## 1irlea2026001 ## Source details **Canonical URL:** [1irlea2026001](https://www.imf.org/-/media/files/publications/cr/2026/english/1irlea2026001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1irlea2026001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1irlea2026001.pdf.json) --- ### Context - Irish economy described as "highly open" and "resilient" but exposed to concentration risks from reliance on FDI and tax revenue from a handful of MNEs. - Strengths: conducive business environment, sound institutions and policies, well-educated labor force. - Challenges: reliance on a small number of MNEs, housing and infrastructure gaps, muted private investment, population aging that will exert pressures on labor supply, productivity, healthcare, and pension systems. - Policy implication signaled: "Policy actions today would shape the economy’s resilience and competitiveness in the long run." ### Recent developments — real economy and sectoral dynamics - Growth and demand - Real GNI* posted "4.8 percent" growth in 2024 and is estimated to have increased by about "4 percent" in 2025. - Modified Domestic Demand (MDD) grew by "4.9 percent" in 2025. - Real GDP rose by "12.3 percent" in 2025, driven largely by MNEs’ strong exports. - GDP is estimated to have contracted by "17 percent (y-o-y)" in 2026 Q1 due to normalization of MNE exports after front-loading in 2025; MDD grew by "4.3 percent" in Q1 2026. - Investment and trade - Headline investment in fixed capital increased by "43 percent" in 2025 after a substantial decline in 2024 due to one-off MNE transactions. - Nominal goods exports grew by about "20 percent (y-o-y)" in 2025, driven almost entirely by a single product group in the MNE pharmaceutical sector. - Services trade surplus normalized in 2025 following a 2024 surge due to a large one-off IP export. - Sector composition - Industry (excl. construction) and MNE-dominated sectors were main drivers of value-added growth; activity remains concentrated in the MNE sector. ### Recent developments — prices, labor market, and financial conditions - Inflation - Average headline inflation (HICP) in 2025 was "2.1 percent"; core inflation was "2.2 percent". - Inflation rose to "3.6 percent" in March 2026 and remained at a similar level thereafter, attributed mainly to higher energy prices reflecting spillovers from the war in the Middle East. - Core inflation was "2.7 percent" in May 2026. - Labor market - Employment growth slowed from "2.7 percent" in 2024 to "2.2 percent" in 2025; unemployment rate was "4.7 percent" in 2025. - Employment growth decelerated further in 2026 Q1 to the lowest rate in five years; unemployment rate rose to "4.9 percent" in 2026 Q1. - Hirings trended downward except for an uptick in 2026 Q1; indicators point to a less tight labor market compared to a year earlier. - Real wage growth has slowed; participation rate broadly stable; vacancy-to-unemployment ratio declined; job postings trending down. - Fiscal position and public finances - Headline fiscal surplus of "1.8 percent of GDP (or 3.3 percent of GNI*)" in 2025, supported by robust corporate tax revenue. - Revenues (excluding one-offs) grew by about "7½ percent" in 2025; expenditures increased by about "6½ percent". - Corporate income tax (CIT) revenue outperformed budget projections due to stronger-than-expected MNE profits. - Public debt declined to about "33 percent of GDP (62 percent of GNI*)" at end-2025. - In 2026, authorities raised the 2026 expenditure ceiling in April to accommodate energy support totaling "€755 million (0.1 percent of GDP)"; measures include earlier "€250 million" package plus additional measures amounting to "€505 million". - Credit and real estate - Bank credit strengthened, backed by robust mortgage lending and still-high house price growth. - Lending rates trended down overall since 2024 due to the ECB’s easing cycle, but lending rates to NFCs edged up in March 2026. - Residential property price growth remained over "6 percent" year-on-year in 2026 (slower than a year earlier). - CRE capital values show signs of bottoming out; industrial and retail segments exhibiting growth; rents rising slowly. - Lending standards broadly unchanged. ### External sector and external position - Current account and flows - Headline CA surplus halved to "8.2 percent of GDP" in 2025. - Income balance deteriorated as investment income payable to foreign investors rose significantly. - Financial account outflows declined to "8 percent of GDP" in 2025, with portfolio and FDI net outflows partially offset by net inflows in other investments. - External assessment and REER - EBA-based CA model