## 1irlea2022001

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### COVID-19 status, vaccination, and mobility
- Infections peaked in Q1:2022 and have been declining since then.
- Ireland has one of the highest vaccination rates among advanced economies (figures shown as of May 25, 2022 in source charts).
- All COVID-related restrictions have been lifted as infections declined substantially.
- High vaccination rate helped break the link between infections and hospitalizations; despite a recent pick-up in infections, hospitalization remained low.
- Mobility indicators returned to pre-pandemic levels and the economy continues to be open as households and businesses have adapted.

### Recent activity and labor market
- Real activity:
  - Real GDP growth: 13½ percent in 2021.
  - Real GDP growth: 5.9 percent in 2020.
  - GNI*: recovered from a 2.2 percent decline in 2020 to an estimated 6 percent growth in 2021.
  - 2022:Q1 real GDP growth: 11 percent y-o-y.
- Labor market:
  - Unemployment: 4.7 percent in May 2022.
  - Vacancy rate: at an all-time high.
  - Female and youth employment and participation had the highest gains.
  - High-frequency indicators (PMIs, card spending, trade) suggest continued solid growth in 2022:Q2; consumer confidence plunged after onset of the war in Ukraine.

### Inflation, housing, and wages
- Inflation drivers: supply-side factors, particularly energy and commodity price increases.
- May 2022 inflation:
  - Headline inflation: 8.3 percent y-o-y.
  - Core inflation: 4.9 percent y-o-y.
  - Energy and unprocessed food price inflation: 33.3 percent y-o-y in May 2022.
- Housing and related prices:
  - House prices: grew 14 percent y-o-y in 2021.
  - March 2022 residential property price index: about 15 percent nationally and 12.6 percent in Dublin (y-o-y).
  - Rent index: grew at 9 percent nationally (y-o-y) during 2021:Q4.
  - Housing supply bottlenecks are significant.
- Wage growth:
  - Wage growth: 1.9 percent y-o-y in 2022:Q1.

### Fiscal, banking, and financial sector developments
- Fiscal outturns and support:
  - COVID-19 support provided: 3 percent of GDP.
  - Total spending increase limited to 2.5 percent due to underutilization and underspending.
  - Gross public debt: fell to 56 percent of GDP.
  - Government withdrawing pandemic support cautiously and introducing measures to mitigate energy price increases.
- Banking health and risks:
  - Average CET1 ratio (three main retail banks, fully loaded): 18 percent as of end-2021.
  - Loan-to-deposit ratio: declined to 65 percent.
  - NPLs: declined to below pre-pandemic levels at end-2021 (still high compared to EA peers).
  - Profitability recovered but medium-term profitability weighed by high cost-to-income, reliance on net interest income and credit risk, and underinvestment in digital infrastructure.
- Borrowing costs:
  - Ten-year government bond yields showed increases (charts in source).

### External sector and trade
- Exports and current account:
  - Exports reached new records in 2021, largely driven by MNEs.
  - IT and pharma exports grew 18.5 percent in 2021.
  - Other exports increased by 4.4 percent in 2021.
  - Current account surplus: 13.9 percent of GDP in 2021.
- Brexit and trade diversion:
  - Share of exports to the U.K.: declined from 8.9 percent to 7.2 percent.
  - Share of the U.K. in imports: shrank from 21.4 percent to 18.5 percent by March-2022.
  - FDI and financial flows with the U.K. remain substantial though relative share declining.
  - Impact of Brexit on exports not fully realized; U.K. postponed import controls on goods from Ireland pending Northern Ireland Protocol negotiations.
- Balance of payments:
  - Current and financial accounts volatile due to large financial flows and IP imports related to MNE operations.
  - External position: assessed moderately stronger than level implied by medium-term fundamentals and desirable policies (Annex IV).

### Growth outlook
- Growth projections:
  - 2021: 13.5 percent.
  - 2022: 7.5 percent.
  - 2023: 5.0 percent.
- Drivers of slower growth: deceleration of IT and pharmaceutical sectors from exceptional 2021 performance; indirect impact of war in Ukraine.
- Medium term:
  - GDP expected to converge to 3 percent potential.
  - Small positive output gap opened in 2021 and expected to close over medium term (estimates subject to significant uncertainty).
  - Public debt projected on downward trend; external current account to remain in surplus.

### Inflation outlook
- Core inflation (non-energy, non-food) expected to continue rising through 2022 due to supply constraints and demand effects from unwinding pandemic excess saving.
- Projections:
  - Core inflation: 4.7 in 2022; 3.5 percent in 2023.
  - Headline inflation: 7.5 percent in 2022; 3.8 percent in 2023.
- Risks: continued energy and commodity price pressures constitute upward risks; if energy and construction supply pressures subside in H1 2023 base effects would be disinflationary.

### Risks to the outlook
- Downside risks (dominant):
  - Prolonged war in Ukraine.
  - Further supply-chain disruptions.
  - Weaker external demand and confidence.
  - Unanticipated financial exposures.
  - De-anchoring of inflation expectations and tighter financial conditions.
  - Disruptions to energy supply pressuring profit margins and activity.
  - Uncertainty on corporate income tax changes and Brexit implementation.
  - Tightened capacity constraints and rising construction costs slowing housing and NDP implementation.
- Upside risks:
  - Continued exceptional MNE performance.
  - Deeper domestic integration of MNEs.
  - Brexit-induced firm relocations to Ireland.

### Authorities’ views (summary)
- Broad concurrence with staff on outlook and risks; emphasize need to rebuild buffers quickly.
- Agreed on upward inflation risks and need for careful demand management.
- Noted capacity constraints in construction and government initiatives to modernize the sector.
- Do not foresee significant financial sector exposure as a result of the sanctions.
- Agreed current account surplus consistent with under-investment in housing by households, precautionary savings, and recent deleveraging in domestic NFC sector.

### Fiscal policy: current stance and near-term outlook
- 2022 fiscal balance: expected to improve significantly; fiscal deficit expected to decline by 1.7 percent of GDP.
- Composition of 2022 measures:
  - New current spending: 0.7 percent of GDP (health, education, social welfare).
  - Additional capital spending: 0.3 percent of GDP (supports the NDP).
  - Tax relief and social welfare package: 0.5 percent of GDP (household fuel allowances, temporary reduction in excise duties, one-off electricity grant to all households noted as potentially less targeted).
- COVID-related budget support in 2022: scaled down by about 1.6 percent of GDP compared to last year’s budget.
- Assessment:
  - 2022 budget strikes a balance; scope exists for additional targeted, high-quality expenditure as inflation decelerates.
  - Authorities should remain flexible: allow automatic stabilizers if growth disappoints and increase high-quality infrastructure and social spending while cognizant of inflation risks.

### Medium-term fiscal strategy and public investment
- New expenditure rule: limit primary spending increases to estimated GNI* growth and permit borrowing only for investment.
  - Authorities estimate the “sustainable growth rate” at 5 percent.
- Goal: rebuild buffers while raising annual public investment to above 5 percent of GNI* over the medium term.
- Context and staff assessment:
  - Public debt: above 100 percent of GNI*.
  - Under staff projections, public debt would fall below 40 percent of GDP by 2027.
  - Ireland’s public investment and infrastructure quality remain below EU peers.
- Priorities: infrastructure, healthcare, education, affordable housing, and refugee integration.
- Scope exists to allow additional growth-enhancing social and green spending while ensuring value for money.

### Fiscal risks and revenue considerations
- Corporate income tax (CIT):
  - CIT: third-largest source of tax revenue (20 percent of tax revenues).
  - Authorities estimate annual revenue loss of at least 0.5 percent of GDP from future changes in international CIT.
  - Recommendation: treat CIT windfalls cautiously; allocate to Rainy-Day Fund or reduce debt.
- Demographics:
  - Old-age dependency ratio expected to double in the next decades.
  - Maintaining planned retirement age increase to 68 remains key.
  - Failure to increase retirement age as planned could imply cumulative fiscal cost of about €50 billion (about 12 percent of 2021 GDP) over the long term.
  - Health and long-term care expenditures expected to increase significantly.

### Fiscal policy recommendations (staff)
- Broadening the tax base:
  - Increase less distortive taxes given low revenue-to-GDP ratio.
  - Simplify VAT and reduce items subject to preferential VAT or excise rates.
  - Improve property tax framework and scope to gradually increase property tax rate from its very low level while ensuring adequate social protection.
  - Improve PIT system and reduce administrative costs; consider additional tax bands and rates to preserve progressivity while broadening base.
  - Recalibrate income tax by absorbing the Universal Social Charge (USC) to reduce administrative costs.
- Maximizing public investment returns:
  - Continue progress on public investment framework and spending procedures per 2017 PIMA recommendations.
  - Enhance infrastructure project implementation and adherence to budgeted targets.
- Improving adequacy and targeting of social spending:
  - Enhance targeting of social programs to vulnerable groups (women, young adults, single parents).
  - Implement measures to increase supply of affordable housing.

### Financial and macroprudential policies
- Financial environment:
  - Credit growth muted as firms and households deleverage.
  - Households’ balance sheets improved largely due to public support.
  - Share of loss-making SMEs declined; sectoral heterogeneity large.
  - Overall credit conditions unchanged in H1:2022.
- Financial stability risks:
  - Persistent legacy issues and a much larger, more complex financial system.
  - Emergent risks from non-bank lending, Fintech, and climate.
- Indicators:
  - Households reached average EA level of debt to disposable income ratio.
  - NPLs resumed downward trend.
  - Credit gap estimated close to zero.
  - Households accumulated significant cash reserves during the pandemic; credit growth remains weak.
- Macroprudential framework:
  - Effective so far; should evolve to reflect growing non-bank activity.
  - Housing sector financial stability risks remain low; continue monitoring mortgage debt limits.
  - Consider debt-to-income and debt-service-to-income limits if unsecured credit warrants.
  - CRE: investment rebound with cross-border flows intermediated via IFs — potential contagion channel.
  - CBI proposal: implement leverage limit and liquidity management guidelines for Irish-domiciled property funds.
  - Countercyclical capital buffer (CCyB): current level zero; balance shifting towards rebuilding resilience but decisions should be data driven.

### Banking sector resilience and stress testing
- FSAP stress tests: banks resilient to severe macrofinancial shocks; no bank would see capital ratio fall below hurdle rates.
- Aggregate CET1 outcome: "On aggregate, the CET1 ratio declines by about 6.7 percentage points for retail banks by the 5th year. When looking at the trough, however, capital depletion can reach 7.2 percentage points."
- Liquidity tests: banks resilient to adverse liquidity conditions; maturity mismatches may expose banks to shortfalls over longer horizon.
- Policy recommendation: maintain intensified supervision tools developed during COVID-19 crisis to identify potential stress sources.

