture -1.6 percent; entertainment and arts -54 percent; hospitality large declines.
  - Private consumption declined by 9 percent in 2020.
  - Unemployment reached 30 percent at the peak of the first infection wave; rose to 25 percent during the third wave.
  - “COVID-adjusted” unemployment rate for the year registered almost 20 percent.
  - Annual average inflation for the year was -0.5 percent.

- Multinational enterprise (MNE) effects
  - Exceptional growth in export-oriented IT and pharmaceutical sectors dominated by multinationals: output growth of 18 percent in 2020.
  - GDP grew by 3.4 percent in 2020, making Ireland the only EU country with positive GDP growth in 2020.
  - Employment in multinational companies increased by 3.6 percent in 2020.
  - CIT revenues increased by 8 percent in 2020.
  - Strong MNE performance contributed to an external position moderately stronger than implied by medium-term fundamentals.

- Policy orientation
  - New government (Fianna Fáil, Fine Gael, Green Party) took office end-June 2020.
  - Government program includes a strong green agenda and increased housing and health spending.
  - Budget 2021 includes extra €4 billion allocation for health and an additional €500 million of capital expenditure (including construction of 9,500 social housing units and social housing retrofits).

### OUTLOOK AND RISKS
- Staff projections and outlook
  - Staff project 2021 growth at 4.6 percent.
  - Private consumption projected to recover quickly following mass vaccination and easing of restrictions.
  - Output gap expected to remain negative for a couple of years and close in the medium-term.
  - Export growth of pharmaceuticals, medical devices, and IT products expected to remain resilient through 2022.

- Major risk categories and potential impacts
  - COVID-19 and domestic risks
    - Rapid and widespread vaccine delivery would likely limit scarring to within zero to 2 percent range.
    - New virus variants and fatigue with public health measures could delay recovery, cause labor market hysteresis, increase inequality, and weigh on potential growth and social cohesion.
    - Upside: improved household balance sheets and unwinding of pent-up demand could boost consumption.
  - International trade and external risks
    - Pharmaceutical and computer services sectors are highly concentrated, exposing the economy and budget to company-specific risks.
    - Possible changes in international taxation, including a global minimum CIT rate and digital taxation, constitute an important medium-term risk.
    - Mitigant: Ireland’s non-tax comparative advantages are likely to continue attracting FDI.
    - Sudden shifts in global investor sentiment could affect the large non-bank financial sector; notable domestic spillover risk is commercial real estate (CRE).
  - Brexit-related risks
    - Post-Brexit implementation details remain a key source of risk due to strong trade, financial, and labor linkages with the U.K.
    - Trade subject to customs and other controls, loss of “passporting” rights for UK-based services suppliers, and tensions around the Northern Ireland Protocol.
    - Short-term mitigation from precautionary pre-stocking and the U.K.’s postponement of enforcement of customs procedures on its EU imports.
    - Ireland could benefit from displaced FDI; government put in place a comprehensive package to support affected businesses and consumers.

- Authorities’ views
  - Authorities broadly concurred with staff on outlook and risks.
  - They pointed to pre-pandemic robust performance, prudent policies, and comprehensive pandemic support measures as strong foundations for recovery.
  - Expectation of a strong rebound in domestic demand driven by private consumption.
  - Authorities are proactively engaged in international dialogue on CIT and are determined to preserve Ireland’s non-tax attractive features (transparent and stable policy and legal environment, favorable business climate).

### FISCAL: AVOIDING CLIFF-EDGE EFFECTS
- Fiscal stance and recent developments
  - Discretionary measures plus automatic stabilizers contributed to a fiscal deficit of around 5 percent of GDP in 2020.
  - Strong growth in CIT intake and resilient PIT revenues helped limit the deficit.
  - Budget 2021 contains additional support of around 3.3 percent of GDP (including a large contingency reserve fund).
  - Following adverse virus developments early in 2021, most support programs were extended to mid-2021 and are likely to be extended further by several months.
  - The 2021 budget deficit is projected at around 5½ percent of GDP.
  - Most discretionary measures are temporary and pandemic-contingent, implying the fiscal deficit could decline by half next year if measures are withdrawn as planned.

- Fiscal composition (highlights)
  - Large support package instruments included health sector spending, income support, deferred revenue measures, equity/loans, and guarantees.
  - Use of contingency reserves to extend support in response to tightened containment measures.

### FINANCIAL AND MACROPRUDENTIAL POLICIES (selected points from available content)
- Banking sector
  - Banks increased capitalization but still face legacy issues: elevated NPLs and low profitability.
  - Annexes (not summarized here) cover Impact of COVID-19 on Irish Banks and Money Market Funds in Ireland.

- Macrofinancial linkages
  - Sudden shifts in global investor sentiment could affect large non-bank financial sector, with CRE the main domestic transmission channel.

### MINIMIZING SCARRING AND BUILDING UP BETTER (selected themes)
- Minimize long-term scarring through rapid vaccination, targeted support to preserve firm and worker matches, and measures to limit labor market hysteresis and inequality.
- Build on government priorities: green agenda, housing, and health spending to support a strong and inclusive recovery.

*International Monetary Fund. Ireland: Selected sections from 2021 staff report (1irlea2021001 - 2021).*

### 12.      The policy stance should continue to be supportive considering remaining

### 1irlea2021001 - 12.      The policy stance should continue to be supportive considering remaining

### Policy stance and overall recommendations
- The policy stance should continue to be supportive considering remaining vulnerabilities to COVID-19 and Brexit.
- Increasing focus should be placed on:
  - incentivizing reallocation of resources;
  - supporting transformation to a greener and more digital economy;
  - limiting the crisis impact on inequality and poverty.

### Income support
- Authorities deployed income support measures: a temporary unemployment benefits scheme with extended coverage and compensation, followed by a wage subsidy scheme.
- Household incomes were protected in 2020 and this helped limit the increase in inequality.
- Recommendations:
  - Extend income supports in line with containment measures.
  - Withdraw supports gradually to avoid cliff-edge effects.
  - Adapt measures to minimize disincentives to work via a gradual reduction in pandemic benefits in sync with reopening.
  - Accompany income supports with enhanced active labor market policies to facilitate labor reallocation.
- Key statistic excerpt (from support measures table):
  - Income supports13.610.43.23.7

### Business support
- Business support measures were smaller in size than in other EU countries but had a larger grant component and rightly focused on SMEs and hard-hit sectors.
- Demand for subsidy and grant schemes has been high; direct lending and guarantee programs had relatively low uptake, possibly due to large direct supports.
- Design issue noted:
  - The business subsidy program requires a 30 percent drop in turnover for eligibility, creating an incentive to suppress output.

### Public investment and spending quality
- Recommendation: Use current fiscal space and Next Generation EU recovery funds to accelerate green and digital transformation.
- Near-term: Scaling up efficient public investments would boost aggregate demand.
- Medium-term: Such investments would raise potential growth, address the gap in infrastructure quality vis-à-vis euro area peers, and raise productivity.
- Need to further improve quality of public spending by strengthening adherence to budgeted targets and enhancing implementation of infrastructure projects and maintenance of public assets.
- References to public investment metrics and assessments:
  - Ireland: Public Capital Stock, Public Investment and Quality of Infrastructure (figures and charts presented in source).
  - Ireland: IMF 2017 Public Investment Management Assessment (PIMA) for Ireland — points to design and effectiveness dimensions (15 items listed in the PIMA framework).

### Tax structure, CIT concentration, and fiscal outlook
- Growing reliance on CIT and its concentrated base is a vulnerability, despite its countercyclical buffer role during the crisis.
- Large U.S. technology and pharmaceutical companies in Ireland have been a key factor in CIT growth.
- Recommendation: Beyond the crisis, windfall increases in CIT should not be used to finance current expenditure (Annex VI).
- Mitigating factors: Ireland’s non-tax comparative advantages include high skilled labor, free access to the EU market, good governance and legal environment, transparency and stable policy, favorable business climate, and historical/cultural/language connections with the U.S. and the U.K.
- Policy focus should be renewed on strengthening social capital (education, training, health, and housing) and infrastructure.
- Fiscal outlook and recommendations:
  - Public debt-to-GDP ratio is projected to increase to 63 percent this year before declining over the medium-term to 53 percent, helped by low interest rates and growth as well as the projected return to primary surpluses.
  - Ratios of debt to GNI* and to fiscal revenue will be on a decisive declining trend starting in 2023.
  - This path is adequate and would meet the long-term target of reducing the debt-to-GDP ratio below 50 percent.
  - After the recovery is complete, consideration should be given to raising more revenue by:
    - reducing items subject to preferential VAT and excise rates;
    - increasing property tax revenue.
  - The freeze of the planned higher retirement age should be reconsidered in the medium term to enhance the soundness of the Social Insurance Fund.
- Property tax note:
  - Property tax revenue could be improved by applying the stipulated three-year valuation assessment frequency and eventually increasing the low tax rate of 0.2 percent while ensuring adequate social protection safeguards.