suggests a substantially stronger external position but does not account for MNE-related distortions and produces a large unexplained residual for Ireland. - EBA REER models point to a slight overvaluation; staff assesses a REER undervaluation ranging from "5.7 to 9.7 percent on average during 2025, with a midpoint of 7.7 percent (using an estimated elasticity of 0.87)" while EBA REER index and level models estimate gaps of "2.7 and 0.4 percent, respectively." - As of February 2026, the REER was "2.3 percent above its 2025 average." - Capital and financial accounts - Net FDI outflows in 2025 amounted to "€34.5 billion (5.4 percent of GDP)." - Total net financial account outflows in 2025 stood at "8.0 percent of GDP." ### Outlook and projections - Baseline projections (energy futures prices as of May 19th) - MDD projected to grow by about "2½ percent" in 2026–27 (down from "4.9 percent" in 2025). - Private consumption expected to slow due to weaker employment and real income growth. - Modified investment projected to normalize from the high 2025 level; supported by construction activity. - Export growth expected to slow considerably in 2026; goods exports projected to recover in the remainder of 2026 but not fully offset Q1 decline. - Real GDP projected to decline by about "1 percent" in 2026, rebound by "3.7 percent" in 2027, and moderate to "2¼ percent" in the medium term. - GNI* expected to increase by about "2 percent" in 2026 and "2.7 percent" in 2027. - Headline inflation projected to rise to "3½ percent" in 2026 and return to "2 percent" around 2028. - Current account surplus projected to moderate slightly to about "7 percent of GDP" over the medium term. - Selected projection table (Box 1. Table 1) - Baseline - GDP growth: 2026 "-0.8"; 2027 "3.7" - MDD growth: 2026 "2.5"; 2027 "2.6" - Inflation: 2026 "3.5"; 2027 "2.6" - Severe Scenario - GDP growth: 2026 "-1.5"; 2027 "3.0" - MDD growth: 2026 "1.9"; 2027 "2.1" - Inflation: 2026 "3.9"; 2027 "4.4" ### Risks and uncertainty - Overall: significant uncertainty with downside risks to growth and upside risks to inflation. - External risks - The war in the Middle East is a key risk; impacts depend on intensity and duration. - Rising geoeconomic fragmentation, protectionism, elevated policy uncertainty, and potential reorganization of supply chains and capital flows pose risks to Ireland’s globally integrated economy. - Domestic risks - Concentration risk from reliance on MNEs affecting employment, output, and tax revenues. - Persistent supply-side constraints in infrastructure, housing, and labor markets could weigh on productivity. - Technology risk - Rapidly evolving AI landscape poses novelty risks to cybersecurity and to expectations of productivity gains; missteps could trigger steep financial market corrections. - Well-managed rapid AI adoption and progress with the EU Single Market could yield upside for dynamism and growth. ### Box 1 — Energy vulnerability, severe scenario calibration, and macro impact - Energy exposure and immediate effects - Nearly "80 percent" of total energy supply in Ireland comes from oil and natural gas. - About "80 percent" of energy supply is imported. - Natural gas plays a central role in maintaining balance and security in the electricity system. - Following two rounds of excise duty cuts, gasoline prices declined but are still about "5 percent" above pre-war levels as of end-May. - Severe scenario assumptions (based on April 2026 WEO) - Energy supply dislocations extend into 2027. - Inflation expectations become markedly less anchored. - ECB policy rate increased by an additional "50 bps" in 2026 and "25 bps" in 2027 (relative to a cumulative increase of "50 bps" in 2026 under the baseline). - Financial conditions tighten sharply. - Real MDD growth could be about "1.0 pp" lower (cumulatively) during 2026–27 relative to the baseline. - Annual inflation could be about "1.1 pp" higher on average. ### Fiscal position, vulnerabilities, and projections (Box 1 / Annex V highlights) - Headline fiscal balance and plans - Headline fiscal balance projected to remain in surplus during 2026–31. - MTFSP projects average annual revenue growth of about "6 percent" during 2026–30. - Current expenditure budgeted to grow by about "6 percent" annually on average (outpacing pre-pandemic trend of "3 percent"). - Authorities plan to increase capital expenditure averaging "13 percent" annually. - Staff’s baseline assumes higher current spending of about "€1½ billion (0.2 percent of GDP or 0.4 percent of GNI*)" in 2026, reflecting projected overruns. - Structural primary balance and public debt path - Structural primary