### Long-term mortgage arrears (LTMA) and retail banking
- LTMAs: largely a legacy of the GFC; unresolved LTMAs hinder credit growth and affordability.
- Recommended institutional/legal changes:
  - Issue rules and guidelines for judges to ensure timely proceedings.
  - Ensure hearings take place in a timely manner.
  - Develop multi-agency strategy offering targeted solutions to LTMA borrowers based on debt-servicing capacity; publish guidance for lenders on expected restructuring outcomes.
- Retail banks:
  - Profitability under pressure; lending rates high; credit to SMEs low.
  - Market developments: two of five main retail banks (Ulster and KBC) announced exit in 2021; assets largely bought by remaining banks increasing concentration.
  - Government majority owner of two of the three remaining retail banks.
  - New entrants (Fintechs and non-bank lenders) tripled share of new mortgage lending to 13 percent in 2021.
- Policy recommendations:
  - Spur efficiency and innovation in government-owned banks; accelerate divestment of government stakes.
  - Continue supervisory intervention to reduce NPLs.
  - Banks should accelerate modern technologies adoption and improve customer service quality.

### Market-Based Finance (MBF) and Other Financial Institutions (OFIs)
- MBF sector size: assets over 20 times GNI*; comprises money-market and investment funds, and OFIs.
- Investment funds:
  - Funds hold primarily non-Irish assets for non-Irish investors; property funds account for more than 40 percent of invested CRE market.
  - Irish real estate funds: total assets about €33 billion.
- OFIs:
  - Some OFI segments have sizable linkages to domestic economy; full extent opaque and requires further investigation.
- Risks and policy recommendations:
  - Large redemptions from some MMFs during March 2020 highlighted IFs’ role in transmitting liquidity shocks.
  - Continue work with European/international institutions to improve regulatory framework and guidance on liquidity management.
  - Increase resourcing, broaden data collection (particularly cross-border transactional data), and use advanced data analytics.
  - Mitigate ML/TF risks via accurate beneficial ownership registries.

### Housing market and construction policy
- Housing market:
  - Double-digit price growth pressured affordability; price-to-income and price-to-rent ratios increased sharply.
  - House completions recovered in 2021 but still below 2019 levels.
  - Housing commencements accelerated to highest since the GFC.
  - Construction faces input cost inflation and labor shortages.
- Government measures:
  - "Housing for All" package: costing close to 1 percent of GDP annually; includes €12bn direct Exchequer funding, €3.5bn via Land Development Agency, and €5bn via Housing Finance Agency.
  - "First Home" shared-equity scheme starting in 2022:Q3 to support first home buyers; does not address supply bottlenecks and could add upward pressure on prices if expanded.
- Policy recommendations:
  - Timely implementation of Housing for All measures.
  - Policies to raise construction sector productivity: digitalization, upskilling/reskilling, reduce excessive apprenticeship requirements, and streamline zoning and permit processes.

### Labor market, participation, and skills
- Tight labor market indicators:
  - Employment rate (2022:Q1): 73.2 percent.
  - Participation rate (2022:Q1): 65.5 percent.
  - Monthly unemployment (15-74 years) May 2022: 4.7 percent.
  - Employment: 2.5 million in Q1 2022 — highest level on record.
- Sectoral reallocation and reskilling:
  - Employment growth in industry, manufacturing, finance, ICT, and real estate.
  - Reskilling focus: high-tech, digital, and green construction sectors.
  - NRRP strategy to strengthen training access with emphasis on digital skills welcomed.
- Female participation:
  - By 2022:Q1, female participation and employment rates: 60.2 percent and 69.1 percent, respectively.
  - More than 100,000 additional women in the workforce since Q1 2020.
  - Measures to boost participation: affordable childcare, flexible work schedules, telework, investment in digital infrastructure.

### Skills, retraining, and labor participation (authorities’ actions)
- Increased availability of funded retraining and upskilling courses; mechanisms include National Skills Council, Regional Skills Fora, Expert Group on Future Skills Needs.
- Department of Further and Higher Education, Research, Innovation and Science established comprehensive training programs.
- Agreed needs:
  - Incentivize uptake of retraining and upskilling.
  - Continue apprenticeship program reform to increase trade and apprenticeship programs.
  - Increase affordable childcare and flexible work to boost female participation.

### Climate policies and targets
- Legal and quantitative targets:
  - Climate Action and Low Carbon Development Act 2021: path to halve emissions by 2030 and achieve carbon neutrality by 2050, requiring 7 percent annual reduction in emissions over the next eight years.
  - Carbon tax: increased in line with legislated path to reach €100 by 2030.
- Supportive measures:
  - House retrofitting grants: up to €25,000.
  - Electric vehicle subsidies introduced.
  - NRRP green investments: 0.2 percent of GNI*.
  - Ireland’s NGEU allocation: €1bln (0.5% of GNI*).
- Gaps and recommendations:
  - Sector-specific carbon budgets need concrete measures to achieve quantitative targets.
  - Prioritize just transition measures.
  - CBI prepared high-level multi-year strategic workplan; needs sequenced action plan with early emphasis on robust data disclosures for climate-related financial risks.

### Annex I — Impact of the War in Ukraine on the Irish Economy (selected)
- Trade:
  - Exports to Russia: 0.4 percent of total goods exports.
  - Exports to Ukraine: 0.1 percent of total goods exports.
  - Ireland imports 4.5 percent of its fuel from Russia; other fuel sources: 52 percent from the U.K., 20 percent from the U.S., 6 percent from the Netherlands, 5 percent from Sweden.
- Energy and food prices:
  - 2022 energy bills expected to double from their 2019 level.
- Aircraft leasing and MNEs:
  - Direct exposure to Russian airlines: €4.1bln (3 percent of leasing companies’ total assets).
  - Lessors have sufficient liquidity and capital buffers to absorb immediate effects.
- Financial sector exposures:
  - SPEs hold €37bn of Russian-issued assets.
  - 33 Russian-sponsored SPEs identified, total assets €35bn (8 percent of non-securitization SPE sector).
  - Investment funds held €11bn Russian-issued assets at end-2021 (0.3 percent of their total assets).
  - Banking asset exposures to Russia/Ukraine small: €1.1bn.
  - Banks’ lending to aircraft leasing companies: €768m at end-2021 (2 percent of total loans).
- Migrant inflow and fiscal/service implications:
  - Estimated acceptance of 80,000–100,000 Ukrainian refugees; inflow so far around 25,000.
  - Additional demand for social services and housing will raise fiscal costs and affordable housing pressures; longer-term upside risks from increased labor supply.

### Current Account and External Debt (selected tables and projections)
- 2021 CA: 13.9 percent of GDP; cyclically adjusted CA: 14.6 percent; EBA norm: −3.0; EBA CA Gap: 17.5.
- Staff CA gap: 1.5 (±1.8) percent of GDP.
- Medium-term CA outlook: CA surplus expected to moderate to around 7 percent of GDP.
- External debt (Non-IFSC, percent of GDP):
  - 2017: 261.9; 2018: 265.7; 2019: 292.9; 2020: 302.1; 2021: 255.0; 2022: 220.9; 2023: 201.2; 2024: 188.6; 2025: 180.5; 2026: 174.3; 2027: 169.4.
- Exports (percent of GDP): 2017: 107.8 ... 2027: 136.5.
- Imports (percent of GDP): 2017: 91.1 ... 2027: 111.6.

### External debt sensitivity tests (selected scenario outcomes)
- Baseline referenced as 169 (percent of GDP).
- Scenario averages vs baseline:
  - i-rate shock: 181 (baseline 169).
  - Historical: 143 (baseline 169).
  - CA shock: 192 (baseline 169).
  - Combined shock: 207 (baseline 169).
  - Real depreciation shock (30% depreciation in 2019): 253 (baseline 169).
  - Growth shock: 209 (baseline 169).

### Policy support measures (Annex V, balance sheet/income support costs, in billions)
- Short-time working schemes (TWSS, EWSS), Expiration Date May-22:
  - 2020: 4.4; 2021: 5.3; 2022: 0.9; Total: 10.7.
- Pandemic Unemployment Benefit (PUP), Expiration Date Mar-22:
  - 2020: 5.0; 2021: 4.0; 2022: 0.2; Total: 9.2.
- Tax Cuts (general VAT/hospitality sector), Expiration Date Mar-21/Mar-23:
  - 2020: 0.16; 2021: 0.62; 2022: 0.4; Total: 1.18.
- Direct Grants (CRSS), Expiration Date Jan-22:
  - 2020: 0.2; 2021: 0.5; 2022: 0.01; Total: 0.73.
- Total Balance Sheet/Income Support:
  - 2020: 9.8; 2021: 10.4; 2022: 1.5; Total: 21.7.

### Risk Assessment Matrix (selected risks and policy responses)
- Russia’s invasion escalation:
  - Likelihood: High; Impact: Medium.
  - Response: targeted fiscal support; accelerate high-quality public investment if growth falters; implement migrant integration measures.
- Outbreaks of lethal COVID-19 variants:
  - Likelihood: Medium; Impact: Medium.
  - Response: intensify public health measures; increase digital infrastructure; targeted support to workers and viable businesses.
- De-anchoring of inflation expectations (US/EA):
  - Likelihood: Medium/Medium-Low; Impact: Low/Medium.
  - Response: monitor financial conditions; maintain prudent public debt management.
- Rising and volatile food and energy prices:
  - Likelihood: High; Impact: Medium.
  - Response: provide targeted fiscal support to vulnerable households and viable firms.
- Continued trade frictions/post-Brexit uncertainty:
  - Likelihood: Low/Medium; Impact: Medium.
  - Response: cooperate EU–U.K.; support exposed firms; facilitate SMEs’ trade diversification.

### Public Debt Sustainability (Baseline as of May 10, 2022, selected)
- Nominal gross public debt (percent of GDP):
  - 2020: 88.2; 2021: 58.4; 2022: 56.0; 2023: 48.0; 2024: 43.8; 2025: 40.6; 2026: 38.1; 2027: 35.6.
- Public gross financing needs (percent of GDP):
  - 2020: 12.5; 2021: 13.9; 2022: 7.1; 2023: 7.1; 2024: 4.1; 2025: 3.3; 2026: 4.0; 2027: 3.8.
- Net public debt (percent of GDP):
  - 2020: 64.7; 2021: 50.4; 2022: 48.8; 2023: 40.8; 2024: 36.9; 2025: 34.0; 2026: 31.6; 2027: 29.2.
- Real GDP growth (percent):
  - 2020: 6.8; 2021: 5.9; 2022: 13.5; 2023: 7.5; 2024: 5.0; 2025: 4.1; 2026: 3.1; 2027: 3.0.
- Effective interest rate (percent):
  - 2020: 3.3; 2021: 1.9; 2022: 1.5; 2023: 1.5; 2024: 1.8; 2025: 1.9; 2026: 1.8; 2027: 1.9.