### Fiscal support magnitudes (selected entries from source table)
- Total above the line measures30.818.212.68.4
- Tax measures2.11.40.70.6
- Expenditure measures28.716.811.97.8
- Income supports13.610.43.23.7
- Health4.42.51.91.2
- Business supports1.00.90.10.3
- Housing, local govt1.21.10.10.3
- Other8.51.96.62.3
- incl. Covid/Brexit contingency5.0
- Total below the line and contingent 7.07.00.01.9
- Tax deferrals2.02.00.00.5
- Lending and guarantees5.05.00.01.4
- Total support37.825.212.610.3
- in % of GNI*12.56.218.7

(Sources listed in the table: Ireland's Resilience and Recovery Plan, Budget 2021.)

### Financial and macroprudential policies; banking sector resilience
- Irish banks entered the crisis with strong capital levels and absorbed rising impairments thanks to strong policy support.
- Regulatory flexibility and credit guarantees cushioned the immediate impact and helped limit the decline in credit.
- ECB capital relief and conservation measures; the CBI released the countercyclical capital buffer and set expectations on the industry-initiated six-month debt moratorium.
- Payment breaks benefited households and firms, particularly SMEs, limiting vulnerabilities from reductions in earnings and consumer spending and helping prevent a surge in loan defaults and bankruptcies.
- Impairment charges and NPLs have slightly increased to 3.5 percent (but remain below the EU average); arrears in banks’ mortgage portfolios have continued to decline.
- Banks nearly doubled loan loss provisions in 2020, significantly weighing on profitability.
- Staff analysis suggests banks will remain broadly resilient under baseline conditions:
  - Aggregate common equity Tier 1 (CET1) capital ratio would decline by about 4 percentage points to 14.1 percent by end-2021 but would leave sufficient capital buffers to current minimum requirements.
- Lending dynamics:
  - Lending to households and non-financial firms declined by about 4 percent year-on-year during the second half of 2020 (contrast: credit growth of about 4 percent in the euro area overall).
  - Credit history enquiries and business loan applications have fallen, signaling contraction in credit demand.
  - Banks have raised underwriting standards; incidence of payment breaks for SME loans is still twice as high as for other loans, with about half now repaying under extended terms (compared to less than 10 percent for other loans).
  - Increase of partial rejection rates for SME loans suggests some credit rationing in sectors with large SME shares such as hospitality and retail trade.
  - No general credit supply constraints as banks continue to build excess reserves.

### Unwinding support measures, provisioning, insolvency, and NPL resolution
- Unwinding capital relief measures requires careful balancing to maintain confidence and support financial intermediation; premature phase-out could create cliff-edge effects and risk choking off credit supply.
- A small share of loans is still subject to payment breaks, which have had little effect on the stock of current NPLs.
- Loans that benefitted from debt moratoria are more than twice as likely to be classified as unlikely to pay (UTP), creating legacy risks.
- Recommendations on unwinding and resolution:
  - Borrower support should remain available until the recovery takes hold.
  - Gradually tighten eligibility criteria for corporate debt guarantees and case-by-case application of payment breaks to better target illiquid but viable firms and most vulnerable households without distorting classification and provisioning requirements of banks.
  - Normalize prudential standards for loan provisioning and communicate realistic usability of capital buffers to incentivize timely recognition of problem assets and continued lending.
  - Enhance supervisory monitoring and ensure banks have capacity to resolve rising NPLs.
  - Bolster bankruptcy and insolvency system resources, including developing streamlined liquidation procedures (with debt discharge), especially for SMEs.
  - Make debt forgiveness nontaxable and encourage loss carryovers for debt haircuts to foster efficient debt restructuring and facilitate NPL resolution.
  - Promote out-of-court workouts and fast-track procedures given relatively long asset recovery time in Ireland, which could increase ultimate cost and contribute to economic scarring.
- Notes on provisioning under IFRS9 (excerpt):
  - At origination, provision must cover expected loss resulting from possible default within 12 months (Stage1).
  - If a material increase in credit risk has occurred, provision must cover lifetime expected loss (Stage2).
  - If loan is impaired (usually at more than 90 days past due), provision must add coverage of future accrued interest at amortized cost (Stage3).

*Sources: Ireland's Resilience and Recovery Plan, Budget 2021; IMF staff analysis as presented in the provided chapter.*

### 19.      Addressing banks’ persistently low profitability could help facilitate their “self-

### 1irlea2021001 - 19.      Addressing banks’ persistently low profitability could help facilitate their “self-

### Banking profitability, structure, and required actions
- Irish banks face large operational cost and high capital requirements as a legacy effect from the past crisis, explaining low profits despite relatively high lending spreads.
- Aggregate return on equity dropped to -6.2 percent last year.
- Without bold actions to reduce operating costs, profitability will likely remain subdued, especially if the crisis entails significant scarring.
- Recommended bank actions:
  - Reduce operating costs and streamline operations, including by boosting digital capabilities.
  - Enhance non-interest revenues.
  - Review business models and provide prescriptive guidance on unprofitable non-core assets, particularly in light of the announced withdrawal of two retail banks over the next few years.
- Supervisory concerns:
  - Supervisors should ensure potential consolidation does not concentrate market power or reduce incentives for achieving greater efficiency.
  - The sustainability of banks' business models will continue to be a supervisory focus.
- CBI assessment:
  - The CBI confirmed banks have significantly raised loan loss provisions and have sufficient capital buffers to absorb shocks that are materially worse than current baseline projections (based on a forward-looking scenario analysis of retail banks at end-2020).

### Investment funds (IFs), money market funds (MMFs), and macroprudential risk
- Some IFs, especially those exposed to illiquid assets, experienced significant redemption pressures at the onset of the crisis.
- Direct exposures of IFs to the domestic economy remain limited, with the notable exception of CRE: IFs own nearly half of CRE in Ireland, but this accounts for less than 0.5 percent of their total assets.
- The CBI can impose leverage restrictions based on system risks and suspend redemptions if it is in the public interest or interest of investors.
- Ireland hosts more than a third of IFs registered in the euro area; enhancing sector resilience requires a system-wide perspective and close coordination with other European authorities.
- Data snapshots (end-March 2021):
  - Money Market Funds (MMF): EUR 608 billion.
  - Investment Funds (ex MMFs)*: EUR 3,391 billion.
  - Note: */ includes real estate assets (approx. EUR 19 billion).
- Recommended regulatory measures and enhancements:
  - Strengthen regulatory measures to mitigate spillover and reputational risks from IFs.
  - Improve data collection and strengthen risk management practices with a focus on liquidity risk.
  - Contribute to development of an EU macroprudential framework for the sector that encourages consistent risk management practices (e.g., availability of liquidity buffers, activation of liquidity management tools, and effective prudential triggers).
  - Continue reviews of MMF Regulations and regulatory reforms based on lessons from stress experienced by MMFs.

### Authorities’ views on financial stability and policy support
- Authorities highlighted the important role of policy support (wage subsidies, grants, tax deferrals) in mitigating the pandemic’s impact on financial stability and in limiting solvency and liquidity gaps.
- Around 90 percent of borrowers that benefited from payment breaks have returned initially to a pre-crisis payment schedule.
- Authorities warn of potential “cliff-edge effects” if support measures are withdrawn prematurely.
- Authorities concurred with staff that banks should continue to engage constructively with borrowers in financial distress while encouraging timely recognition of problem assets.
- The authorities confirmed incumbent banks need to address pre-existing profitability challenges; the pandemic compounded pressures from a difficult operating environment and declining lending margins.
- For IFs and MMFs the authorities plan targeted enhancements, improved data, stronger liquidity risk practices, and active participation in EU-wide regulatory developments.

### Minimizing scarring: labor market, households, and corporate vulnerabilities
- Labor market and households:
  - Despite a six-fold increase in unemployment, including temporary unemployment, at the peak of the crisis, household balance sheets improved on aggregate.
  - The labor market impact was highly asymmetric across sectors, education levels, and age groups; the youth and less educated were affected most.
  - More than half of the 15–24 years-old were out of work in February.
  - Around 50 percent of workers benefited from pandemic income support at the peak of the crisis.
  - Households' aggregate income increased in 2020 and indebtedness declined, but household financial distress indicators remain above the euro area average.
- Policy recommendations to minimize scarring:
  - Provide targeted support that incentivizes labor re-allocation to expanding sectors.
  - Strengthen active labor market policies, including reskilling, employment services, transportation stipends, job search assistance, and localized investment.
  - Address financial disincentives to taking up employment and empower women to raise low participation (including increasing availability of affordable childcare).
- Corporate sector:
  - Firms' balance sheets did not deteriorate to the extent feared and a wave of insolvencies has been avoided so far, but authorities should monitor corporate vulnerabilities and provide targeted support to viable firms.
  - Any additional support should address COVID-19-related weaknesses rather than pre-existing conditions, with eligibility limited to firms likely to be profitable on a forward-looking basis.
  - Private sector-led decisions on targeting and size of financing, with state co-financing or insurance, would limit moral hazard and diversify risk.
  - A recent CBI paper estimates one-in-six Irish SMEs would have been financially distressed at end-2020 without policy support and that fiscal support during the first three quarters of 2020 reduced SME debt by two-fifths compared to a no-support scenario.
- Authorities’ institutional actions:
  - Departments of Social Protection and of Education, Research, Innovation and Science are working together to expand lifelong learning programs and improve job search, addressing digital and green transformation and Brexit-related challenges.
  - Proposed changes to the restructuring process aim to introduce a more timely and less costly "summary rescue process" for small businesses to help minimize scarring.