balance projected to deteriorate by about "0.6 percent of GDP (1.0 percent of GNI*)" in 2026 and remain broadly unchanged in outer years (excluding estimated excess CIT revenue). - Public debt projected to decline to about "26 percent of GDP (about 50 percent of GNI*)" in 2031. - Key fiscal vulnerabilities - Estimated excess CIT: staff estimates that about "50 percent" of total CIT revenue in 2025 ("€18 billion, or 5 percent of GNI*") is in excess of what can be explained by underlying domestic economic activities. - Excluding estimated excess CIT, recent sizeable surpluses become deficits, indicating potential use of temporary revenues for permanent spending. - VAT policy gap of nearly "35 percent" due to reduced rates on goods and services that account for more than half of consumer spending. - One-third of income earners exempt from PIT or USC under current PIT structure. - Long-term fiscal simulation - Under current tax policy, a gradual loss of estimated excess CIT during 2032–41 and rising age- and climate-related costs would shift the current fiscal surplus to a deficit of about "7 percent of GNI*" by 2050. - Public debt would start to rise beyond the medium term and exceed "100 percent of GNI*" by 2050. - Demographics and long-term costs - European Commission projects share of old-age population to double from 2022 to 2070. - Total age-related expenditures projected to increase by "6 percentage points of GNI*" by 2050. - Fiscal cost of pensions alone projected to increase by "4 percentage points of GNI*" by 2050. - Authorities estimate climate transition could reduce revenue by about "2 percent of GNI*" and add about "½ percent of GNI*" to expenditure in the long term under the central scenario. ### Policy stance and recommendations — fiscal and expenditure management - Near- and medium-term - A broadly neutral fiscal stance would be appropriate in the near and medium term. - Support planned scale-up of public investment to close housing and infrastructure gaps while cautioning against injecting unnecessary stimulus given full-capacity conditions and upside inflation risks. - If downside risks materialize, automatic stabilizers should be allowed to work fully; discretionary fiscal support should be time-bound, targeted and maintain the price signal. - In a severe scenario, scale up discretionary targeted support and accommodate lower fiscal balances temporarily while ensuring a broadly neutral stance over the medium term. - Immediate priorities to prepare for long-term challenges - Closely control current expenditure growth and minimize spending overruns while efficiently delivering capital spending. - Broaden the tax base over the medium term to provide more sustainable revenue sources and allow for putting more excess CIT revenues in the two savings funds. - Strengthen the national fiscal framework to balance competing priorities, avoid pro-cyclical fiscal policy, and safeguard fiscal sustainability. - Continue efforts to enhance the sustainability of the pension system. - Expenditure management - Strengthen procedural enforcement: tighter in-year monitoring, earlier intervention, and corrective actions where repeated budget overruns exist. - Implement the Expenditure Control and Escalation Process and improve commitment control over procurement through digitalization and integrated platforms and data. - Set binding budget planning targets that limit expectations of additional appropriations. - Infrastructure delivery - Implement the Accelerating Infrastructure Action Plan without delay. - Reform priorities: cap costs of environmental planning judicial reviews, streamline court procedures, shorten consent procedures, and eliminate dual approval processes for critical infrastructure projects. - Revenue and tax-base reforms - Increase local property tax rates. - Reduce the number of preferential VAT or excise rates. - Reduce broad-based PIT reliefs and exemptions; introduce additional PIT bands with appropriately calibrated rates and replace PRSI and USC thresholds with gradual phase-ins to strengthen work incentives. - Mitigate impacts on progressivity via means-tested transfers. - Fiscal framework - Adopt a credible and binding fiscal rule, preferably anchored in a long-term net debt target, operationalized through multi-year net expenditure ceilings. - Legislate the national fiscal framework and strengthen IFAC’s compliance assessments. - Use the MTFSP to guide annual budgets and act as a binding mechanism on spending ceilings over the medium term. ### Financial sector and macroprudential stance - Household and corporate balance sheets - Aggregate household indebtedness