### Annex VIII — Implementation of past IMF recommendations (selected)
- Fiscal:
  - Property tax reform: updated valuations every four years; previously untaxed houses now covered.
  - Spending Reviews, Performance Budgeting, National Investment Office, and investment project tracker introduced.
  - General government debt: 106 percent of GNI* at end-2021.
  - Government measures to limit fallout from inflation amount to around 1 percent of GNI*.
- International tax reform:
  - Government supportive of Two Pillar Solution; public consultation on transposition of EU Minimum Tax Directive; committed to OECD Inclusive Framework BEPS agreement.
- Climate policy:
  - Climate Action and Low Carbon Development (Amendment) Act 2021; legally binding targets including 51 percent emission reductions by 2030 relative to 2018 and net zero by 2050.
  - Approval in April 2022 of legally binding carbon budgets out to 2035.
- Financial sector:
  - NPL legacy positions sharply reduced; macroprudential limits (LTV, LTI) and central credit register operationalized.
  - Increased regulatory capability, supervisory resourcing, and data work on market-based finance.
- Public investment:
  - National Development Plan 2021-2030 (Project Ireland 2040): total public investment €165 billion over 2021-2030.
  - NDP backed by annual average investment in excess of €4 billion in housing: €12 billion direct Exchequer, €3.5 billion LDA, €5 billion HFA.
- Labor market and skills:
  - National Recovery and Resilience Plan, Department of Further and Higher Education, Pathways to Work 2021–2025, National Digital Strategy targets (80 percent adults with basic digital skills by 2030; >12,400 higher-level digital skills graduates/apprentices/trainees by end-2022).

### Key numerical indicators and projections (selected)
- Real GDP growth (annual percentage change):
  - 2022: 7.5; 2023: 5.0; 2024: 4.1; 2025: 3.1; 2026: 3.0; 2027: 3.0.
- HICP inflation:
  - 2022: 7.5; 2023: 3.8; 2024: 2.5; 2025: 2.0; 2026: 2.0; 2027: 2.0.
- Employment (percent changes of level, ILO definition):
  - 2022: 2.0; 2023: 1.0; 2024: 1.0; 2025: 1.0; 2026: 1.0; 2027: 1.0.
- Unemployment rate (percent):
  - 2022: 5.0; 2023–2027: 5.0.
- General government gross debt (percent of GDP):
  - 2022: 49.1; 2023: 44.8; 2024: 41.6; 2025: 39.0; 2026: 36.4; 2027: 33.4.
- General government gross debt (percent of GNI*):
  - 2022: 96.7; 2023: 88.9; 2024: 83.2; 2025: 78.0; 2026: 72.9; 2027: 66.9.
- Current account balance (percent of GDP):
  - 2022: 13.9; 2023: 12.3; 2024: 10.1; 2025: 9.0; 2026: 8.0; 2027: 7.0.
- Nominal GDP (€ billions):
  - 2022: 479.9; 2023: 522.1; 2024: 556.1; 2025: 584.6; 2026: 614.8; 2027: 646.2.
- Nominal GNI* (€ billions):
  - 2022: 243.5; 2023: 263.4; 2024: 278.1; 2025: 292.1; 2026: 307.0; 2027: 322.5.
- Financial sector indicators (selected):
  - Aggregate balance sheet of domestic market credit institutions assets (2022, end of period): 583.8 (billions of euros).
  - Irish Resident Broad money (M3) 2022: 387.2 (billions of euros).
  - Credit growth (selected banks): 2021: -3.8; 2020: 1.0; 2019: -3.4.
  - NPL ratio (selected banks): 2021: 3.5; 2020: 5.1; 2019: 3.4.

### Staff appraisal — macroeconomic outlook and policy guidance (selected)
- Outlook and risks:
  - After exceptionally strong rebound, Ireland’s outlook favorable but subject to substantial uncertainty.
  - GDP surpassed pre-pandemic trend; employment at all-time high.
  - External risks heightened by war in Ukraine, Brexit implementation details, and corporate income tax uncertainties.
  - Inflation pressures anticipated to persist with upside risks.
- Fiscal policy:
  - 2022 fiscal stance broadly appropriate; maintain two-way flexibility.
  - Room exists for temporary targeted measures to respond to high energy prices.
  - Near term: scope for high-quality investment as inflation decelerates.
  - Medium term: support growth-enhancing investment while accommodating social and demographic costs.
- Financial sector:
  - Continue to address GFC legacies; improve collateral recovery; reduce operating restrictions; divest government ownership while maintaining competition.
  - Evolve regulatory and supervisory frameworks for MBF, fintech, AML/CFT and sanctions risks; address data gaps and elucidate NBFI linkages.
  - Macroprudential framework should reflect growing non-bank activity; continue monitoring mortgage limits and consider total debt limits if warranted.
- Structural reforms:
  - Boost productivity, facilitate labor reallocation, reduce inequality, support green agenda.
  - Strengthen housing supply policies focusing on construction productivity, streamlined zoning and permit processes, and occupational licensing reform.
  - Support upskilling and affordable childcare to facilitate labor reallocation.
  - Ensure well-phased measures to achieve quantitative climate targets.
- Institutional timetable:
  - Staff proposes next Article IV consultation on standard 12-month cycle.

### Conclusion (selected)
- Key findings:
  - Irish economy remarkably resilient through COVID-19.
  - Policy challenges remain across fiscal policy, financial sector, climate and digital transitions, and a more uncertain international environment including Brexit-related developments.
- Authorities welcome IMF advice as they address these challenges.

*Source: IMF staff.*

### 1. COVID-19—Infections, Vaccination, and Mobility ______________________________________________ 5

### 1. COVID-19—Infections, Vaccination, and Mobility ______________________________________________ 5

### COVID-19 status, vaccination, and mobility
- Infections peaked in Q1:2022 and have been declining since then.
- Ireland has one of the highest vaccination rates among advanced economies (figures shown as of May 25, 2022 in source charts).
- All COVID-related restrictions have been lifted as infections declined substantially.
- The high vaccination rate helped break the link between infections and hospitalizations; despite a recent pick-up in infections, hospitalization remained low.
- Mobility indicators returned to pre-pandemic levels and the economy continues to be open as households and businesses have adapted.

### Recent activity and labor market
- The Irish economy recovered exceptionally strongly from the pandemic:
  - Real GDP growth registered 13½ percent in 2021.
  - Real GDP grew 5.9 percent in 2020 (positive growth).
  - GNI* recovered from a 2.2 percent decline in 2020, growing by an estimated 6 percent in 2021.
  - 2022:Q1 witnessed 11 percent y-o-y real GDP growth.
- Labor market:
  - Unemployment fell to 4.7 percent in May 2022.
  - The vacancy rate is at an all-time high.
  - Female and youth employment and participation had the highest gains.
  - High-frequency indicators (PMIs, card spending, trade) suggest continued solid growth in 2022:Q2, although consumer confidence plunged after the onset of the war in Ukraine.

### Inflation, housing, and wages
- Supply-side factors, particularly energy and commodity price increases, have been the main drivers of inflation.
- May 2022 inflation:
  - Headline inflation: 8.3 percent y-o-y.
  - Core inflation: 4.9 percent y-o-y.
  - Energy and unprocessed food price inflation stood at 33.3 percent y-o-y in May 2022.
- Housing and related prices:
  - House prices grew 14 percent y-o-y in 2021.
  - March 2022 residential property price index grew about 15 percent nationally and 12.6 percent in Dublin (y-o-y); Rent index grew at 9 percent nationally (y-o-y) during 2021:Q4.
  - Housing supply bottlenecks are significant.
- Detailed inflation drivers: utilities, fuel, car, and rent prices are major contributors; rents and car price increases are higher than in the EA.
- Wage growth:
  - Wage growth was 1.9 percent y-o-y in 2022:Q1.

### Fiscal, banking, and financial sector developments
- Fiscal outturns and government support:
  - Significant COVID-19 support was made available (3 percent of GDP).
  - Underutilization and other current and capital underspending limited the increase of total spending to 2.5 percent.
  - Expenditure declined in relation to rapidly growing GDP to its pre-pandemic level.
  - Gross public debt fell to 56 percent of GDP.
  - The government coalition is withdrawing pandemic-related support cautiously and introducing measures to mitigate energy price increases.
- Banking sector health and risks:
  - For three main retail banks, on a fully loaded basis, the average common equity tier 1 (CET1) ratio was 18 percent as of end-2021.
  - Loan-to-deposit ratio declined to 65 percent.
  - NPLs declined to below pre-pandemic levels at end-2021 (still high compared to EA peers).
  - Profitability has recovered, but legacies weigh on medium-term profitability, including high cost-to-income levels, elevated reliance on net interest income and credit risk, and underinvestment in digital infrastructure.
- Borrowing costs:
  - Ten-year government bond yields showed increases (charts in source).

### External sector and trade
- Exports and current account:
  - Exports reached new records in 2021, largely driven by MNEs.
  - IT and pharma exports grew 18.5 percent in 2021.
  - Other exports increased by 4.4 percent in 2021.
  - Ireland’s current account surplus reached 13.9 percent of GDP in 2021.
- Brexit and trade diversion:
  - Share of exports to the U.K. in Ireland’s total exports declined from 8.9 percent to 7.2 percent.
  - Share of the U.K. in Ireland’s total imports shrank from 21.4 percent to 18.5 percent by March-2022.
  - FDI and other financial flows between Ireland and the U.K. remain substantial, although the relative share of the U.K. in Ireland’s inward FDI has been declining.
  - The impact of Brexit on Ireland’s exports has not been fully realized as the U.K. has postponed import controls on goods from Ireland pending negotiations on the Northern Ireland Protocol.
- Balance of payments:
  - The current account and financial account components have been volatile, driven by large financial flows and intellectual property (IP) imports related to MNE operations.
  - The external position is assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies (Annex IV).

### Policy perspectives and staff advice
- Past staff advice called for:
  - Shifting to more inclusive and sustainable growth while reducing vulnerabilities.
  - Increased high-quality spending while continuing to reduce public debt to GNI*.
  - Redoubling structural reform efforts to ease bottlenecks.
  - Ensuring healthy competition in the domestic bank sector while guarding against risk build-up in the large and growing international non-bank sector.
- Authorities implemented many of staff’s past policy recommendations (see Annex VIII).
- The government is strengthening its program to address socio-economic challenges; pandemic-related support is being withdrawn cautiously and measures are being introduced to mitigate energy price increases.

*IRELAND — INTERNATIONAL MONETARY FUND.*

### 10. Ireland’s growth outlook remains positive, notwithstanding global headwinds from

### 10. Ireland’s growth outlook remains positive, notwithstanding global headwinds from

### Growth outlook
- Growth is projected to slow from 13.5 percent in 2021 to a still robust 7.5 and 5.0 percent in 2022 and 2023, respectively.
- Slower growth reflects:
  - Envisaged deceleration of the IT and pharmaceutical sectors from their exceptional 2021 performance.
  - Indirect impact of the war in Ukraine.
- Household excess savings and government support to mitigate the rise in fuel prices are expected to cushion the impact of inflation on disposable income.
- Over the medium term:
  - As net exports contribution declines, GDP growth is expected to converge to its 3 percent potential, supported by the reforms and investment plans outlined in the NDP.
  - A small positive output gap opened up in 2021 and is expected to close over the medium-term (estimates subject to significant uncertainty).
- Public debt is projected to be on a downward trend, and the external current account to remain in surplus.

### Inflation outlook
- Core inflation (non-energy, non-food) is expected to continue rising through 2022 due to supply constraints and demand effects from unwinding pandemic excess saving.
- Core inflation projections:
  - 4.7 in 2022
  - 3.5 percent in 2023
- Headline inflation projections (driven by current energy price projections):
  - 7.5 percent in 2022
  - 3.8 percent in 2023
- If price pressures in energy and construction supplies subside in the first half of 2023 as supply constraints ease, base effects would be disinflationary.
- Continued energy and commodity price pressures constitute upward risks to the inflation outlook.