### Building up better — Affordable housing and macroprudential measures
- Well-targeted macroprudential measures contained the build-up of vulnerabilities in the housing market and helped stabilize prices, but supply shortages and affordability concerns are rising.
- Housing market dynamics:
  - The initial dampening impact of COVID on the housing market was followed by a robust recovery in H2:2020.
  - The overall fall in residential construction was only at 2 percent in 2020, largely due to the stringent first lockdown.
  - Health Regulations allowed designation of certain social housing projects as essential to ease the impact of the third lockdown.
  - If an increasing part of household pandemic savings is directed to housing, it could put further upward pressure on house prices.
- Policy implication: Address supply shortages to contain affordability pressures and monitor the potential for pandemic-related savings to fuel housing demand.

*Source: Excerpt from IMF country report chapter on Ireland (content unit: 1irlea2021001).*

### 29.      Reducing shortages in affordable housing requires a multi-pronged approach. The

### 1irlea2021001 - 29.      Reducing shortages in affordable housing requires a multi-pronged approach.

### Housing affordability: diagnosis and immediate policy stance
- Reducing shortages in affordable housing requires a multi-pronged approach.
- Government efforts are welcome but more needs to be done by:
  - releasing more land for development;
  - streamlining approval processes for permits and re-zoning;
  - assessing incentives to build rental properties;
  - increasing supply, including of social housing.
- The establishing of the Land Development Agency is a step in the right direction.
- Policies should resist stimulating demand further given existing supply-demand imbalances.
- Avoid short-term solutions that increase household borrowing via relaxed prudential regulations.
- The program to subsidize home purchase needs to be carefully designed and remain limited in size to minimize risks to the financial sector.
- Housing affordability is characterized as a structural issue in Ireland, with low public spending on housing allowance.

### Social housing, public spending, and stock
- Social housing stock has still room to grow.
- Public spending on social rental housing can increase.
- Public spending signals and comparative charts referenced (OECD sources) indicate relatively low government spending on housing allowances as a percent of GDP (2018 or last year available) and modest social rental housing stock shares in recent years.

### Green Recovery and climate targets
- Ireland has missed 2020 EU climate targets by a significant margin.
  - Footnote: The EU Effort Sharing Regulation target required a 20-percent reduction in GHG emissions by 2020 relative to 1990; however, GHG emissions in Ireland declined by merely 4 percent.
- The coalition agreement and policy actions:
  - In March 2021, the government approved the Climate Action Bill, which aims to halve emissions by 2030 and achieve carbon neutrality by 2050.
  - Planned measures include increasing the carbon tax to €100 per ton from the previous commitment of €80.
  - The carbon tax was increased by €7.50 to €33.50 in Budget 2021 as an important first step.
  - Boost investment in low-emission public transport, energy-efficient housing, and renewable energy production.

### Green transition investment needs and RRF/NGEU context
- Recovery policies should prioritize green investment that facilitates Ireland’s transformation to a low-carbon economy.
- Ireland’s cumulative share of RRF grants is 0.2 percent of GDP.
- Projected investment needs are about 1.5 percent of GDP each year over the next decade.
- Ireland’s RRF share is small relative to projected needs, but its share of capital spending on green projects is disproportionately high.
- High share of emissions from agriculture (about 1/3 of emissions) makes reduction goals particularly challenging and calls for innovative solutions such as carbon sequestration via peatland restoration and agronomic techniques.

### Policy priorities for the green transition (listed by staff)
- Public investment in low-carbon transportation infrastructure and charging stations for electric vehicles, complemented by feebates to reduce the relative price of electric vehicles.
- Developing off-shore wind power and investing in smart electricity grids.
- Public support for energy-efficient housing, low-emission agronomic technologies, and natural carbon sequestration.
- Implement planned increase in domestic carbon price, accompanied by reduction in fuel subsidies, to help catalyze private investment.

### Authorities’ views and announced measures
- Authorities reiterated commitment to address housing and climate change challenges.
- Progress towards improving housing supply and affordability includes:
  - Help-to-buy Program;
  - National Cost Rental Policy;
  - Land Development Agency (LDA) Bill to provide a permanent basis to increase supply of social and affordable homes and promote optimal use of State land.
- The recently legislated Affordable Housing Bill includes a 10 percent affordable housing requirement on new developments in addition to the existing requirement for 10 percent social housing.
- Authorities highlighted the recently legislated carbon tax increase, with a trajectory to 2030, and the ring-fenced use of the projected revenues of €9.5 billion for investment in energy efficiency, just transition, and low-emission agriculture.
- The National Home Retrofit Scheme provides incentives for homeowners to improve their energy rating with 35 to 50 percent grant elements.

### Staff appraisal: macroeconomic impact and policy recommendations
- The pandemic had a highly asymmetric impact, suggesting a two-speed recovery:
  - The domestic sector, which is more labor-intensive, contracted by about 10 percent in 2020;
  - Strong growth of MNEs softened the blow, making Ireland the only EU country with positive growth last year.
- GDP growth for 2021 is projected at 4.6 percent, with partial domestic-sector recovery as containment measures ease and remote working adaptability increases.
- Fiscal and policy response assessment:
  - Total envelope of around 10 percent of GDP (18 percent of GNI*) for 2020-21.
  - The overall deficit for 2020 was contained at about 5 percent of GDP due to strong revenue growth from corporate income taxes.
- Near- and medium-term risks include pandemic dynamics, post-Brexit trade arrangements, and likely changes in international corporate taxation.
- Policy recommendations and priorities:
  - Fiscal policy should remain supportive in the near term to avoid cliff-edge effects, then be adjusted to sustainably boost growth and support social cohesion.
  - After recovery, broaden the tax base to help finance productivity-enhancing investment in human and physical capital, and resume reduction in public debt in relation to GNI*.
  - Improve expenditure efficiency, including infrastructure project implementation and maintenance of public assets.
  - Continue regulatory actions that stabilized credit conditions (e.g., CBI releasing the countercyclical capital buffer).
  - Lenders should engage constructively with borrowers in financial distress; supervisory focus should remain on timely recognition of problem assets and resolving rising NPLs.
  - Keep insolvency and bankruptcy systems under review and enhance as needed.
  - Over the medium term, pursue cost reduction and greater use of digital technologies to raise banks' profitability and reduce lending rates.
  - Supervisors should focus on sustainability of banks' business models as non-bank lenders increase market presence.
  - Strengthen regulatory framework for investment funds to mitigate spillover and reputational risks; welcome CBI plans to improve data collection, strengthen risk management, and develop the macroprudential framework.
  - Taper withdrawal of policy support carefully to minimize scarring and facilitate an inclusive and sustainable recovery.
  - Strengthen active labor market policies (re-training, employment placement), with special focus on youth employment.
  - Make income support increasingly conditional on re-skilling and shift toward subsidizing new hiring in expanding sectors.
  - Target business support increasingly to affected but viable firms.
  - Raise productivity through better education and vocational training and empower women to raise low labor participation, including by increasing availability of affordable childcare.
  - More public investment in social and physical infrastructures and affordable housing calls for greater spending efficiency and raising additional public revenue after the recovery, given still high public debt in relation to GNI*.
  - Use the recently legislated higher carbon tax, with a trajectory to 2030, to help finance the effort; combine with sector-specific policies to protect vulnerable groups in the transition.

*Source: IMF staff report content as provided.*

### 41.      Staff proposes that the next Article IV consultation with Ireland take place on the

### Staff proposes that the next Article IV consultation with Ireland take place on the standard 12-month cycle.

### COVID-19 and High-Frequency Indicators
- Retail mobility, stringency, and new cases are tracked with a 7-day moving average (figure timeframe 3/2/2020–5/10/2021).
- Stringency index shown in reverse scale.
- Cumulative COVID-19 Vaccination Doses Administered (per 100 people) compared across countries with Ireland included (dates: 12/21/2020–5/10/2021).
- High-frequency indicators presented: Retail mobility; PMI manufacturing - 50; PMI services - 50; Stringency (quarterly: 2020Q1–2021Q1 and Apr-21).