has declined further; strong labor market outcomes have supported households’ debt service capacity. - Heterogeneity: lower-income borrowers face higher debt burdens and smaller buffers; higher-income borrowers, especially in the MNE sector, are vulnerable to geoeconomic or AI shocks. - NFCs display robust activity and profitability; leverage relatively stable. - Banking sector resilience and risks - Profitability remains above pre-pandemic level despite moderation. - Government sold remaining shares in AIB and reached agreement to sell stake in PTSB. - Capital positions strengthened and are above regulatory requirements; 2025 EBA stress test confirmed resilience under a severe scenario. - Liquidity positions sound; domestic banks rely largely on retail deposits. - Asset quality: Stage 3 loans declined to "1.4 percent" in 2025Q4; Stage 2 loans declined to "7.7 percent" in 2025Q4. - NPL ratio (selected banks, 2025Q4): "1.5", "1.1", "1.8" (three main domestic retail banks). - Tier 1 capital ratio (selected banks, 2025Q4): "18.1", "19.4", "17.9". - Selected banking indicators (2025): NPL ratio "1.5 percent"; CT1 ratio "15.7 percent"; Return on equity "11.3 percent"; Net interest margin "2.6 percent". - Macroprudential and supervisory recommendations - CCyB rate maintained at "1.5 percent"; assessed as consistent with cyclical risk conditions. - CBI should continue stress tests and review macroprudential policy settings; consider using releasable capital buffers if downside risks impair credit provision. - Mortgage measures recalibrated in 2023; allowances above headline LTI/LTV limits remain about "10 percent"; targeted amendment exempts certain principal home bridging loans from the LTI limit. - Non-bank financial intermediation (NBFI) - NBFI assets exceeded "€7 trillion" in 2025 (over 20 times estimated GNI*). - Strengthening regulation and supervision of NBFIs is a key priority for the CBI. - Majority of Irish property funds on track to meet leverage limit by November 2027. - GBP-denominated LDI funds have maintained yield buffers well above the "300 bps" requirement. - CBI should develop system-wide stress tests, improve data availability and quality, and continue engagement with ESMA. ### Structural policy priorities and recommendations - Productivity and MNE linkages - Wide productivity gap persists between domestic firms and MNEs; AI risks further widening this divide. - Domestic firms should deepen linkages with the MNE sector (innovation cooperation) and enhance productivity. - Housing supply and construction - New housing plan target: deliver "300,000 homes for 2025–2030." - Reforms needed: streamline planning and judicial review, increase urban density, enhance apprenticeship and training in construction, crowd in private capital via planning certainty and infrastructure. - New Rent Control Framework allows rents to reset to market levels under predefined situations; staff recommends removing rent controls to further boost rental supply while continuing to support vulnerable households. - Energy and electricity infrastructure - Reliable low-carbon energy and grid upgrades critical for productivity and AI-related demand. - Strengthen integration with EU energy market and harness offshore renewables; improve transmission and storage. - Labor market and AI preparedness - Ireland relatively more exposed to AI due to concentration in ICT, financial services, and knowledge-intensive industries. - Realizing AI productivity gains requires continuous reskilling and upskilling; affordable housing to enhance labor mobility recommended. - EU Single Market deepening - SIU can redirect savings into productive investments and provide unified capital market access. - The proposed 28th corporate regime, if well designed and implemented, could simplify regulations and facilitate deeper integration for Irish firms. ### Data adequacy and reporting - Overall data adequacy assessment: "A (The data provided to the Fund are adequate for surveillance)." - Median sector ratings: National Accounts "A"; Prices "A"; Government Finance Statistics "A"; External Sector Statistics "A"; Monetary and Financial Statistics "B"; Intersectoral Consistency "A". - Remaining data gaps mostly pertain to the "OFI residual" segment of the financial sector; authorities are making progress. - Recommendation: CBI should continue to work with CSO and other regulators to reduce data gaps for non-bank entities and improve identification of foreign and domestic linkages. - Table of common indicators: latest observations range from "2026-03" to "2026-06" for key series (exchange rates, reserves, CPI, government