### Risks to the outlook
- Downside risks dominate:
  - Prolonged war in Ukraine.
  - Further supply-chain disruptions.
  - Weaker external demand and confidence.
  - Unanticipated financial exposures.
  - De-anchoring of inflation expectations and tighter financial conditions.
  - Disruptions to energy supply could pressure profit margins and economic activity.
  - Uncertainty regarding remaining details of corporate income tax changes and Brexit implementation.
  - Tightened capacity constraints and rising costs in the construction sector could slow progress on housing shortages and delay NDP implementation.
- Upside risks:
  - Continued exceptional MNEs’ performance.
  - Deeper domestic integration of MNEs.
  - Brexit-induced firms’ relocations to Ireland.

### Authorities’ views (summarized)
- Authorities broadly concurred with staff on outlook and risks, citing:
  - Vibrant economic growth and strong labor market rebound.
  - Improved fiscal position and declining public and private indebtedness.
- Emphasized need to rebuild buffers given how quickly a favorable outlook can change.
- Agreed on upward risks to inflation requiring careful demand management.
- Noted capacity constraints in construction and government initiatives to modernize the sector.
- Do not foresee significant financial sector exposure as a result of the sanctions.
- Agreed current account surplus is consistent with under-investment in housing by the household sector, precautionary savings, and recent deleveraging in the domestic NFC sector.

### Fiscal policy: current stance and near-term outlook
- The fiscal balance in 2022 is expected to improve significantly; fiscal deficit expected to decline by 1.7 percent of GDP.
- Composition of 2022 measures:
  - New current spending: 0.7 percent of GDP (health, education, social welfare).
  - Additional capital spending: 0.3 percent of GDP (supports the NDP).
  - Tax relief and social welfare package: 0.5 percent of GDP (household fuel allowances, temporary reduction in excise duties, one-off electricity grant to all households noted as potentially less targeted).
- COVID-related budget support in 2022 is scaled down by about 1.6 percent of GDP compared to last year’s budget.
- Assessment:
  - 2022 budget strikes a balance between strong activity rebound and increased downside risks.
  - As inflation decelerates, scope exists for additional targeted, high-quality expenditure to support socioeconomic objectives, strengthen inward linkages of MNEs, and boost potential growth.
  - Authorities should stand ready to adjust flexibly: allow automatic stabilizers if growth disappoints and increase high-quality infrastructure and social spending; remain cognizant of inflation risks to avoid overheating.

### Medium-term fiscal strategy and public investment
- Authorities introduced a new expenditure rule limiting primary spending increases to estimated GNI* growth and permitting borrowing only for investment.
  - Authorities estimate the “sustainable growth rate” at 5 percent (historical nominal rate of growth).
- Goal: steadily rebuild buffers while supporting investment needs and raising annual public investment to above 5 percent of GNI* over the medium term.
- Context and staff assessment:
  - Public debt is above 100 percent of GNI*.
  - Under staff projections, public debt would fall below 40 percent of GDP by 2027.
  - Ireland’s public investment and infrastructure quality remain below EU peers, constraining inclusive growth, labor mobility, and regional development.
- Priorities for implementation of investment plans:
  - Infrastructure, healthcare, education, affordable housing, and integration of refugees to address social needs, increase productivity of indigenous sectors, and strengthen MNEs’ inward linkages.
- There is scope to allow for additional growth-enhancing social and green spending while ensuring value for money.

### Fiscal risks and revenue considerations
- Corporate income tax (CIT) considerations:
  - CIT is the third-largest source of tax revenue (20 percent of tax revenues).
  - Authorities estimate a revenue loss of at least 0.5 percent of GDP annually from future changes in international CIT.
  - Given CIT volatility, windfalls should be treated with caution and allocated to either the Rainy-Day Fund or to reduce debt.
  - Thus far MNEs continue to invest in Ireland attracted by non-tax comparative advantages.
- Long-term demographic pressures:
  - Old-age dependency ratio expected to double in the next decades.
  - Retirement age currently well-below life expectancy; maintaining planned increase in the retirement age to 68 remains key.
  - Authorities’ previous estimates suggest failure to increase retirement age as planned could imply a cumulative fiscal cost of about €50 billion (about 12 percent of 2021 GDP) over the long term.
  - Health and long-term care expenditures expected to increase significantly, underscoring need for cost-efficient healthcare reforms.

### Fiscal policy recommendations (staff)
- Broadening the tax base:
  - Scope to increase less distortive taxes given a low revenue-to-GDP ratio versus advanced economies.
  - Simplify VAT structure and reduce items subject to preferential VAT or excise rates.
  - Recent improvements in property tax framework welcome; scope to gradually increase property tax rate from its very low level while ensuring adequate social protection.
  - Improve personal income tax (PIT) system and reduce administrative costs; consider additional tax bands and rates to preserve progressivity while broadening base and reducing work disincentives.
  - Recalibrating income tax by absorbing the Universal Social Charge (USC) could reduce administrative costs.
- Maximizing public investment returns:
  - Continue progress on public investment framework and spending procedures per 2017 PIMA recommendations.
  - Enhance infrastructure project implementation and adherence to budgeted targets.
- Improving adequacy and targeting of social spending:
  - Enhance targeting of social programs to vulnerable groups (women, young adults, single parents).
  - Implement measures to increase supply of affordable housing.

### Financial and macroprudential policies
- Pandemic impact on borrowers’ financial positions has started to dissipate but uncertainty remains high and new risks have emerged.
- Financial environment:
  - Credit growth is muted as firms and households continue to deleverage.
  - Households’ balance sheets improved during the pandemic largely due to public support.
  - Share of loss-making SMEs has declined, though sectoral heterogeneity is large.
  - Overall credit conditions remained unchanged in H1:2022.
- Financial stability risks:
  - Persistent legacy issues and a much larger, more complex financial system.
  - Emergent risks from non-bank lending, Fintech, and climate.
- Indicators and trends noted in the chapter:
  - Households continued to deleverage; Ireland has reached the average EA level of debt to disposable income ratio.
  - NPLs have resumed a downward trend.
  - The credit gap is estimated to be close to zero.
  - Households accumulated significant cash reserves during the pandemic; credit growth remains weak.

*Source: International Monetary Fund (chapter content).*

### 21.  Banks withstood the pandemic shock well and remain broadly resilient, thanks to high

### 21.  Banks withstood the pandemic shock well and remain broadly resilient, thanks to high 

### Banking sector resilience and stress testing
- FSAP stress tests confirmed banks’ resilience to severe macrofinancial shocks.
- On the solvency side: the analysis showed no bank would see its capital ratio fall below the hurdle rates.
- Aggregate CET1 outcome: "On aggregate, the CET1 ratio declines by about 6.7 percentage points for retail banks by the 5th year. When looking at the trough, however, capital depletion can reach 7.2 percentage points."14
- Liquidity tests:
  - Suggest banks are resilient to adverse liquidity conditions.
  - Maturity mismatches may expose banks to shortfalls over a longer horizon.
  - Some cross currency vulnerabilities identified (Figure 9, charts 1 and 2).
- Policy recommendation: maintain the use of tools developed for intensified supervision during the COVID-19 crisis to continue identifying potential sources of stress.

### Long-term mortgage arrears (LTMA)
- LTMAs are largely a legacy of the GFC; unresolved LTMAs hinder credit growth and affordability due to high uncertainty of realizing collateral.
- Institutional and legal barriers need removal to enable timely and efficient enforcement of secured credit:
  - Issue rules and guidelines for judges with respect to proceedings.
  - Ensure hearings take place in a timely manner.
- Government should develop a multi-agency strategy to provide targeted solutions to LTMA borrowers based on debt-servicing capacity, including published guidance for lenders on expected restructuring outcomes based on capacity-to-repay indicators.

### Retail banks: profitability, competition, and NPLs
- Retail banks’ profitability remains under pressure; bank lending interest rates are high, and credit to SMEs is low.
- Market developments:
  - In 2021, two out of five main retail banks (Ulster and KBC) announced their exit from Ireland; their assets were largely bought by remaining banks, increasing concentration.
  - The government is still a majority owner of two of the three remaining retail banks.
  - New entrants (including Fintechs and non-bank lenders) have tripled their share of new mortgage lending over last two years (to 13 percent in 2021), increasing competition and pressuring bank profitability.
- Policy recommendations:
  - Spur efficiency gains and innovation in majority government-owned banks and accelerate the divestment of government stakes.
  - Continue supervisory intervention to reduce NPLs and lessen the burden of unproductive assets.
  - Banks should accelerate the use of modern technologies, step up innovation, and improve customer service quality.

### Market-Based Finance (MBF) and Other Financial Institutions (OFIs)
- MBF sector size: assets over 20 times GNI*; comprised of money-market and investment funds, and OFIs.
- Investment funds:
  - Funds hold primarily non-Irish assets on behalf of non-Irish investors, with some domestic interlinkages (property funds account for more than 40 percent of the invested CRE market).
  - Irish real estate funds have total assets of about €33 billion.15
- OFIs:
  - Some OFI segment has sizable linkages to the domestic economy; the full extent remains opaque and requires further investigation as recommended by the FSAP (Annex II).16
- Risks and observations:
  - Large redemptions from some MMFs during March 2020 market turmoil underlined IFs’ role in transmitting and amplifying liquidity shocks.
  - Significant linkages between large international banks and non-bank financial institutions.
  - CBI has made strides in monitoring MBF and improving regulation but has not completed its fund stress-testing model and lacks comprehensive data on granular risk metrics and composition of sizable parts of activity in OFIs.
- Policy recommendations:
  - Continue working with European and international institutions to improve the regulatory framework and prioritize guidance on the use of liquidity management tools.
  - Increase resourcing, broader data collection (particularly of cross-border transactional data), and use advanced data analytical tools to keep pace with rapid expansion.
  - Mitigate ML/TF risks from complex ownership structures by ensuring beneficial ownership registries data are accurate, complete, and up-to-date.

### Macroprudential framework and CRE
- The macroprudential framework has been effective in supporting borrower resilience and containing pro-cyclical credit dynamics, but needs to evolve to reflect growing non-bank activity.
- Housing sector financial stability risks remain low; limits on mortgage debt should continue to be closely monitored.
- If warranted by developments in unsecured credit, consider complementing mortgage limits with limits on total debt (i.e., debt-to-income and debt-service-to-income ratios).
- CRE:
  - Investment rebounded in 2021 with significant cross-border flows, often intermediated via IFs — a potential channel of contagion for global financial shocks.
  - CBI proposal: implement a leverage limit and provide liquidity management guidelines for Irish-domiciled property funds — considered essential steps.
- Countercyclical capital buffer (CCyB):
  - Current level is zero; balance of factors is shifting towards rebuilding resilience but decisions should remain data driven given increased uncertainty around the economic outlook.