### Real Economy: Selected Economic Indicators (2017–26)
- Population (2020, million): 5.0
- Per capita modified income (2019, euros): 43,174
- Real GDP (annual percentage change, constant prices, unless otherwise indicated):
  - 2017: 9.1
  - 2018: 8.5
  - 2019: 5.6
  - 2020: 3.4
  - 2021: 4.6
  - 2022: 4.9
  - 2023: 3.8
  - 2024: 2.8
  - 2025: 2.8
  - 2026: 2.8
- Domestic demand (annual percentage change):
  - 2017: 1.2
  - 2018: -1.9
  - 2019: 32.4
  - 2020: -18.1
  - 2021: -11.2
  - 2022: 7.5
  - 2023: 4.8
  - 2024: 4.2
  - 2025: 3.5
  - 2026: 3.5
- Inflation (HICP):
  - 2017: 0.3
  - 2018: 0.7
  - 2019: 0.9
  - 2020: -0.5
  - 2021: 1.6
  - 2022: 1.9
  - 2023: 2.0
  - 2024: 2.0
  - 2025: 2.0
  - 2026: 2.0
- Employment (ILO definition) (annual percentage change):
  - 2017: 2.9
  - 2018: 2.9
  - 2019: 2.9
  - 2020: -1.3
  - 2021: 1.0
  - 2022: 2.0
  - 2023: 1.5
  - 2024: 1.2
  - 2025: 1.0
  - 2026: 1.0
- Unemployment rate (percent):
  - 2017: 6.7
  - 2018: 5.8
  - 2019: 5.0
  - 2020: 5.6
  - 2021: 6.8
  - 2022: 5.7
  - 2023: 5.3
  - 2024: 5.1
  - 2025: 5.0
  - 2026: 5.0

### Public Finance: General Government (percent of GDP; 2017–26)
- Revenue (percent of GDP):
  - 2017: 26.0
  - 2018: 25.8
  - 2019: 25.1
  - 2020: 23.4
  - 2021: 22.1
  - 2022: 22.2
  - 2023: 22.2
  - 2024: 22.3
  - 2025: 21.9
  - 2026: 21.9
- Expenditure (percent of GDP):
  - 2017: 26.3
  - 2018: 25.7
  - 2019: 24.6
  - 2020: 28.4
  - 2021: 27.7
  - 2022: 25.1
  - 2023: 23.4
  - 2024: 23.1
  - 2025: 22.7
  - 2026: 22.2
- Overall balance (Net lending(+)/borrowing(-)):
  - 2017: -0.3
  - 2018: 0.1
  - 2019: 0.5
  - 2020: -5.0
  - 2021: -5.6
  - 2022: -2.8
  - 2023: -1.2
  - 2024: -0.8
  - 2025: -0.4
  - 2026: -0.3
- Primary balance:
  - 2017: 1.6
  - 2018: 1.7
  - 2019: 1.7
  - 2020: -4.0
  - 2021: -4.6
  - 2022: -1.9
  - 2023: -0.3
  - 2024: 0.1
  - 2025: 0.4
  - 2026: 0.5
- General government gross debt (percent of GDP):
  - 2017: 67.0
  - 2018: 63.0
  - 2019: 57.4
  - 2020: 59.5
  - 2021: 63.0
  - 2022: 62.9
  - 2023: 60.9
  - 2024: 59.0
  - 2025: 56.9
  - 2026: 53.1
- General government gross debt (percent of GNI*):
  - 2017: 108.1
  - 2018: 103.6
  - 2019: 95.6

### Statement of Operations of the General Government (selected items; percent of GDP)
- Taxes (percent of GDP):
  - Total taxes 2017–2026: 18.5; 18.5; 18.2; 16.9; 16.4; 16.7; 16.7; 16.8; 16.8; 16.5
  - Personal income tax: 7.1; 7.0; 6.9; 6.2; 6.3; 6.3; 6.3; 6.4; 6.4; 6.5
  - Corporate income tax: 2.8; 3.2; 3.1; 3.2; 3.0; 3.0; 3.0; 2.9; 2.9; 2.5
  - VAT: 4.3; 4.3; 4.3; 3.5; 3.6; 3.8; 3.8; 3.8; 3.8; 3.8
- Social contributions:
  - 2017: 4.6
  - 2018: 4.6
  - 2019: 4.5
  - 2020: 4.3
  - 2021: 4.1
  - 2022: 3.9
  - 2023: 4.0
  - 2024: 4.0
  - 2025: 4.0
  - 2026: 4.1
- Structural balance (percent of potential GDP):
  - 2017: -0.8
  - 2018: -0.2
  - 2019: 0.3
  - 2020: -1.6
  - 2021: -2.7
  - 2022: -2.6
  - 2023: -1.1
  - 2024: -0.8
  - 2025: -0.4
  - 2026: -0.3
- Gross public debt memorandum:
  - Gross public debt 2/ (percent of GDP) mirrors general government gross debt series above.
  - Gross debt in percent of revenue:
    - 2017: 257.7
    - 2018: 244.1
    - 2019: 228.8
    - 2020: 254.4
    - 2021: 284.6
    - 2022: 282.7
    - 2023: 273.9
    - 2024: 264.8
    - 2025: 255.0
    - 2026: 242.1
- Net public debt 3/ (percent of GDP):
  - 2017: 59.8
  - 2018: 55.8
  - 2019: 49.3
  - 2020: 51.1
  - 2021: 55.1
  - 2022: 55.5
  - 2023: 54.0
  - 2024: 52.5
  - 2025: 50.7
  - 2026: 47.2
- GDP at current market prices (in billions of euros):
  - 2017: 300.4
  - 2018: 327.0
  - 2019: 356.1
  - 2020: 366.5
  - 2021: 391.1
  - 2022: 417.8
  - 2023: 441.9
  - 2024: 463.5
  - 2025: 485.8
  - 2026: 509.3

### Balance of Payments and International Investment Position (2017–26)
- Current account balance (billions of euros / percent of GDP):
  - 2017: 1.5 (0.5 percent of GDP)
  - 2018: 19.6 (6.0 percent of GDP)
  - 2019: -40.4 (-11.3 percent of GDP)
  - 2020: 16.9 (4.6 percent of GDP)
  - 2021: 22.6 (5.8 percent of GDP)
  - 2022: 23.6 (5.6 percent of GDP)
  - 2023: 23.8 (5.4 percent of GDP)
  - 2024: 24.1 (5.2 percent of GDP)
  - 2025: 24.8 (5.1 percent of GDP)
  - 2026: 25.5 (5.0 percent of GDP)
- Balance of goods and services (billions of euros and percent of GDP):
  - 2017: 65.6 (21.8 percent)
  - 2018: 92.8 (28.4 percent)
  - 2019: 43.8 (12.3 percent)
  - 2020: 109.8 (30.0 percent)
  - 2021: 157.4 (40.2 percent)
  - 2022: 160.3 (38.4 percent)
  - 2023: 165.2 (37.4 percent)
  - 2024: 167.6 (36.2 percent)
  - 2025: 171.6 (35.3 percent)
  - 2026: 175.8 (34.5 percent)
- Trade balance (goods) (billions of euros):
  - Trade balance 2017–2026: 109.1; 109.1; 119.1; 138.8; 136.9; 134.9; 134.5; 134.2; 133.4; 131.6
- Exports of goods (billions of euros):
  - 2017: 197.8
  - 2018: 211.4
  - 2019: 227.5
  - 2020: 237.8
  - 2021: 238.6
  - 2022: 242.3
  - 2023: 249.6
  - 2024: 259.1
  - 2025: 269.3
  - 2026: 278.8
- Imports of goods (billions of euros):
  - 2017: 88.7
  - 2018: 102.3
  - 2019: 108.4
  - 2020: 99.1
  - 2021: 101.8
  - 2022: 107.4
  - 2023: 115.1
  - 2024: 125.0
  - 2025: 135.8
  - 2026: 147.2
- Primary income balance (billions of euros / percent of GDP):
  - 2017: -61.1 (-20.3 percent)
  - 2018: -69.5 (-21.2 percent)
  - 2019: -80.6 (-22.6 percent)
  - 2020: -89.0 (-24.3 percent)
  - 2021: -130.6 (-33.4 percent)
  - 2022: -132.3 (-31.7 percent)
  - 2023: -136.6 (-30.9 percent)
  - 2024: -138.5 (-29.9 percent)
  - 2025: -141.7 (-29.2 percent)
  - 2026: -144.9 (-28.5 percent)
- Net International Investment Position (Net investment position, percent of GDP):
  - 2017: -165.1
  - 2018: -180.7
  - 2019: -173.8
  - 2020: -167.8
  - 2021: -156.5
  - 2022: -145.8
  - 2023: -137.5
  - 2024: -130.9
  - 2025: -124.8
  - 2026: -119.0
- External debt (total, billions of euros):
  - 2017: 725.6
  - 2018: 747.3
  - 2019: 724.8
  - 2020: 748.0
  - 2021: 707.4
  - 2022: 669.5
  - 2023: 640.9
  - 2024: 619.5
  - 2025: 599.7
  - 2026: 581.7
- Non-IFSC external debt (billions of euros):
  - 2017: 258.9
  - 2018: 265.5
  - 2019: 280.0
  - 2020: 282.2
  - 2021: 270.9
  - 2022: 261.0
  - 2023: 254.6
  - 2024: 251.1
  - 2025: 248.3
  - 2026: 246.4