finances, external accounts). _Italic: IMF staff chapter "1. The Impact of the War in the Middle East" (Ireland country chapter), as supplied in the provided PDF excerpt._ ### 1. The Impact of the War in the Middle East _____________________________________________________ 11 ### 1. The Impact of the War in the Middle East ### Context - The Irish economy is described as "highly open" and "resilient" but exposed to concentration risks from reliance on FDI and tax revenue from a handful of MNEs. - Strengths: conducive business environment, sound institutions and policies, well-educated labor force. - Challenges: reliance on a small number of MNEs, housing and infrastructure gaps, muted private investment, population aging that will exert pressures on labor supply, productivity, healthcare, and pension systems. - Policy implication signaled: "Policy actions today would shape the economy’s resilience and competitiveness in the long run." ### Recent Developments — Real Economy and Sectoral Dynamics - Growth measures: - Real GNI* posted 4.8 percent growth in 2024 and is estimated to have increased by about 4 percent in 2025. - Modified Domestic Demand (MDD) grew by 4.9 percent in 2025. - Real GDP rose by 12.3 percent in 2025, driven largely by MNEs’ strong exports. - GDP is estimated to have contracted by 17 percent (y-o-y) in 2026 Q1 due to normalization of MNE exports after front-loading in 2025; MDD grew by 4.3 percent in Q1 2026. - Investment and trade: - Headline investment in fixed capital increased by 43 percent in 2025 after a substantial decline in 2024 due to one-off MNE transactions. - Nominal goods exports grew by about 20 percent (y-o-y) in 2025, driven almost entirely by a single product group in the MNE pharmaceutical sector. - Services trade surplus normalized in 2025 following a 2024 surge due to a large one-off IP export. - Sector composition: - Industry (excl. construction) and MNE-dominated sectors were main drivers of value-added growth; activity remains concentrated in the MNE sector. ### Recent Developments — Prices, Labor Market, and Financial Conditions - Inflation: - Average headline inflation (HICP) in 2025 was 2.1 percent; core inflation was 2.2 percent. - Inflation rose to 3.6 percent in March 2026 and remained at a similar level thereafter, attributed mainly to higher energy prices reflecting spillovers from the war in the Middle East. - Core inflation was 2.7 percent in May 2026. - Labor market: - Employment growth slowed from 2.7 percent in 2024 to 2.2 percent in 2025; unemployment rate was 4.7 percent in 2025. - Employment growth decelerated further in 2026 Q1 to the lowest rate in five years; unemployment rate rose to 4.9 percent in 2026 Q1. - Hirings trended downward except for an uptick in 2026 Q1; indicators point to a less tight labor market compared to a year earlier. - Real wage growth has slowed; participation rate broadly stable; vacancy-to-unemployment ratio declined; job postings trending down. - Fiscal: - Headline fiscal surplus of 1.8 percent of GDP (or 3.3 percent of GNI*) in 2025, supported by robust corporate tax revenue. - Revenues (excluding one-offs) grew by about 7½ percent in 2025; expenditures increased by about 6½ percent. - Corporate income tax (CIT) revenue outperformed budget projections due to stronger-than-expected MNE profits. - Public debt declined to about 33 percent of GDP (62 percent of GNI*) at end-2025. - In 2026, the authorities raised the 2026 expenditure ceiling in April to accommodate energy support totaling €755 million (0.1 percent of GDP); measures include earlier €250 million package plus additional measures amounting to €505 million in response to higher fuel costs due to the war in the Middle East (see footnote description of time-bound measures). - Credit and real estate: - Bank credit strengthened, backed by robust mortgage lending and still-high house price growth. - Interest rates on loans have trended down overall since 2024 due to the ECB’s easing cycle, but lending rates to NFCs edged up in March 2026. - Residential property price growth remained over 6 percent year-on-year in 2026 (slower than a year earlier). - CRE capital values show signs of bottoming out, with industrial and retail segments exhibiting growth; rents rising slowly. - Lending standards broadly unchanged. ### External Sector and External Position - Current account: - Headline CA surplus halved to 8.2 percent of GDP in 2025. - Income balance deteriorated as investment income payable to foreign investors rose significantly. - Financial account outflows declined to 8 percent of GDP in 2025, with portfolio and FDI net outflows partially offset by