### Housing market and construction policy
- Pandemic exacerbated housing market imbalances: double-digit price growth has pressured affordability; price-to-income and price-to-rent ratios increased sharply in recent quarters.
- Supply and activity:
  - House completions recovered in 2021 but were still below 2019 levels.
  - Housing commencements accelerated to the highest number since the GFC.17
  - Construction sector faces input cost inflation and labor shortages.
- Government measures:
  - "Housing for All" package costing close to 1 percent of GDP annually; includes €12bn direct Exchequer funding, €3.5bn through the Land Development Agency, and €5bn through the Housing Finance Agency.18
  - "First Home" shared-equity scheme starting in 2022:Q3 aims to support first home buyers but does not address supply bottlenecks; if expanded it could put further upward pressure on prices.
- Policy recommendations:
  - Timely implementation of Housing for All measures.
  - Additional policies to raise productivity in the construction sector.
  - Improve digitalization, upskilling and reskilling, reduce excessive apprenticeship requirements, and streamline zoning and permit processes.
- Government-industry initiatives:
  - Establishment of the Construction Sector Innovation and Digital Adoption Subgroup and the Construction Sector Group to deliver priority actions and maintain dialogue to achieve Project Ireland 2040 commitments.19 20 21 22 23

### Labor market, participation, and skills
- Tight labor market indicators:
  - In 2022:Q1, employment rate reached 73.2 percent and participation rate reached 65.5 percent (all-time highs).
  - Monthly unemployment rate (15-74 years) in May 2022 was 4.7 percent.
  - Expiration of Pandemic Unemployment Payment (PUP) in February 2022 and short-term working schemes (TWSS, EWSS) in April 2022 expected to partly alleviate labor shortages.
- Job vacancies rising while unemployment falls — indicating a tight labor market (see Unemployment rate and Job vacancy chart).
- Sectoral reallocation and reskilling:
  - Pandemic had asymmetric impact; contact-intensive sectors face transition challenges for low-skilled workers.
  - Employment growth in industry, manufacturing, finance, ICT, and real estate sectors.
  - Reskilling should focus on high-tech, digital, and green construction sectors.
  - Authorities’ NRRP strategy to strengthen access to training with emphasis on digital skills is welcome.24
  - Continue to encourage links between education and industry, facilitate on-the-job training, and reform apprenticeship programs to lower barriers to entry.
- Female labor force participation:
  - By 2022:Q1, female participation and employment rates reached 60.2 percent and 69.1 percent, respectively; these surpassed pre-pandemic and average EU levels but remain below U.K. levels.
  - Further gains achievable via active labor market policies, increased provision of affordable childcare, and facilitating flexible work and telework through investment in digital infrastructure.

### Authorities’ views (summarized)
- Authorities concurred that the Irish financial system demonstrated resilience to Brexit and COVID shocks.
- Noted retail banks have returned to pre-pandemic profitability and resumed NPL reduction; further NPL reduction remains a key supervisory priority.
- Emphasized ongoing efforts and a comprehensive cross-departmental approach on LTMA; did not see a need to expand the macroprudential kit to include total debt metrics at this point.
- Agreed on the need to ensure regulatory framework and supervisory capacity keep pace with Ireland’s growing global and interconnected financial sector; stressed cross-border collaboration with ECB/SSM, Single Resolution Board, and European System of Financial Supervision.
- Acknowledged ongoing need to strengthen AML/CFT framework, particularly in respect of cross-border activity, as European and international AML/CFT standards continue to be enhanced.

*Source: IMF staff report excerpt (chapter 21–33) provided in the supplied content.*

### 36.  The authorities highlighted the increased range and availability of funded retraining

### 1irlea2022001 - 36.  The authorities highlighted the increased range and availability of funded retraining

### Skills, retraining, and labor participation
- Authorities highlighted the increased range and availability of funded retraining and upskilling courses, and well-established mechanisms for partnership across the skills ecosystem (including National Skills Council, Regional Skills Fora, Expert Group on Future Skills Needs).
- The Department of Further and Higher Education, Research, Innovation and Science established comprehensive training programs to alleviate skilled labor shortages and bring Ireland above the EU average for life-long learning indicators.
- Agreed actions and needs:
  - More needs to be done to incentivize uptake of retraining and upskilling courses.
  - Continue delivery of ongoing reform of the apprenticeship program to make it more cost-efficient and attractive for employers and employees and increase the number of trade and apprenticeship programs.
  - Increase affordable child-care centers, flexible work schedules, and telework opportunities to boost female participation in the labor market.

### Climate policies and targets
- Legal and quantitative targets:
  - The amended Climate Action and Low Carbon Development Act 2021 set a path to halve emissions by 2030 and achieve carbon neutrality by 2050, requiring 7 percent annual reduction in emissions over the next eight years.
  - The carbon tax was increased in line with the legislated path to reach €100 by 2030.
- Supportive measures:
  - House retrofitting grants (up to €25,000) and electric vehicles subsidies introduced to accelerate emissions reduction in the housing and transport sectors.
  - The NRRP has 0.2 percent of GNI* investments aimed at advancing the green transition.
  - Ireland’s total allocation of NGEU financing is €1bln (0.5% of GNI*).
- Gaps and recommendations:
  - Approval of sector-specific carbon budgets is welcome but needs to be complemented by concrete measures to achieve the quantitative targets.
  - Just transition measures should be a priority to support affected groups.
  - Irish banks’ exposure to climate risks is not insignificant; the CBI has prepared a high-level multi-year strategic workplan, which should be complemented by a sequenced action plan to manage climate-related financial risks with an early emphasis on robust data disclosures.

### Authorities’ views on climate and investment
- Authorities reiterated commitment to climate targets and noted large investment needs.
- Emphasized central role of green investment programs in the NDP and focus on improving the regulatory environment for renewable investments.
- Legally-binding sectoral emissions ceilings expected to be agreed by the government this summer; full reductions required to meet the Carbon Budgets are not yet identified in the climate action plan.

### Staff appraisal — macroeconomic outlook and policy guidance
- Outlook and risks:
  - After an exceptionally strong rebound from the pandemic, Ireland’s outlook remains favorable but subject to substantial uncertainty.
  - GDP surpassed its pre-pandemic trend and employment is at an all-time high.
  - External risks heightened by the war in Ukraine, remaining Brexit implementation details, and corporate income tax uncertainties.
  - Inflation pressures anticipated to persist with upside risks.
- Fiscal policy:
  - The 2022 fiscal stance is broadly appropriate; fiscal policy should maintain two-way flexibility in light of high uncertainty.
  - Strong tax revenue outturns and tapering of COVID-19 support provide room to respond to high energy prices; additional measures, if needed, should be temporary and carefully targeted.
  - In the near term, as inflation decelerates, there is scope for more high-quality investment to counter headwinds from the war in Ukraine.
  - Over the medium term, fiscal policy should support growth-enhancing investment while making room to accommodate social and demographics-related costs.
  - Priority spending: education, training, health, and infrastructure to increase productivity of indigenous sectors and promote MNEs’ inward linkages.
  - To broaden the tax base: consider removing preferential VAT rates and gradually increasing the very low property tax rates while ensuring adequate social safeguards.
- Financial sector and macroprudential policy:
  - Further efforts needed to address GFC legacies: banks broadly resilient but profitability lackluster, lending interest rates high, and credit to SMEs low.
  - Recommendations: improve collateral recovery, reduce operating restrictions, divest government ownership while maintaining sufficient competition.
  - Continue to evolve regulatory and supervisory frameworks for the MBF sector, fintech, AML/CFT and sanctions risks; address data gaps and elucidate linkages in NBFIs.
  - Macroprudential framework should reflect growing non-bank activity; continue close monitoring of mortgage limits and consider limits on total debt if unsecured credit developments warrant.
  - CBI’s proposed leverage limit and liquidity management guidelines for Irish-domiciled property funds are essential.
- Structural reforms:
  - Advance reforms to boost productivity, facilitate labor reallocation, reduce inequality, and support the green agenda.
  - Housing supply policies should be further strengthened with focus on construction-sector productivity, streamlined zoning and permit processes, and occupational licensing requirements.
  - Support upskilling and affordable childcare to facilitate labor reallocation.
  - Ensure well-phased measures are specified and put in place to achieve quantitative climate targets.
- Institutional timetable:
  - Staff proposes the next Article IV consultation with Ireland take place on the standard 12-month cycle.

### Key numerical indicators and projections (selected)
- Climate and green finance:
  - Required emissions reduction: 7 percent annual reduction in emissions over the next eight years.
  - Carbon tax path: reach €100 by 2030.
  - House retrofitting grants: up to €25,000.
  - NRRP green investments: 0.2 percent of GNI*.
  - Ireland’s NGEU allocation: €1bln (0.5% of GNI*).
- Macroeconomic projections (selected series from tables):
  - Real GDP growth: 2022: 7.5; 2023: 5.0; 2024: 4.1; 2025: 3.1; 2026: 3.0; 2027: 3.0 (annual percentage change).
  - Inflation (HICP): 2022: 7.5; 2023: 3.8; 2024: 2.5; 2025: 2.0; 2026: 2.0; 2027: 2.0.
  - Employment (percent changes of level, ILO definition): 2022: 2.0; 2023: 1.0; 2024: 1.0; 2025: 1.0; 2026: 1.0; 2027: 1.0.
  - Unemployment rate (percent): 2022: 5.0; 2023–2027: 5.0.
  - General government gross debt (percent of GDP): 2022: 49.1; 2023: 44.8; 2024: 41.6; 2025: 39.0; 2026: 36.4; 2027: 33.4.
  - General government gross debt (percent of GNI*): 2022: 96.7; 2023: 88.9; 2024: 83.2; 2025: 78.0; 2026: 72.9; 2027: 66.9.
  - Current account balance (percent of GDP): 2022: 13.9; 2023: 12.3; 2024: 10.1; 2025: 9.0; 2026: 8.0; 2027: 7.0.
  - Nominal GDP (€ billions): 2022: 479.9; 2023: 522.1; 2024: 556.1; 2025: 584.6; 2026: 614.8; 2027: 646.2.
  - Nominal GNI* (€ billions): 2022: 243.5; 2023: 263.4; 2024: 278.1; 2025: 292.1; 2026: 307.0; 2027: 322.5.
- Financial sector indicators (selected):
  - Aggregate balance sheet of domestic market credit institutions assets (2022, end of period): 583.8 (billions of euros).
  - Irish Resident Broad money (M3) 2022: 387.2 (billions of euros).
  - Credit growth (selected banks): 2021: -3.8; 2020: 1.0; 2019: -3.4.
  - NPL ratio (selected banks): 2021: 3.5; 2020: 5.1; 2019: 3.4.

*Sources: CSO, DoF, Eurostat, CBI, and IMF staff estimates and projections.*

### Annex I. The Impact of the War in Ukraine on the Irish Economy

### Annex I. The Impact of the War in Ukraine on the Irish Economy

### Overview
- While direct trade links with Russia and Ukraine are small, the impact of energy and food price increases, external demand, and confidence can be substantial.
- Irish banks do not have significant direct exposure to Russia and Ukraine; the non-bank financial sector, largely externally oriented, has some exposures on both the assets and liabilities sides.
- This assessment covers the impact of both the war and the related sanctions.