### Monetary Survey and Money/Credit (selected items; billions of euros, end of period)
- Aggregate balance sheet of domestic market credit institutions:
  - Assets: 2015: 377.6; 2016: 356.2; 2017: 331.6; 2018: 333.8; 2019: 403.9; 2020: 484.0; 2021: 505.1
- Claims on Central Bank of Ireland:
  - 2015: 5.5; 2016: 10.4; 2017: 9.9; 2018: 8.2; 2019: 19.0; 2020: 40.5; 2021: 55.7
- Claims on Irish resident non MFIs (private sector):
  - 2015: 205.8; 2016: 190.5; 2017: 183.6; 2018: 178.3; 2019: 173.0; 2020: 167.4; 2021: 165.2
- Deposits of Irish resident non MFIs:
  - 2015: 166.6; 2016: 169.1; 2017: 174.5; 2018: 179.2; 2019: 195.3; 2020: 224.2; 2021: 228.2
- Irish Resident Broad money (M3) 5/:
  - 2015: 201.5; 2016: 216.0; 2017: 219.6; 2018: 243.9; 2019: 253.9; 2020: 357.3; 2021: 341.1
- Irish Resident Intermediate money (M2) 5/:
  - 2015: 184.0; 2016: 191.7; 2017: 200.9; 2018: 211.1; 2019: 237.4; 2020: 273.4; 2021: 279.4
- Irish Resident Narrow money (M1):
  - 2015: 132.9; 2016: 146.5; 2017: 158.7; 2018: 171.6; 2019: 198.3; 2020: 234.3; 2021: 243.2
- Deposits from Irish Private Sector (y-o-y percent change):
  - 2015: 5.8
  - 2016: 0.7
  - 2017: 5.1
  - 2018: 2.6
  - 2019: 9.1
  - 2020: 12.9
  - 2021: 13.1

### Financial Soundness Indicators and Domestic Banks (selected)
- Regulatory capital to risk-weighted assets:
  - 2014: 22.7
  - 2015: 24.4
  - 2016: 26.9
  - 2017: 25.3
  - 2018: 25.4
  - 2019: 25.0
  - 2020Q3: 25.7
- Return on assets:
  - 2014: 0.4
  - 2015: 1.0
  - 2016: 1.0
  - 2017: 0.8
  - 2018: 0.9
  - 2019: 0.7
  - 2020Q3: -0.4
- Non-performing loans to total gross loans:
  - 2014: 20.6
  - 2015: 14.9
  - 2016: 13.6
  - 2017: 11.5
  - 2018: 5.7
  - 2019: 3.4
  - 2020Q3: 3.5

Key Financial Indicators of Selected Domestic Banks (three main domestic banks: Allied Irish Banks, Bank of Ireland, Permanent TSB)
- Credit growth:
  - 2014: -5.4
  - 2015: -5.3
  - 2016: -9.4
  - 2017: -3.9
  - 2018: -3.4
  - 2019: 1.0
  - 2020: -3.8
- Return on assets:
  - 2014: 0.5
  - 2015: 0.7
  - 2016: 0.8
  - 2017: 0.8
  - 2018: 0.8
  - 2019: 0.3
  - 2020: -0.7
- NPL ratio:
  - 2014: 23.2
  - 2015: 16.1
  - 2016: 12.9
  - 2017: 10.7
  - 2018: 8.1
  - 2019: 5.0
  - 2020: 6.6
- CT1 ratio:
  - 2014: 15.5
  - 2015: 14.9
  - 2016: 16.8
  - 2017: 18.4
  - 2018: 17.8
  - 2019: 17.7
  - 2020: 17.1

### Annex I — The Impact of Brexit on Ireland’s Trade
- Ireland is the EU country most exposed to Brexit due to strong trade and financial linkages and high labor mobility with the British economy.
- The EU-UK Trade and Cooperation Agreement (TCA) preserved zero-tariff and quota-free trade in goods that comply with rules of origin; this is important for sectors such as food processing and agribusiness.
- The TCA facilitates cooperation in investment, competition, state aid, air and road transport, energy, and sustainability.
- TCA ends free movement of people, goods, and services between the U.K. and the EU except for the Common Travel Area arrangements and the Northern Ireland Protocol.
- Rules of origin compliance, customs controls, and lost passporting rights for U.K. firms could create trade frictions; estimates of the cost of compliance with rules of origin requirements vary between 2 and 6 percent of a product’s final value.
- No decision yet on regulatory equivalence for financial services; U.K.’s temporary permissions and recognition regimes facilitate continued provision of U.K.-based activities of Irish firms without disruption.
- EU’s temporary equivalence decision grants EU financial institutions access to the U.K. financial markets infrastructure for clearing and settlement services until mid-2022 and mid-2021, respectively.
- Ireland migrated settlement of Irish corporate securities to the Euroclear CSD in Belgium to eliminate potential uncertainty about settlement.
- Around 403 firms have already relocated from the U.K. to different financial centers in response to Brexit; Dublin remains a popular choice for relocation of U.K. financial services staff or operations.

*Prepared by IMF staff; sources within the document include Google, JHU, Oxford University, IMF staff calculations, Our World in Data, Haver, CSO, DoF, Eurostat, CBI, and IMF staff estimates and projections.*

### Annex Box 1.2 How is Brexit Affecting Transport and Recent Trade Data?

### Annex Box 1.2 How is Brexit Affecting Transport and Recent Trade Data?

### Transport routes, port procedures, and time-sensitivity
- The U.K. “land bridge” is the most efficient route for Irish-EU trade compared to direct sea routes.
- Trucks from Ireland heading to the EU via GB take around at best 10 hours compared to the 40-hour sea route.
- Around 80 percent of freight movements were “green-routed”, which waives the need for documentary or physical inspections.
  - Some 15 percent were “orange-routed,” requiring a documentary check.
  - 5 percent were “red-routed,” requiring a physical inspection at the port, delaying the release of the load.
- The Ireland Revenue Commissioners Office has been dealing with a surge in paperwork since Brexit.
- The Customs RoRo Service has facilitated the movement and control of goods and vehicles when moved by scheduled ferries between Ireland and Great Britain.
- VAT is now payable at the point of importation, along with any customs duties, though in practice most traders have a deferred payment account.
- Importers and hauliers complete in advance their pre-boarding declaration.
- Some estimates suggest that a 10 percent increase in waiting time at customs reduces the value of trade in goods by about 1 percent. Results are larger for time-sensitive goods (pharmaceuticals, food, and beverages) and for SMEs.

### Recent trade data and timing of sanitary and phytosanitary (SPS) and customs checks
- High-frequency bilateral trade data point to possibly temporary trade reduction in the first two months of 2021.
- Earlier monthly data show higher imports and exports of goods in October and November 2020, consistent with stockpiling of goods.
- The EU introduced full customs and SPS checks on U.K. imports from 1 January 2021.
- The U.K. will not impose full SPS checks on the EU imports until January 1, 2022.
- The full impact on EU-UK trade will only be visible when the U.K. has introduced its full customs and SPS regime.

### Sectoral implications and vulnerable goods
- Border procedures could adversely affect Irish seafood, fresh products, and agricultural export due to time-sensitivity.
- Time-sensitive goods (pharmaceuticals, food, and beverages) and SMEs face larger trade value impacts from increased waiting times.

### Relocation of U.K.-based services and financial firms
- Ireland may benefit from relocation of British-based services due to its favorable legal and robust regulatory environment.
- Factors key for relocations to Ireland include: (i) continued access to the EU permitting various tax exemptions and reliefs provided for by EU Directives; (ii) skilled, English-speaking workforce; (iii) favorable labor relations system; (iv) stable business-friendly policies; (v) strong and transparent judicial system comparable to the U.K. system.
- Tracking relocation of U.K.-based financial services shows Dublin is a popular choice:
  - Financial centre share of Brexit-related relocations (Includes hubs and secondary moves, sample = 314 firms / 405 moves):
    - Dublin: 28%
    - Luxembourg: 18%
    - Paris: 17%
    - Frankfurt: 11%
    - Amsterdam: 10%
    - Other: 16%

### Macroeconomic simulation results and projections
- Simulation results using the IMF GIMF model suggest a small but persistent adverse impact of the TCA deal on growth.
  - Growth in 2021 is likely to be -0.5 percentage points lower compared to the no-Brexit baseline.
  - Over a five-year post-Brexit horizon, a small permanent supply shock and non-tariff trade barriers reduce exports and investment, resulting in a cumulative output loss of 1.7 percent.
  - The IMF scenario assumes an additional 7.2 percent increase of non-tariff trade barriers (in tariff-equivalent terms) due to border disruptions relative to baseline.
- The outcome can be mitigated by upside risk from U.K.-based service firms relocating to Ireland.
- The Irish authorities project a larger slowdown of activity due to a higher impact of rising trade costs and greater business uncertainty.