net inflows in other investments. - External assessment: - The external balance assessment (EBA) based on the headline CA suggests a substantially stronger external position but does not account for MNE-related distortions and produces a large unexplained residual for Ireland. - EBA REER models point to a slight overvaluation. - Taking distortions into account, Ireland’s external position in 2025 is preliminarily assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies. ### Outlook and Projections - Baseline growth projections (consistent with energy futures prices as of May 19th): - MDD projected to grow by about 2½ percent in 2026–27 (down from 4.9 percent in 2025). - Private consumption expected to slow due to weaker employment and real income growth. - Modified investment projected to normalize from the high 2025 level; supported by construction activity. - Export growth expected to slow considerably in 2026; goods exports projected to recover in the remainder of 2026 but not fully offset Q1 decline. - Real GDP projected to decline by about 1 percent in 2026, rebound by 3.7 percent in 2027, and moderate to 2¼ percent in the medium term. - GNI* expected to increase by about 2 percent in 2026 and 2.7 percent in 2027. - Headline inflation projected to rise to 3½ percent in 2026 and return to 2 percent around 2028. - Current account surplus projected to moderate slightly to about 7 percent of GDP over the medium term. ### Risks and Uncertainty - Overall direction: Significant uncertainty with downside risks to growth and upside risks to inflation. - External risks: - The war in the Middle East is a key risk; impacts on Ireland depend on the intensity and duration of the conflict (see referenced Box 1). - Rising geoeconomic fragmentation and protectionism, elevated policy uncertainty, and potential reorganization of supply chains and shifts in trade and capital flows pose risks to Ireland’s globally integrated economy. - Domestic risks: - Concentration risk from reliance on MNEs affecting employment, output, and tax revenues. - Persistent supply-side constraints in infrastructure, housing, and labor markets could weigh on productivity. - Technology risk: - Rapidly evolving landscape of AI poses novel risks: misuse could threaten cybersecurity and a revision in expectations of AI-driven productivity gains could trigger steep financial market corrections. - On the upside, well-managed rapid AI adoption and progress with the EU Single Market could yield greater dynamism and growth. *Source: IMF staff chapter "1. The Impact of the War in the Middle East" (Ireland country chapter).* ### Box 1. Ireland: The Impact of the War in the Middle East ### Box 1. Ireland: The Impact of the War in the Middle East ### Energy vulnerability and immediate effects - Nearly 80 percent of total energy supply in Ireland comes from oil and natural gas. - About 80 percent of energy supply is imported. - Natural gas plays a central role in maintaining balance and security in the electricity system. - Following two rounds of excise duty cuts, gasoline prices declined but are still about 5 percent above pre-war levels as of end-May. - Ireland is highly integrated into global supply chains and is susceptible to the war’s indirect effects through disruptions to non-energy trade. ### Severe scenario calibration and macroeconomic impact - The severe scenario is calibrated based on the April 2026 WEO and assumes energy supply dislocations extend into 2027. - Under the severe scenario: - Inflation expectations become markedly less anchored. - The ECB policy rate is increased by an additional 50 bps in 2026 and 25 bps in 2027 (relative to a cumulative increase of 50 bps in 2026 under the baseline). - Financial conditions tighten sharply. - Real MDD growth could be about 1.0 pp lower (cumulatively) during 2026–27 relative to the baseline. - Annual inflation could be about 1.1 pp higher on average. - Box 1. Table 1. Projection Scenarios (Percentage) - Baseline - GDP growth: 2026 -0.8; 2027 3.7 - MDD growth: 2026 2.5; 2027 2.6 - Inflation: 2026 3.5; 2027 2.6 - Severe Scenario - GDP growth: 2026 -1.5; 2027 3.0 - MDD growth: 2026 1.9; 2027 2.1 - Inflation: 2026 3.9; 2027 4.4 ### Fiscal position, vulnerabilities, and projections - The headline fiscal balance is projected to remain in surplus during 2026–31. - The Medium-Term Fiscal and Structural Plan (MTFSP) projects average annual revenue growth of about 6 percent during 2026–30, driven by increases in income taxes (including excess CIT) and social contributions. - Current expenditure is budgeted to grow by about 6 percent annually on average, outpacing its pre-pandemic