### Trade
- Ireland exports 0.4 percent of total goods exports to Russia and 0.1 percent to Ukraine.
- Non-fuel imports from both countries are negligible.
- Ireland imports 4.5 percent of its fuel from Russia, with other fuel sources: 52 percent from the U.K., 20 percent from the U.S., 6 percent from the Netherlands, 5 percent from Sweden.

### Energy and Food Prices
- 2022 energy bills are expected to double from their 2019 level.
- Energy and food price increases are reducing households’ purchasing power and pressuring firms’ margins, dampening consumption, investment, and confidence.

### Aircraft Leasing and MNEs
- Direct exposure to Russian airlines reportedly amounts to €4.1bln, which is 3 percent of the leasing companies’ total assets.
- Lessors have sufficient liquidity and capital buffers to absorb immediate effects from difficulties repossessing aircraft, foregone rents, and impairments.
- Some IT MNEs could see lower profits owing to the closure of their businesses in Russia, and from a possible decline in global sales due to faltering growth and supply chains.

### Financial Sector Exposures
- Special Purpose Entities (SPEs) hold €37bn of Russian-issued assets.
- There are 33 Russian-sponsored SPEs identified, with total assets of €35bn, which is 8 percent of the non-securitization SPE sector.
- Investment funds held €11bn Russian-issued assets at end-2021 (0.3 percent of their total assets).
- Banking asset exposures were within international banks and small (€1.1bn).
- Irish banks lending to aircraft leasing companies was €768m at end-2021 (2 percent of total loans).
- No Irish banks had loans secured against collateral located in Russia or Ukraine.

### Migrant Inflow and Fiscal/Service Implications
- Ireland has estimated accepting 80,000–100,000 Ukrainian refugees.
- The inflow so far has been around 25,000.
- Additional demand for social services and housing will raise fiscal costs and affordable housing pressures.
- In the longer-term, there are upside risks from increased labor supply.

*Annex I. The Impact of the War in Ukraine on the Irish Economy — IMF staff text as provided in the source PDF.*

### 2021. In the medium term, the CA surplus is expected to moderate at around 7 percent of GDP as the government dissaving 

### 1irlea2022001 - 2021. In the medium term, the CA surplus is expected to moderate at around 7 percent of GDP as the government dissaving

### Current Account (CA) Assessment and Staff CA Gap
- 2021 (% GDP) CA: 13.9
- Cycl. Adj. CA: 14.6
- EBA Norm: -3.0
- EBA CA Gap: 17.5
- COVID-19 Adj.: 0.5
- Other Adj.: -16.5
- Staff CA Gap: 1.5 (±1.8) percent of GDP
- EBA CA model estimates:
  - cyclically adjusted CA of 14.6 percent of GDP
  - CA norm of −3.0 percent of GDP
  - standard error of 1.8 percent of GDP
- COVID-19 adjustments to cyclically adjusted CA balance (sum to 0.5 pp):
  - -0.3 pp to reflect the contraction in travel services net exports
  - +0.5 pp to reflect net exports of medical supplies triggered by the health emergency
  - −0.2 pp to reflect shifts in household consumption composition from services toward consumer goods
  - 0.5 pp to reflect changes in the transport services balance, due to high freight costs in 2021
- Additional adjustment:
  - –16.5 pp of GDP included to remove the impact of MNEs operations
- Staff CA gap composition:
  - identified policy gaps of 1 percent of GDP
  - unexplained residual -0.5 percent of GDP

### Medium-term CA Outlook and Drivers
- In the medium term, the CA surplus is expected to moderate at around 7 percent of GDP as the government dissaving decreases, while households net saving decreases, but it will remain sizable given:
  - the structural housing gap
  - export activities of MNEs
  - the exit from the double-Irish leads to smaller services import by MNEs

### Real Exchange Rate (REER)
- Background:
  - ULC-based REER depreciated sharply following the GFC (2008), reflecting productivity gains and declining labor costs
  - Productivity growth has been concentrated in MNEs
  - REER was relatively stable prior to the pandemic
  - In 2021 the average CPI-based REER appreciated by 0.2 percent, while the ULC-based REER depreciated by 0.6 percent, relative to 2020 average
- Assessment:
  - EBA REER index and level models estimate the REER gap of -18.9 and 19.3 percent, respectively
  - explanatory power of policy variables is negligible; gaps almost entirely attributed to unexplained residuals
  - Staff assess the REER gap to be in the range of -3.9 to 0.4 percent on average during 2021, with a midpoint of -1.8 percent (given an estimated elasticity of 0.85)

### Capital and Financial Accounts: Flows and Policy Measures
- Background:
  - Ireland’s capital and financial accounts are characterized by significant volatility due to the financing operation and investment activities of MNEs
  - In 2021, net FDI outflows amounted to 39 bn euro, driven by equity repayment and reinvested earnings of MNEs
  - Financial account outflows in 2021 was around 12 percent of GDP
- Assessment:
  - Inward FDI and foreign demand for Irish sovereign bonds have supported Ireland’s strong economic performance and investor-friendly business climate, including a favorable tax environment

### FX Intervention and Reserves
- Background:
  - The euro has the status of a global reserve currency
- Assessment:
  - Reserves held by the euro area are typically low relative

### External Debt Sustainability (Non-IFSC External Debt, 2017–2027)
- Baseline: External debt (In percent of GDP)
  - 2017: 261.9
  - 2018: 265.7
  - 2019: 292.9
  - 2020: 302.1
  - 2021: 255.0
  - 2022: 220.9
  - 2023: 201.2
  - 2024: 188.6
  - 2025: 180.5
  - 2026: 174.3
  - 2027: 169.4
- Change in external debt:
  - 2017: -35.6
  - 2018: 3.8
  - 2019: 27.2
  - 2020: 9.2
  - 2021: -47.0
  - 2022: -34.1
  - 2023: -19.8
  - 2024: -12.6
  - 2025: -8.1
  - 2026: -6.2
  - 2027: -4.9
- Identified external debt-creating flows (4+8+9)
  - 2017: -46.6
  - 2018: -37.8
  - 2019: -12.7
  - 2020: -25.9
  - 2021: -47.4
  - 2022: -28.7
  - 2023: -17.9
  - 2024: -13.8
  - 2025: -10.0
  - 2026: -8.2
  - 2027: -7.1
- Current account deficit, excluding interest payments (percent of GDP)
  - 2017: -8.4
  - 2018: -12.8
  - 2019: 13.8
  - 2020: -0.6
  - 2021: -11.2
  - 2022: -10.3
  - 2023: -10.4
  - 2024: -8.9
  - 2025: -7.2
  - 2026: -6.6
  - 2027: -5.6
- Deficit in balance of goods and services (percent of GDP)
  - 2017: -16.7
  - 2018: -24.0
  - 2019: 1.9
  - 2020: -14.3
  - 2021: -30.1
  - 2022: -31.2
  - 2023: -30.4
  - 2024: -29.1
  - 2025: -27.7
  - 2026: -26.3
  - 2027: -24.9
- Exports (percent of GDP)
  - 2017: 107.8
  - 2018: 109.9
  - 2019: 113.9
  - 2020: 113.6
  - 2021: 116.7
  - 2022: 129.2
  - 2023: 131.3
  - 2024: 132.2
  - 2025: 133.4
  - 2026: 134.9
  - 2027: 136.5
- Imports (percent of GDP)
  - 2017: 91.1
  - 2018: 85.9
  - 2019: 115.8
  - 2020: 99.3
  - 2021: 86.6
  - 2022: 97.9
  - 2023: 100.9
  - 2024: 103.0
  - 2025: 105.8
  - 2026: 108.6
  - 2027: 111.6
- Net non-debt creating capital inflows (negative)
  - 2017: -16.5
  - 2018: -0.3
  - 2019: -26.9
  - 2020: -14.8
  - 2021: 4.6
  - 2022: -3.7
  - 2023: -2.9
  - 2024: -2.9
  - 2025: -2.8
  - 2026: -2.8
  - 2027: -2.8
- Automatic debt dynamics contribution
  - 2017: -21.7
  - 2018: -24.6
  - 2019: 0.4
  - 2020: -10.5
  - 2021: -40.8
  - 2022: -14.6
  - 2023: -4.5
  - 2024: -2.0
  - 2025: 0.1
  - 2026: 1.2
  - 2027: 1.3
- Contribution from nominal interest rate (percent)
  - 2017: 10.7
  - 2018: 9.3
  - 2019: 9.7
  - 2020: 7.6
  - 2021: 3.6
  - 2022: 3.8
  - 2023: 5.7
  - 2024: 5.6
  - 2025: 5.5
  - 2026: 6.4
  - 2027: 6.4
- Contribution from real GDP growth (percent)
  - 2017: -23.7
  - 2018: -20.6
  - 2019: -12.6
  - 2020: -16.1
  - 2021: -34.7
  - 2022: -18.4
  - 2023: -10.2
  - 2024: -7.6
  - 2025: -5.4
  - 2026: -5.2
  - 2027: -5.0
- Residual, incl. change in gross foreign assets (2-3)
  - 2017: 11.0
  - 2018: 41.6
  - 2019: 39.9
  - 2020: 35.0
  - 2021: 0.4
  - 2022: -5.4
  - 2023: -1.9
  - 2024: 1.2
  - 2025: 2.0
  - 2026: 2.0
  - 2027: 2.2
- External debt-to-exports ratio (percent)
  - 2017: 243.0
  - 2018: 241.8
  - 2019: 257.2
  - 2020: 265.9
  - 2021: 218.5
  - 2022: 171.1
  - 2023: 153.2
  - 2024: 142.7
  - 2025: 135.3
  - 2026: 129.2
  - 2027: 124.1
- Gross external financing need (in billions of US dollars)
  - 2017: 232.5
  - 2018: 233.6
  - 2019: 370.4
  - 2020: 331.8
  - 2021: 262.9
  - 2022: 258.9
  - 2023: 264.7
  - 2024: 271.5
  - 2025: 280.8
  - 2026: 292.9
  - 2027: 303.5
- Gross external financing need (in percent of GDP)
  - 2017: 78.3
  - 2018: 71.7
  - 2019: 103.9
  - 2020: 89.0
  - 2021: 62.4
  - 2022: 54.0
  - 2023: 50.7
  - 2024: 48.8
  - 2025: 48.0
  - 2026: 47.6
  - 2027: 47.0
- Scenario with key variables at their historical averages (selected)
  - 2027: D eb t-stabilizing non-interest current account: -11.9

### External Debt Sensitivity Tests (Annex Figure IV.1 highlights)
- Baseline average projection for external debt (selected years shown in figures):
  - Baseline: 169 (percent of GDP) referenced repeatedly as baseline in figure boxes
- Scenario box figures (averages for respective scenarios) include values such as:
  - i-rate shock: 181 (baseline 169)
  - Historical: 143 (baseline 169)
  - CA shock: 192 (baseline 169)
  - Combined shock: 207 (baseline 169)
  - Real depreciation shock (30% depreciation in 2019): 253 (baseline 169)
  - Growth shock: 209 (baseline 169)
- Notes:
  - Individual shocks are permanent one-half standard deviation shocks
  - Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance
  - One-time real depreciation of 30 percent occurs in 2019