### Policy measures and Brexit readiness actions (legislative and budgetary)
- Supports up to, and including, Budget 2019 amounted to over €800 million, and Budget 2020 provided for more than €1 billion.
- Budget 2021 includes a €3.4 billion Recovery Fund targeted at stimulating the economy and employment in the aftermath of COVID and Brexit. The Fund focuses on: infrastructure development; reskilling and retraining; and supporting investment and jobs.
- Working with the Commission to ensure Irish businesses and sectors benefit from the €5 billion Brexit Adjustment Reserve, to the maximum extent possible.
- Continuing to provide supports such as the Brexit Loan Scheme, the COVID-19 Working Capital Scheme, and the Future Growth Loan Scheme.
- Roll-out the €20 million ‘Ready for Customs’ Brexit package announced as part of the July Jobs Stimulus.
- Launch of Customs Readiness tools offered by Skillnet Ireland, Local Enterprise Offices’, Enterprise Ireland and Bord Bia.
- Legislating the “2020 Brexit Omnibus Act” which underpins the Brexit readiness measures.

*Source: International Monetary Fund (Annex Box 1.2).*

### Annex III  . Money Market Funds in Ireland

### Annex III. Money Market Funds in Ireland

### Overview and scale
- Ireland hosts the largest share of EU money market funds (MMF).
- With a total net asset value of more than €600 billion at end-March 2021, Irish MMFs:
  - constitute 10 percent of total financial sector assets; and
  - account for almost 40 percent of EU MMFs.
- Ireland also hosts a large investment funds sector (IFs) with total assets of €2.9 trillion.

### Structure, funding, and investment composition
- Fund types and investor base:
  - More than 80 percent of the MMFs are Low-Volatility Net Asset Value (LVNAV) funds.
  - LVNAVs have daily and weekly liquidity ratios of 10 and 30 percent, respectively.
  - MMFs are funded mostly by U.K. investors (57 percent).
  - The combined funding from domestic banks, non-financial corporations, and households amounts to slightly more than one percent of total assets.
- Investment profile:
  - Irish MMFs invest mostly in certificates of deposit (CD), commercial paper (CP), and repurchase agreements.
  - The overwhelming share of direct asset exposures is via debt securities in the United States, the U.K., and France.
  - MMFs’ portfolio compositions reflect regulatory type: CNAVs invest almost exclusively in public debt and repo; LVNAVs and VNAVs are predominantly exposed to CP and CD markets.
- Regulatory distinctions:
  - CNAV funds promise to repay principal in full; VNAV funds do not.
  - After the global financial crisis, most CNAVs were replaced by LVNAVs.
  - There is a 50-basis-point threshold for CNAVs vs. a 20-basis-point threshold for LVNAVs.

### COVID-19 stress episode and liquidity outcomes
- At the onset of the COVID-19 crisis:
  - Almost 10 percent of total assets were withdrawn from MMFs.
  - The largest outflows were recorded in U.S. dollar-denominated LVNAVs.
  - No Irish MMF had to suspend redemptions or breached key regulatory thresholds, though some funds came close to their liquidity ratio.
  - Strong global central bank actions had a calming effect on the markets.
- Subsequent adjustments:
  - MMFs increased their liquidity ratios during the second half of 2020.
  - MMFs adjusted portfolios towards more liquid assets at comparable yields—and away from assets that do not meet their credit standards (credit standards themselves were not changed).

### Vulnerabilities and systemic considerations
- Market footprint and contagion risk:
  - MMFs hold most of the CPs issued by financial institutions, creating a very large market footprint in private money markets.
  - CPs are commonly sold through a group of dealers or banks that sponsor and make markets in CPs.
  - High degree of portfolio overlap among MMFs implies a considerable risk of market contagion.
- Limited domestic linkages:
  - Irish MMFs’ funding and investment activities are geographically diversified, with very limited domestic linkages (e.g., negligible holdings of CDs issued by Irish banks).
- Liquidity management triggers and constraints:
  - Article 34 of the EU Money Market Fund Regulation (MMFR) requires action when weekly maturing assets fall below 30 percent and net daily redemptions exceed 10 percent of NAV; boards must then consider liquidity management tools (fees, gates, suspensions).
  - LVNAV regulation requires fees or restrictions if entities cannot convert at least 30 percent of assets into cash within five days—or if more than 10 percent of assets are redeemed by investors.
  - The Central Bank of Ireland (CBI) can require funds to suspend redemption, on a case-by-case basis, if it is in the public interest or in the interests of the unitholders; however, the CBI cannot require suspensions if prudential triggers are not met (such as the breach of the liquidity ratio).

### Regulatory response and policy recommendations
- Strengthen regulatory measures and oversight, ideally coordinated with other European countries and in the context of the EU Money Market Funds Regulation review.
- Enhance monitoring of current risks and spillover effects to the European financial system in the absence of a comprehensive safety net for nonbank financial institutions.
- The CBI actions:
  - Enhanced data collection on MMF activities and risk management practices (including alignment of fund redemption terms with asset liquidity and effective use of liquidity management tools).
  - Participation in EU/ESMA work (e.g., ESMA survey of MMFs’ use of liquidity management tools under UCITS rules).
- Consider pre-emptive liquidity policies:
  - Usable liquidity requirements may help mitigate the build-up of vulnerabilities.
  - Increasing the current deviation from the NAV “collar” (currently at 20 basis points) would enhance the resilience of LVNAVs and could be more effective than raising liquidity ratio requirements by addressing the trigger for early redemptions.
  - Ultimately, a move to floating NAV would remove potential cliff-edge effects when the NAV deviation exceeds a threshold.

### Key statistics and numeric facts (preserved exactly)
- Total net asset value of Irish MMFs: more than €600 billion at end-March 2021.
- Share of total financial sector assets comprised by MMFs in Ireland: 10 percent.
- Share of EU MMFs domiciled in Ireland: almost 40 percent.
- Share of MMFs that are LVNAVs: more than 80 percent.
- Funding by U.K. investors: 57 percent.
- Combined funding from domestic banks, non-financial corporations, and households: slightly more than one percent of total assets.
- LVNAV liquidity ratio thresholds: daily 10 percent; weekly 30 percent.
- CNAV vs. LVNAV NAV-deviation thresholds: 50-basis-point threshold for CNAVs vs. 20-basis-point threshold for LVNAVs.
- Redemptions at onset of COVID-19: almost 10 percent of total assets withdrawn.
- MMF regulatory liquidity trigger example: weekly maturing assets falling below 30 percent and net daily redemptions greater than 10 percent of NAV.

*Source: Annex III. Money Market Funds in Ireland (1irlea2021001)*

### 11.3 percent in 2019, driven by a large goods trade surplus and by a low services deficit—absent of large IP import by M

### 1irlea2021001 - 11.3 percent in 2019, driven by a large goods trade surplus and by a low services deficit—absent of large IP import by MNEs, marking the end of double-Irish.

### Current Account (CA) and Saving-Investment Balances
- CA in 2019: 11.3 percent (driven by a large goods trade surplus and by a low services deficit—absent of large IP import by MNEs, marking the end of double-Irish).
- Bulk of the CA surplus reflects a large saving-investment surplus of households and corporates.
- Households net-saving increased in 2020 due to lower spending opportunity during government restrictions.
- Government sector undertook substantial dis-saving in 2020 due to unprecedented fiscal stimulus.
- Pandemic-related government employment and welfare supports expected to continue to flow to household and corporate sectors in 2021.
- Medium-term expectation: CA surplus expected to grow to 5 percent of GDP as government dissaving decreases and household net saving decreases but remains sizable given the structural housing gap and smaller services import by MNEs after exit from double-Irish.
- EBA CA model assessment for 2020:
  - Cyclically adjusted CA: 4.5 percent of GDP.
  - EBA norm: 1.9 percent of GDP (standard error around the norm is 1.6 percent of GDP).
  - EBA gap: 2.6 percent of GDP (includes identified policy gaps of 0.9 percent of GDP and an unexplained residual of 1.7 percent of GDP).
  - Pandemic-related adjustment applied: -1.1 pp of GDP to the cyclically adjusted CA, yielding a staff CA gap of 1.5 (±1.6) percent of GDP.
  - Components of the -1.1 pp COVID adjustment:
    - -0.2 pp of GDP to reflect contraction in tourism net exports.
    - +0.3 pp of GDP to reflect exceptionally sharp fall in global oil prices and volumes.
    - -0.8 pp of GDP to reflect an increase in global demand for medical goods export.
    - -0.5 pp of GDP to reflect MNE operations on Irish CA.
- 2020 (% GDP) reported figures:
  - CA: 4.6%
  - Cycl. Adj. CA: 4.5%
  - EBA Norm: 1.9%
  - EBA Gap: 2.6%
  - COVID-19 EBA Adj.: -0.6%
  - Other Adj.: -0.5%
  - Staff Gap: 1.5%

### Real Exchange Rate (REER)
- Background:
  - ULC-based REER depreciated sharply following the GFC (2008) reflecting productivity gains and declining labor costs; productivity growth concentrated in MNEs.
  - In recent years prior to the pandemic REER was relatively stable.
  - 2020: average CPI-based REER appreciated by 0.1 percent relative to 2019 average.
  - 2020: ULC-based REER depreciated by 5.3 percent relative to 2019 average.
- Assessment:
  - Staff CA gap implies a REER gap of -1.5 percent in 2020 (applying an estimated elasticity of 0.98).
  - EBA REER index and level model estimates point to an undervaluation of 15.5 and an overvaluation of 16.7 percent, respectively.
  - Explanatory power of policy variables negligible in EBA models; gaps largely unexplained residuals.
  - Staff assess the REER to be undervalued in the range of -3.1 to 0.1 percent, with a midpoint of -1.5 percent.