trend of 3 percent. - Authorities plan to increase capital expenditure averaging 13 percent annually to address housing and infrastructure gaps. - Staff’s baseline assumes higher current spending of about €1½ billion (0.2 percent of GDP or 0.4 percent of GNI*) in 2026, reflecting projected overruns. - The structural primary balance, which excludes estimated excess CIT revenue, is projected to deteriorate by about 0.6 percent of GDP (1.0 percent of GNI*) in 2026 and remain broadly unchanged in outer years. - Public debt is projected to decline to about 26 percent of GDP (about 50 percent of GNI*) in 2031. - Staff assessment: Ireland remains at low risk of sovereign stress (Annex V). ### Key fiscal vulnerabilities and long-term outlook - Uncertain MNE-related revenues: - Staff estimates that about 50 percent of total CIT revenue in 2025 (€18 billion, or 5 percent of GNI*) is in excess of what can be explained by underlying domestic economic activities. - Excluding estimated excess CIT, Ireland’s sizeable surpluses in recent years become deficits, indicating potential use of temporary revenues for permanent spending. - Narrowing tax bases: - A complex tax expenditure system via credits, exemptions, and preferential rates has eroded the tax base. - Ireland’s PIT structure exempts one-third of income earners from paying any PIT or the Universal Social Charge (USC). - Goods and services that account for more than half of total consumer spending currently pay reduced VAT rates, implying a significant VAT policy gap of nearly 35 percent. - Local property tax rates remain relatively low, resulting in low recurrent revenues and high reliance on transaction taxes such as stamp duty. - Aging and climate costs: - The European Commission projects the share of the old-age population to double from 2022 to 2070. - Total age-related expenditures are projected to increase by 6 percentage points of GNI* by 2050. - The fiscal cost of pensions alone is projected to increase by 4 percentage points of GNI* by 2050. - The authorities estimate the climate transition could reduce revenue by about 2 percent of GNI* and add about ½ percent of GNI* to expenditure in the long term under the central scenario. - Long-term simulation result (staff): - Under current tax policy, a gradual loss of estimated excess CIT during 2032–41 and rising age- and climate-related costs would shift the current fiscal surplus to a deficit of about 7 percent of GNI* by 2050. - Public debt would start to rise beyond the medium term and exceed 100 percent of GNI* by 2050. ### Policy stance and recommendations - Near- and medium-term stance: - A broadly neutral fiscal stance would be appropriate in the near and medium term. - Staff supports the planned scale-up of public investment to close housing and infrastructure gaps while cautioning against injecting unnecessary stimulus given full-capacity conditions and upside inflation risks. - If downside risks materialize, automatic stabilizers should be allowed to work fully; discretionary fiscal support should be time-bound, targeted and maintain the price signal. - In a severe scenario, Ireland can scale up discretionary targeted support and accommodate lower fiscal balances temporarily, while ensuring a broadly neutral stance over the medium term and deepening reforms to safeguard fiscal sustainability. - Immediate priorities to prepare for long-term challenges: - Closely control current expenditure growth and minimize spending overruns while efficiently delivering capital spending. - Broaden the tax base over the medium term to provide more sustainable revenue sources for permanent spending commitments and allow for putting more excess CIT revenues in the two savings funds. - Strengthen the national fiscal framework to balance competing priorities, avoid pro-cyclical fiscal policy, and safeguard fiscal sustainability. - Continue efforts to enhance the sustainability of the pension system. - Expenditure management recommendations: - Strengthen procedural enforcement, including tighter in-year monitoring, earlier intervention, and corrective actions where repeated budget overruns exist. - Implement the Expenditure Control and Escalation Process and improve upstream mechanisms such as commitment control over procurement through digitalization and integrated platforms and data. - Set binding budget planning targets that limit expectations of additional appropriations. - Infrastructure delivery recommendations: - Implement the Accelerating Infrastructure Action Plan without delay. - Reform priorities: cap costs of environmental planning judicial reviews, streamline court procedures, shorten