### Policy Support Measures (Annex V)
- Balance Sheet Support/Income Support (costs by year, in billions)
  - Short-time working schemes (TWSS, EWSS), Expiration Date May-22:
    - 2020: 4.4
    - 2021: 5.3
    - 2022: 0.9
    - Total: 10.7
  - Pandemic Unemployment Benefit (PUP), Expiration Date Mar-22:
    - 2020: 5.0
    - 2021: 4.0
    - 2022: 0.2
    - Total: 9.2
  - Tax Cuts (general VAT/hospitality sector), Expiration Date Mar-21/Mar-23:
    - 2020: 0.16
    - 2021: 0.62
    - 2022: 0.4
    - Total: 1.18
  - Direct Grants (CRSS), Expiration Date Jan-22:
    - 2020: 0.2
    - 2021: 0.5
    - 2022: 0.01
    - Total: 0.73
  - Total Balance Sheet/Income Support:
    - 2020: 9.8
    - 2021: 10.4
    - 2022: 1.5
    - Total: 21.7
- Financing Support (listed measures with application windows or expirations; amounts not specified in table for these items):
  - Tax Deferrals Apr-22
  - Guarantee schemes (end of application window) June-22
  - Debt moratoria (end of application window) Sep-20
  - Debt moratoria (final expiration) Mar-21
  - Deferred insolvency procedures Sep-20

### Risk Assessment Matrix (Key Risks, Likelihood, Impact, Policy Response Highlights)
- Russia’s invasion of Ukraine escalation
  - Likelihood: High
  - Impact: Medium
  - Policy response highlights:
    - Provide targeted fiscal support to vulnerable segments
    - Accelerate high quality public investment projects if growth falters
    - Implement additional measures to integrate migrants (healthcare, housing, education)
- Outbreaks of lethal and highly contagious COVID-19 variants
  - Likelihood: Medium
  - Impact: Medium
  - Policy response highlights:
    - Intensify public health measures; large-scale testing and contact tracing as appropriate
    - Increase digital infrastructure investment to facilitate remote working
    - Support households, workers, and viable businesses in a targeted fashion
- De-anchoring of inflation expectations in the U.S. and/or advanced European economies
  - Likelihood: Medium for the US/Medium-Low for EA
  - Impact: Low/Medium
  - Policy response highlights:
    - Intensify monitoring of financial conditions and impacts
    - Continue prudent public debt management policies
- Abrupt growth slowdown in China
  - Likelihood: Medium
  - Impact: Medium
  - Policy response highlights:
    - Provide targeted fiscal support
    - Further facilitate SMEs’ trade diversification
- Rising and volatile food and energy prices
  - Likelihood: High
  - Impact: Medium
  - Policy response highlights:
    - Provide targeted fiscal support to shield the most vulnerable households and viable firms
- Natural disasters related to climate change
  - Likelihood: Medium
  - Impact: Medium
  - Policy response highlights:
    - Accelerate implementation of the climate action plan
    - Provide targeted support to vulnerable households and firms
- Continued trade frictions and uncertainty related to post-Brexit arrangements
  - Likelihood: Low/Medium
  - Impact: Medium
  - Policy response highlights:
    - Continue contributing to cooperation between the EU and the U.K.
    - Continue to provide support for firms most exposed to Brexit and vulnerable groups
    - Continue to facilitate SMEs’ trade diversification

### Public Debt Sustainability (Annex VII, Baseline Scenario as of May 10, 2022)
- Key debt and macro indicators (percent of GDP unless otherwise indicated)
  - Nominal gross public debt:
    - 2020: 88.2
    - 2021: 58.4
    - 2022: 56.0
    - 2023: 48.0
    - 2024: 43.8
    - 2025: 40.6
    - 2026: 38.1
    - 2027: 35.6
    - 203?: 33.0 (table shows continuing years to 2027 with 33.0)
  - Public gross financing needs (percent of GDP)
    - 2020: 12.5
    - 2021: 13.9
    - 2022: 7.1
    - 2023: 7.1
    - 2024: 4.1
    - 2025: 3.3
    - 2026: 4.0
    - 2027: 3.8
    - later: 2.4
  - Net public debt:
    - 2020: 64.7
    - 2021: 50.4
    - 2022: 48.8
    - 2023: 40.8
    - 2024: 36.9
    - 2025: 34.0
    - 2026: 31.6
    - 2027: 29.2
    - later: 26.8
  - Real GDP growth (in percent)
    - 2020: 6.8
    - 2021: 5.9
    - 2022: 13.5
    - 2023: 7.5
    - 2024: 5.0
    - 2025: 4.1
    - 2026: 3.1
    - 2027: 3.0
  - Inflation (GDP deflator, in percent)
    - 2020: 2.1
    - 2021: -1.2
    - 2022: -0.4
    - 2023: 5.9
    - 2024: 3.6
    - 2025: 2.3
    - 2026: 2.0
    - 2027: 2.0
  - Nominal GDP growth (in percent)
    - 2020: 9.2
    - 2021: 4.6
    - 2022: 13.1
    - 2023: 13.1
    - 2024: 3.8
    - 2025: 8.8
    - 2026: 6.5
    - 2027: 5.1
  - Effective interest rate (in percent)
    - 2020: 3.3
    - 2021: 1.9
    - 2022: 1.5
    - 2023: 1.5
    - 2024: 1.8
    - 2025: 1.9
    - 2026: 1.8
    - 2027: 1.9
- Change in gross public sector debt (percent of GDP)
  - cumulative change over projection period: -22.9
  - Change by year:
    - 2020: -3.2
    - 2021: 1.2
    - 2022: -2.5
    - 2023: -7.9
    - 2024: -4.2
    - 2025: -3.2
    - 2026: -2.6
    - 2027: -2.5
    - cumulative to projection end: -22.9
- Identified debt-creating flows (percent of GDP)
  - -2.6 (2020), 3.6 (2021), -6.5 (2022), -6.6 (2023), -4.2 (2024), -3.2 (2025), -2.6 (2026), -2.5 (2027), cumulative -21.6
- Primary deficit:
  - 2020: 1.4
  - 2021: 4.1
  - 2022: 1.2
  - 2023: -0.5
  - 2024: -1.1
  - 2025: -1.3
  - 2026: -1.3
  - 2027: -1.3
  - cumulative: -6.9
- Primary (noninterest) revenue and growth (percent of GDP)
  - 2011-2019 Actual: 29.2
  - Projections show values around 22.x for projection years and cumulative 32.7
- Primary (noninterest) expenditure (percent of GDP)
  - 2011-2019 Actual: 30.6
  - Projections show values around 26.3 to 20.5 with cumulative 25.8
- Automatic debt dynamics (percent of GDP)
  - 2020: -4.3
  - 2021: -1.5
  - 2022: -6.0
  - 2023: -6.1
  - 2024: -3.1
  - 2025: -1.9
  - 2026: -1.3
  - 2027: -1.2
  - cumulative: -14.7
- Interest rate/growth differential contribution: identical to automatic debt dynamics figures above
  - Of which: real interest rate contribution cumulative: -3.8
  - Of which: real GDP growth contribution cumulative: -10.9
- Other identified debt-creating flows
  - 2020: 0.2
  - 2021: 1.0
  - 2022: -1.7
  - remainder zeros in projections
- Privatization/Drawdown of Deposits
  - 2022: -1.2
  - 2023: 1.0
  - 2024: -0.7
- Residual, including asset changes
  - 2020: -0.6
  - 2021: -2.4
  - 2022: 4.0
  - 2023: -1.3
  - cumulative residual: -1.3 (projection period)

*Italicized final attribution line:* _Source: IMF staff._

### Annex Figure VII.2. Ireland Public Debt Sustainability Analysis – Composition of Public Debt

### Annex Figure VII.2. Ireland Public Debt Sustainability Analysis – Composition of Public Debt

### Underlying Assumptions (in percent)
- Baseline Scenario (2022–2027)
  - Real GDP growth: 7.5 5.0 4.1 3.1 3.0 3.0
  - Inflation: 5.9 3.6 2.3 2.0 2.0 2.0
  - Primary Balance: 0.5 1.1 1.3 1.3 1.3 1.4
  - Effective interest rate: 1.5 1.8 1.9 1.8 1.9 1.8
- Historical Scenario (2022–2027)
  - Real GDP growth: 7.5 7.1 7.1 7.1 7.1 7.1
  - Inflation: 5.9 3.6 2.3 2.0 2.0 2.0
  - Primary Balance: 0.5 2.2 2.2 2.2 2.2 2.2
  - Effective interest rate: 1.5 1.8 2.0 2.0 2.2 2.2
- Constant Primary Balance Scenario (2022–2027)
  - Real GDP growth: 7.5 5.0 4.1 3.1 3.0 3.0
  - Inflation: 5.9 3.6 2.3 2.0 2.0 2.0
  - Primary Balance: 0.5 0.5 0.5 0.5 0.5 0.5
  - Effective interest rate: 1.5 1.8 1.9 1.8 1.9 1.9

### Alternative Scenarios
- Baseline
  - See underlying assumptions listed above for year-by-year inputs.
- Historical
  - See underlying assumptions listed above for year-by-year inputs.
- Constant Primary Balance
  - See underlying assumptions listed above for year-by-year inputs.

### Composition of Public Debt — Key Time Series (as presented)
- Gross Nominal Public Debt (in percent of GDP), projection: chart covers 2020, 2021, 2022–2027.
- Public Gross Financing Needs (in percent of GDP), projection: chart covers 2020, 2021, 2022–2027.
- By Maturity (in percent of GDP), projection: series covers 2011, 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027
  - Medium and long-term
  - Short-term
- By Currency (in percent of GDP), projection: series covers 2011, 2013, 2015, 2017, 2019, 2021, 2023, 2025, 2027
  - Local currency-denominated
  - Foreign currency-denominated

_Source: IMF staff._

### Annex VIII. Implementation of Past IMF Recommendations

### Annex VIII. Implementation of Past IMF Recommendations

### Fiscal Policy
- IMF recommendation: Continue to be supportive in the near term to avoid cliff-edge effects; as the recovery takes hold, adjust to sustainably boost growth and support social cohesion; after the recovery is complete, broaden the tax base to help finance productivity-enhancing investment in human and physical capital, and resume the reduction in public debt in relation to GNI*.
- Policy actions / developments:
  - A recent reform to the property tax system aims at modernizing it and broadening its base: properties will now undergo updated valuations every four years, and houses not previously included in the taxation system will now be covered.
  - The Commission on Taxation and Welfare will shortly submit a report with their recommendations on tax and spending reform options.
  - The Spending Reviews and Performance Budgeting processes, along with the establishment of the National Investment Office, have helped improve spending efficiency.
  - The introduction of the investment project tracker has been helpful in enhancing transparency and monitoring expenditures.
  - Public indebtedness increased: general government debt reached 106 percent of national income (GNI*) at end-2021.
  - Government measures to limit the fallout from inflation amount to around 1 percent of national income (GNI*).