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Ireland’s capital and financial accounts characterized by significant volatility.
  - 2020: FDI outflows around 20 percent of GDP, driven by reinvested earnings of MNEs.
  - Capital account deficit decreased to around 5 percent of GDP in 2020 from 10 percent in 2019.
  - Financial market volatility at pandemic onset triggered sizable but short-lived outflows in bond and equity markets which stabilized beginning in May 2020.
  - Financial account outflows in 2020 amounted to 3.2 percent of GDP.
- Assessment:
  - Inward FDI and foreign demand for Irish sovereign bonds supported by strong economic performance and investor-friendly business climate, including favorable tax environment.

### FX Intervention and Reserves Level
- 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.

### Public Debt Sustainability (Annex VI I)
- Key points:
  1. Medium-term fiscal risks are contained and financing remains favorable.
     - Public debt reduced to 57 percent of GDP at end-2019.
     - Pandemic support increased public debt to 60 percent of GDP in 2020.
     - Average maturity lengthened to above 10 years prior to pandemic.
     - No large redemptions in 2021 and government bond yields remain low; most public debt at fixed rates.
  2. ECB accommodative response has lowered debt servicing costs and mitigated rollover risks.
     - Eurosystem currently holds more than 21 percent of publicly placed Irish government debt under PSPP and PEPP.
     - Refinancing needs for 2021 likely close to Eurosystem asset purchases, suggesting potential net displacement of Irish government bonds and small spread risk.
  3. Vulnerabilities to debt dynamics exist but are manageable.
     - Debt dynamics vulnerable to combined macro-financial shock; under all shock scenarios initial debt increases reverse to a declining path.
     - Relatively high share of debt held by non-residents poses potential vulnerabilities; sudden-stop is a tail risk but non-resident holders mainly real-money investors.
     - Exchequer’s cash balances provide a buffer to cover almost a year of GFNs. 1/ As of end-February 2021, the total Exchequer cash balance amounted to nearly €23 billion.
     - Debt ratio as percent of GNI* remains high but on a decisive declining path starting from 2023.
  4. Severe shock to CIT revenues would push back public debt stabilization but stabilization would resume with a 2-year delay.
     - Customized shock: permanent decline in CIT revenue by 6 billion (50 percent of current intake) reflecting worst-case changes in international taxation.
     - Under this tail-risk scenario, lower CIT intake accompanied by lower GDP growth; non-CIT revenues and public expenditure kept unchanged in nominal terms in the scenario.
     - Scenario considered highly unlikely given Ireland’s non-tax advantages.

- Selected fiscal and sovereign indicators (as of March 17, 2021 and projections):
  - Nominal gross public debt: 2019: 91.3; 2020: 57.4; 2021: 59.9; 2022: 63.0; 2023: 62.9; 2024: 60.9 (percent of GDP as reported in table).
  - Public gross financing needs: 2019: 13.1; 2020: 6.0; 2021: 14.0; 2022: 6.5; 2023: 6.3; 2024: 6.2 (values from table).
  - Net public debt: 2019: 65.9; 2020: 48.9; 2021: 51.7; 2022: 54.1; 2023: 54.3; 2024: 52.5; 2025: 50.9; 2026: 48.9; 204?: 45.4 (table series).
  - Real GDP growth (in percent): 2019: 6.4; 2020: 5.6; 2021: 3.4; 2022: 4.6; 2023: 4.9; 2024: 3.8; 2025: 2.8; 2026: 2.8; 2027: 2.7 (projection series).
  - Inflation (GDP deflator, in percent): 2019: 1.4; 2020: 3.1; 2021: -0.5; 2022: 2.0; 2023: 1.9; 2024: 1.9; 2025: 2.0; 2026: 1.9.
  - Effective interest rate (in percent): 2019: 3.5; 2020: 2.2; 2021: 1.8; 2022: 1.8; 2023: 1.4; 2024: 1.5; 2025: 1.6; 2026: 1.6; 2027: 1.5.
  - Change in gross public sector debt (cumulative projection table): 2019: 0.1; 2020: -5.6; 2021: 2.5; 2022: 3.2; subsequent years: -0.1, -2.0, -1.8, -2.1, -3.7, -6.6 (series from table).
  - Identified debt-creating flows (annual contributions): 2019: 1.7; 2020: -6.1; 2021: 3.3; 2022: 1.1; subsequent contributions shown in table.
  - Primary deficit / primary (noninterest) figures and automatic debt dynamics shown in detailed table rows (preserved in source).

### Annex Box 7.1 — Impact of Possible Changes in International Taxation
- Ireland hosts many MNEs with significant intellectual and physical capital due to favorable regulatory, legal, and tax regime.
- Earlier OECD Pillar I proposals:
  - Authorities estimated a decline of Ireland’s €12 billion CIT revenue by about €2 billion (or 0.6 percent of GDP) under earlier Pillar I proposals.
  - Staff’s medium-term projections already incorporate this scenario; projections will be updated as proposals are finalized.
- Pillar II (global minimum CIT rate):
  - Introduction of a minimum CIT rate higher than current 12.5 percent in Ireland could have a larger impact because the top ten corporations pay almost half of Ireland’s CIT revenue.
  - Tail-risk scenario where half of CIT revenue is lost: staff’s DSA suggests stabilization of public debt would be delayed by about two years.

### Debt Sustainability Scenarios and Stress Tests (Annex Figures and Tables)
- External debt and gross financing needs scenario figures displayed in Annex Figure 6.1 and subsequent charts.
- Illustrative stress and shock scenarios reported:
  - Interest rate shock, growth shock, CA shock, combined shock, and real depreciation shock exercises shown in figure panels.
  - Baseline and alternative scenarios for gross nominal public debt and public gross financing needs displayed for 2021–2026 under:
    - Baseline
    - Historical
    - Constant Primary Balance
    - Primary Balance Shock
    - Real GDP Growth Shock
    - Real Interest Rate Shock
    - Real Exchange Rate Shock
    - Combined Macro-Fiscal Shock
    - CIT shock
- Selected scenario snapshots from tables/figures:
  - Baseline projections: Real GDP growth (2021–2026) listed as 4.6, 4.9, 3.8, 2.8, 2.8, 2.7 (percent).
  - Constant Primary Balance scenario: Primary Balance kept at -4.6 (percent of GDP) across projection years.
  - Stress test outputs illustrate that under various shocks gross nominal public debt rises in the short run but paths differ by scenario; detailed series are in annex figures and tables.

*Source: IMF staff.*

### Annex Figure 5. Ireland Public DSA Risk Assessment

### 1irlea2021001 - Annex Figure 5. Ireland Public DSA Risk Assessment

### DSA Risk Assessment Heat Map and Stress-Test Benchmarks
- Debt burden benchmark: 85%
- Gross financing needs benchmark: 20%
- Bond spread benchmarks: 400 and 600 basis points
- External financing requirement benchmarks: 17 and 25 percent of GDP
- Change in the share of short-term debt benchmarks: 1 and 1.5 percent
- Public debt held by non-residents benchmarks: 30 and 45 percent
- Color coding rules:
  - Green: benchmark not exceeded under specific shock or baseline
  - Yellow: exceeded under specific shock but not baseline
  - Red: benchmark exceeded under baseline
  - White: stress test not relevant or data unavailable
- Specific risk indicators listed in the heat map:
  - Real Interest Rate Shock
  - External Financing Requirements
  - Real GDP Growth Shock
  - Primary Balance Shock
  - Exchange Rate Shock
  - Contingent Liability Shock
  - Change in the Share of Short-Term Debt
  - Foreign Currency Debt
  - Public Debt Held by Non-Residents
  - Market Perception (bond spread)
- Definitions and notes:
  - External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.
  - Long-term bond spread over German bonds: average over the last 3 months, 17-Dec-20 through 17-Mar-21.
  - Percentile bands shown for projected gross nominal public debt: 10th-25th, 25th-75th, 75th-90th; baseline and symmetric/asymmetric distribution options noted.
  - Restrictions noted on upside shocks for certain scenarios; "no restriction" specified for some shocks (growth rate, interest rate, exchange rate) and "0 is the max positive pb shock (percent GDP)" for the primary balance shock in one specification.
- Selected numeric items appearing in the figure and captions:
  - 400
  - 600
  - 32 bp
  - 17
  - 25
  - 185 %
  - 12
  - 1
  - 1.5
  - 1.5%
  - 30
  - 45
  - 52%