### Brexit-related support and trade diversification
- IMF recommendation: Continue to provide support for the firms most exposed to Brexit shock and vulnerable groups; facilitate SMEs’ trade diversification.
- Policy actions / developments:
  - Authorities’ comprehensive preparations and support measures have supported firms in the sectors most exposed to Brexit through their transition to new operating mode, reducing vulnerability.
  - The Brexit taskforce continues to refine readiness efforts as Brexit challenges evolve.
  - The Government continuously publishes practical advice to help businesses and citizens prepare for Brexit.

### International tax reform agenda
- IMF recommendation: Continue active engagement in implementing the international tax reform agenda.
- Policy actions / developments:
  - Government supportive of the Two Pillared Solution proposed by the OECD and opened a public consultation on the domestic transposition of the EU Minimum Tax Directive.
  - Issued an update to Ireland’s corporation tax roadmap, committing to additional measures; fully transposed the Anti-Tax Avoidance Directives.
  - Authorities committed to the OECD Inclusive Framework BEPS agreement; recognize the agreement will cost Ireland in terms of lost tax revenues but will bring long-term stability and certainty.

### Climate Policy
- IMF recommendation: Develop an ambitious strategy to achieve Ireland’s climate change commitments.
- Policy actions / developments:
  - Climate Action and Low Carbon Development (Amendment) Act 2021 aims to halve emissions by 2030 and to achieve carbon neutrality by 2050 through increasing the carbon tax and boosting investment in low-emission public transport, energy-efficient housing, and renewable energy production.
  - The increased carbon tax path has been legislated.
  - Program for Government commits to achieve 51 percent emission reductions by 2030 relative to 2018, and net zero by 2050; this target is now statutory.
  - Climate Action Plan 2021 doubles the ambition set out in the 2019 Climate Action Plan; the next iteration to be published will elaborate measures required to meet emission targets.
  - Approval in April 2022 of legally binding carbon budgets specifying total emissions out to 2035; sectoral emissions ceilings to be finalized and will apportion carbon budgets between sectors through 2030.

### Financial Sector Policy
- IMF recommendations:
  - Step up efforts to reduce non-performing loans to the target level.
  - Complement macroprudential toolkit with debt-based instruments and a systemic risk buffer.
  - Monitor closely potential risks in and spillovers from the growing nonbank sector; further improve data collection, closely monitor risk build-up, and develop system-wide stress testing.
  - Continue engagement in international cooperation.
- Policy actions / developments:
  - Ireland has sharply reduced its NPL legacy positions; further NPL reduction remains a key supervisory priority.
  - Ireland has income-based macroprudential limits (LTV, LTI) and operationalized its central credit register; authorities continue to monitor potential leakages.
  - Commitment to cross-border collaboration on financial sector oversight and regulation; active collaboration with ECB/SSM, Single Resolution Board, and the European System of Financial Supervision.
  - Authorities have increased regulatory capability and supervisory resourcing, invested to close data gaps, and conducted analysis on market-based finance.
  - Recognize climate-related financial risks and financing the transition to a zero-carbon economy; supportive of the Fund’s integration of such analysis into FSAPs.

### Public Investment
- IMF recommendation: Use the fiscal space to accelerate Ireland’s green and digital transformation; scale up efficient public investments to boost aggregate demand, raise potential growth, and address the gap in infrastructure quality vis-à-vis euro area peers.
- Policy actions / developments:
  - National Planning Framework and National Development Plan 2021-2030 (Project Ireland 2040) is the government’s long-term strategy to deliver jobs, homes, cultural and social amenities, regional connectivity and environmental sustainability.
  - National Development Plan (NDP) published October 2021 sees total public investment of €165 billion over 2021-2030.
  - The NDP is backed by an annual average investment in excess of €4 billion in housing, comprised of €12 billion direct Exchequer funding, €3.5 billion through the Land Development Agency (LDA), and €5 billion through the Housing Finance Agency (HFA).

### Labor Market and Skills
- IMF recommendations:
  - Continue to align education and training programs to labor demand.
  - Reduce skill-mismatch by upskilling, reskilling and life-long learning.
  - Incentivize labor re-allocation to expanding sectors and use active labor market policies for green and digital transitions.
  - Empower women to raise low participation in the labor market, including increasing availability of affordable childcare.
- Policy actions / developments:
  - National Recovery and Resilience Plan aimed at strengthening access to training, with emphasis on digital skills.
  - Newly established Department of Further and Higher Education, Research, Innovation and Science tasked to fund and create policy for higher and further education and research.
  - Progress through National skill strategy; Skills Connect initiative; Pathways to Work Strategy 2021 - 2025; Regional Skills; National adult literacy agency - Nala; Solas | Learning Works; expanded lifelong learning programs.
  - Pathways to Work 2021-2025 is the framework for activation and employment support policy to assist people back to work and address digital and green transformation needs.
  - Government offering child-care programs under National Childcare Scheme (NCS), leading to an increase in female labor force participation in 2021.
  - Labor market outcomes: 2.5 million people in employment in Q1 2022 — the highest level on record; monthly unemployment rate at 4.7 percent in April 2022 (the lowest monthly rate since October 2019).
  - More than 100,000 additional women now part of the workforce compared to Q1 2020.
  - National Digital Strategy commits to increasing the share of adults with at least basic digital skills to 80 percent by 2030 and to increase higher-level digital skills graduates, apprentices, and trainees to over 12,400 by end-2022.

### Housing
- IMF recommendation: Continue efforts to boost housing supply and improve affordability.
- Policy actions / developments:
  - Government introduced Housing for All, a comprehensive fiscal and regulatory package costing close to 1 percent of GDP annually to address affordable housing shortage; includes measures on zoning, planning, land availability, and social housing.
  - “First Home” affordable purchase shared-equity scheme starting in 2022:Q3 to support first home buyers.
  - Housing commencements around 32,500 units in the 12 months to April 2022 — close to the annual target of 33,000 units set out in Housing for All; this is the eighth consecutive month in which the 12-month rolling monthly total exceeded 30,000.

### Fund Relations and Financial Data
- Membership: Joined August 8, 1957; Article VIII.
- Quota and holdings (SDR Million; Percent of Quota):
  - Quota 3,449.90 100.00
  - Fund holdings of currency 2,599.76 75.36
  - Reserve position in Fund 850.18 24.64
- SDR Department (SDR Million; Percent of Allocation):
  - Net cumulative allocation 4,082.00 100.00
  - Holdings 4,051.84 99.26
- Outstanding Purchases and Loans: None.
- Financial arrangements (EFF):
  - Type EFF; Approval Date 12/16/10; Expiration Date 12/15/13; Amount Approved (SDR million) 19,465.80; Amount Drawn (SDR million) 19,465.80.
- Overdue Obligations and Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):
  - Charges/Interest: 2022 0.09; 2023 0.24; 2024 0.24; 2025 0.24; 2026 0.24.
  - Total: 2022 0.09; 2023 0.24; 2024 0.24; 2025 0.24; 2026 0.24.
- Exchange rate arrangement: Ireland’s currency is the euro, which floats freely; accepted Article VIII obligations; authorities in process of notifying the Fund of recent restrictions under Decision No. 144 (52/51).

### Statistical Issues and Data Adequacy
- General assessment: Data provision is broadly adequate for surveillance.
- National accounts and real sector:
  - Quarterly national accounts published within three months of reference period.
  - GNI* available only at annual frequency and with a lag of around 7 months from reference year.
  - Other series: industrial production and retail sales within six weeks; employment data within 3 months; some non-SDDS series published one and a half years later.
- Wages and earnings: Quarterly Earnings, Hours and Employment Costs Survey replaced previous surveys; final data available with a six-month lag.
- Government finance statistics: Exchequer returns and indicative general government balance monthly; definitive general government balance reported quarterly and annually; data reported to STA via conversion of Eurostat ESA Transmission Programme.
- Monetary and financial statistics: ECB reporting framework used; IFS publication lag about a month; some FAS indicators reported; data gap on Investment Fund should be closed.
- Financial sector surveillance: Ireland reports 11 of 12 core and 9 encouraged FSIs for deposit takers; one FSI for other financial corporations; 3 FSIs for real estate markets quarterly.
- External sector: Quarterly balance of payments and IIP compiled by Central Statistics Office; implemented BPM6; most recent balance of payments and IIP data reported to STA and disseminated in IFS are for Q4/2022.
- Ireland subscribes to SDDS and uses SDDS flexibility options on timeliness of wages and earnings, and central government debt data.

### Statement highlights from Alternate Executive Director and Advisor (July 1, 2022)
- Context and macro:
  - Irish economy resilient to pandemic and the UK exit from the EU; economic activity back above pre-pandemic levels and employment at highest level ever.
  - Government’s spring forecasts: Modified Domestic Demand (MDD) expanding by 4¼ percent this year and by just under 4 percent next year.
  - Since spring forecasting, outlook less benign: inflation higher, broader, and more persistent; growth in many trading partners slowing; supply-chain disruption continuing; financial conditions tightened somewhat; recent uncertainty from adverse developments on Ireland/Northern Ireland Protocol.
- Fiscal policy:
  - Government put in place a medium-term strategy centered on an expenditure rule to allow expenditure to grow in line with estimated nominal trend growth; Summer Economic Statement to set budgetary parameters for Budget 2023.
  - Authorities balanced support for households with avoiding fanning inflation, implementing measures amounting to around 1 percent of national income (GNI*).
- Financial sector:
  - Authorities welcome the FSSA and Fund recommendations; note substantial progress in strengthening regulation, supervision, and crisis management since last FSAP.
  - Financial system resilience enhanced: higher capital buffers, improved funding structures, robust mortgage lending standards.
  - Continued focus on non-bank financial intermediation, post-Brexit insurance and banking landscape, fintech, and market-based finance; commitment to European and global coordination.
- Structural issues:
  - NDP sees total public investment of €165 billion over 2021-2030; Ireland’s annual capital investment budget now among the largest in EU countries.
  - Housing remains supply-constrained; Housing for All commitment annual average investment in excess of €4 billion, and housing commencements around 32,500 units in 12 months to April 2022 (annual target 33,000 units).
  - Labor market: 2.5 million employed in Q1 2022; unemployment 4.7 percent in April 2022; more than 100,000 additional women in workforce since Q1 2020.
  - National Digital Strategy: increase share of adults with basic digital skills to 80 percent by 2030; graduate target over 12,400 by end-2022.

*Source: IMF staff.*

### Conclusion

### Conclusion

### Key findings
- The Irish economy has proven to be remarkably resilient in recent years—particularly throughout the COVID-19 pandemic.
- Notwithstanding this resilience, further policy challenges lie ahead across fiscal policy, the financial sector, climate and digital transitions, and a more uncertain international economic environment, including the latest potential adverse developments in relation to Brexit.
- The authorities welcome and appreciate the IMF’s quality and well specified advice as they address these challenges.

### Policy challenges and priorities
- Fiscal policy
- The financial sector
- Climate transition
- Digital transition
- Managing a more uncertain international economic environment, including potential adverse developments related to Brexit

### Document note
- 5

*Conclusion — 1irlea2022001*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1irlea2022001.pdf_