### Evolution of Predictive Densities of Gross Nominal Public Debt (in percent of GDP)
- Time horizon in figure spans: 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026 (percentile bands shown)
- Two distribution specifications illustrated: Symmetric Distribution and Restricted (Asymmetric) Distribution
- Percentile shading reported: 10th-25th, 25th-75th, 75th-90th; Baseline indicated separately

### Implementation of Past IMF Recommendations (Annex VIII, 2019 Article IV)
- Fiscal Policy recommendations and actions:
  - Recommendation: Accelerate fiscal consolidation; reform income tax; enforce spending limits; enhance public investment efficiency; strengthen Social Insurance Fund; long-term financial soundness.
  - Actions before the pandemic: substantial buffer created; public debt declined; headline deficit improved due to strong CIT revenues; Spending Reviews and Performance Budgeting processes and National Investment Office helped improve spending efficiency; Commission on Taxation and Welfare to analyze reforms.
  - Planned increase in retirement age: suspended.
- Brexit recommendations and actions:
  - Recommendation: Let automatic stabilizers operate; provide targeted support to hard-hit sectors; possible fiscal stimulus; release countercyclical capital buffer if sharp credit contraction.
  - Actions: EU-UK TCA averted no-deal Brexit; authorities' preparations and support measures reduced vulnerability; Brexit taskforce continuing readiness efforts.
  - Financial services: CBI completed preparations for temporary equivalence regime ensuring operational continuity for relocating firms.
- International tax reform:
  - Recommendation: Continue active engagement.
  - Actions: Government engaged in international dialogue on CIT reforms; issued update to corporation tax roadmap; published “consultation on the OECD Approach to the attribution of profits”.
- Climate policy:
  - Recommendation: Develop ambitious strategy to meet commitments.
  - Actions: Climate Action Bill approved aims to halve emissions by 2030 and achieve carbon neutrality by 2050; increased carbon tax path legislated; boosts investment in low-emission public transport, energy-efficient housing, renewable energy.
- Financial sector policy:
  - Recommendation: Reduce NPLs; complement macroprudential toolkit with debt-based instruments and a systemic risk buffer; monitor nonbank sector risks.
  - Actions: Sharp reduction in NPL legacy positions; continued progress required as Covid-support measures withdraw; income-based macroprudential limits in place; central credit register operationalized; thematic reviews on DTI considerations scheduled for completion in 2022; CBI intensified supervision of investment funds and enhanced data collection on MMF activities.
- Structural reforms:
  - Recommendation: Boost productivity via innovation funding, training, infrastructure; improve infrastructure quality; align education/training to labor demand; tackle gender pay gap; boost housing supply.
  - Actions: National Development Plan 2018 - 2027 sets total investment of approximately €116 billion; Departments cooperating to expand lifelong learning programs; Affordable Childcare Scheme reduced childcare costs; Help-to-buy Program, National Cost Rental Policy, Land Development Agency (LDA) Bill, and Affordable Housing Bill (10 percent affordable housing requirement on new developments and existing 10 percent social housing requirement) implemented; construction affected by Covid-related closures.

### Fund Relations (As of April 30, 2021)
- Membership Status: Joined August 8, 1957; Article VIII
- General Resources Account:
  - Quota: 3,449.90 (SDR Million) — 100.00 percent of Quota
  - Fund holdings of currency: 2,643.16 (SDR Million) — 76.62 percent of Quota
  - Reserve position in Fund: 806.78 (SDR Million) — 23.39 percent of Quota
- SDR Department:
  - Net cumulative allocation: 775.42 (SDR Million) — 100.00 percent of Allocation
  - Holdings: 679.44 (SDR Million) — 87.62 percent
- Outstanding Purchases and Loans: None
- Financial Arrangements (listed):
  - Type: EFF; Approval Date: 12/16/10; Expiration Date: 12/15/13; Amount Approved: 19,465.80 (SDR million); Amount Drawn: 19,465.80 (SDR million)
- Projected Payments to the Fund (SDR million; based on existing use of resources and present holdings of SDRs, as of April 30, 2021):
  - Charges/Interest: 2021: 0.04; 2022: 0.06; 2023: 0.06; 2024: 0.06; 2025: 0.06
  - Total: 2021: 0.04; 2022: 0.06; 2023: 0.06; 2024: 0.06; 2025: 0.06
- Exchange rate arrangement: Ireland uses the euro, which floats freely and independently; accepted obligations of Article VIII, Sections 2, 3, and 4; maintains exchange system free of restrictions on payments and transfers for current international transactions.

### Statistical Issues and Data Adequacy for Surveillance
- General assessment: Data provision broadly adequate for surveillance.
- National accounts and real sector:
  - Quarterly national accounts published within three months of reference period.
  - Industrial production and retail sales within six weeks.
  - Employment data within 3 months.
  - Some series (e.g., household disposable income) published with a lag of one and a half years.
  - Employment and unit labor costs, and national income and expenditure data usually available with a three-month lag.
- Wages and earnings:
  - Quarterly Earnings, Hours and Employment Costs Survey replaced four-yearly Labor Cost Survey; comparable across sectors; more detail on components of earnings and labor costs; data available with more than a six-month lag.
- Government finance statistics:
  - Exchequer returns and indicative estimates of general government balance published monthly; definitive general government balance reported quarterly and annually.
  - Ireland reports data to STA via conversion of datasets reported to Eurostat under the “ESA Transmission Programme.”
  - Annual and quarterly fiscal data in GFSM 2014 framework reported through Eurostat convergence project with the IMF.
- Monetary and financial statistics:
  - ECB reporting framework used; data reported to IMF through a “gateway” arrangement with the ECB.
  - Data published in IFS with a lag of about a month.
  - Ireland reports some Financial Access Survey indicators including two UN SDG indicators.
- Financial sector surveillance:
  - Ireland reports 11 of the 12 core and 9 encouraged Financial Soundness Indicators (FSIs) for deposit takers, one FSI for other financial corporations, and 3 FSIs for real estate markets with quarterly frequency.
- External sector statistics:
  - Quarterly balance of payments and IIP compiled by Central Statistics Office.
  - Authorities implemented BPM6.
  - Most recent BOP and IIP data reported to STA and disseminated in IFS are for Q3/2020.
  - Ireland reports CPIS, CDIS, and the Data Template on International Reserves and Foreign Currency Liquidity.
- Data standards and quality:
  - Subject to Eurostat and ECB statistical requirements and timeliness/reporting standards.
  - Subscriber to SDDS since 1996; met SDDS specifications on July 17, 2001; uses SDDS flexibility options on timeliness of wages/earnings and central government debt data.
  - No data ROSC available.
- Table of Common Indicators Required for Surveillance (as of May 10, 2021): selected latest observations and dates include:
  - Exchange Rates: Date of Latest Observation: May 10, 2021; Date Received: 5/10/2021; Frequency: D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: March 2021; Date Received: 4/14/2021; Frequency: M
  - Reserve/Base Money: March 2021; Date Received: 4/30/2021; Frequency: M
  - Broad Money: March 2021; Date Received: 4/30/2021; Frequency: M
  - Central Bank Balance Sheet: March 2021; Date Received: 5/4/2021; Frequency: M
  - Consolidated Balance Sheet of the Banking System: March 2021; Date Received: 4/29/2021; Frequency: M
  - Interest Rates: March 2021; Date Received: 5/6/2021; Frequency: M
  - Consumer Price Index: March 2021; Date Received: 4/8/2021; Frequency: M
  - Revenue, Expenditure, Balance and Composition of Financing – General Government: 2020:Q4; Date Received: 4/23/2021; Frequency: Q (reported) / A (publication)
  - Revenue, Expenditure, Balance and Composition of Financing – Central Government: April 2021; Date Received: 5/05/2021; Frequency: M
  - Stocks of Central Government and Central Government-Guaranteed Debt: 2020:Q4; Date Received: 4/23/2021; Frequency: Q
  - External Current Account Balance: 2020:Q4; Date Received: 3/05/2021; Frequency: Q
  - Exports and Imports of Goods and Services: 2020:Q4; Date Received: 3/05/2021; Frequency: Q
  - GDP/GNP: 2020:Q4; Date Received: 3/05/2021; Frequency: Q
  - Gross External Debt: 2020:Q4; Date Received: 3/05/2021; Frequency: Q
  - International Investment Position: 2020:Q4; Date Received: 3/05/2021; Frequency: Q

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1irlea2021001.pdf_