consent procedures, and eliminate dual approval processes for critical infrastructure projects. - Revenue and tax-base reforms: - Increase local property tax rates to provide higher and more stable revenue streams. - Reduce the number of preferential VAT or excise rates, especially on items that disproportionately benefit higher-income earners. - Reduce broad-based PIT reliefs and exemptions. - Introduce additional PIT bands with appropriately calibrated rates and replace PRSI and USC thresholds with gradual phase-ins to strengthen work incentives. - Mitigate potential impacts on progressivity via means-tested transfers. - Fiscal framework recommendations: - Adopt a credible and binding fiscal rule, preferably anchored in a long-term net debt target, operationalized through multi-year net expenditure ceilings. - Legislate the national fiscal framework and strengthen the impact of IFAC’s compliance assessments. - Use the MTFSP to guide annual budgets and act as a binding mechanism on spending ceilings over the medium term. ### Authorities’ views (summary) - Authorities broadly concurred with staff’s assessment: outlook deteriorated over short term amid elevated uncertainty but remains relatively favorable over the medium term. - Expect activity to continue expanding at a solid, though moderating pace, supported by investment in housing and infrastructure, with private consumption projected to soften amid higher inflation. - Noted recent GDP and CA developments continue to be shaped by volatility in MNE-dominated operations. - Agreed inflation expected to rise in the short term, driven mainly by higher energy costs, before gradually easing over the medium term. - Prepared alternative scenarios based on more prolonged disruption to energy supplies. - Assessed near-term risks to growth as on the downside, medium-term risks more balanced including upside potential from AI-driven productivity gains. - Reaffirmed commitment to fiscal prudence; tightened expenditure controls and remain committed to expenditure ceilings set out in the MTFSP. - Energy supports should be temporary and targeted; committed to delivering key public investment projects and broadening the tax base over time. - Limited political appetite for adopting a binding national fiscal rule, but authorities emphasized the role of the two savings funds and continued fiscal prudence. ### Financial and macroprudential risks - Systemic risks have risen relative to the last Article IV consultation amidst tightening global financial conditions. - Global factors: - Financial conditions are tightening somewhat from highly accommodative levels as markets price in higher inflation, slower growth, and negative sentiments. - Higher systemic risks pertain mostly to the NBFI sector. - Equity valuations appear stretched in certain market segments, raising concerns about abrupt corrections and mispricing of risk. - Vulnerabilities in segments of Ireland’s large and complex non-bank sector related to leverage and liquidity mismatches could amplify shocks and transmit them to other parts of the system. - A mitigating factor is that NBFIs in Ireland are mostly externally oriented, with limited, albeit growing, links with the domestic economy. - Domestic factors: - Ireland remains vulnerable to concentration risks from reliance on a small set of globalized sectors. - Direct lending to MNEs by Irish banks is limited, but banks could be exposed to second-round effects. - Higher inflation and weaker external demand could increase debt-servicing pressures. - Financial stability risks from the housing market remain contained, but still-high house price inflation adds to affordability pressures. - Stabilization of the CRE market is welcome but outlook remains uncertain. - Rapid developments in AI, digitalization and operational risks, including cyber threats and reliance on external providers, add complexity to the risk environment. - Implication: continued vigilance and close monitoring are important to bolster the financial sector’s resilience and safeguard stability. *Source: Box 1. Ireland: The Impact of the War in the Middle East (IMF).* ### 21. While household and corporate balance sheets remain healthy overall, there is ### 1irlea2026001 - 21. While household and corporate balance sheets remain healthy overall, there is ### Household and Corporate Balance Sheets: Key findings - Aggregate household indebtedness has declined further; strong labor market outcomes have supported households’ debt service capacity. - Heterogeneity across households: - Lower-income borrowers face higher debt burdens and generally have smaller financial buffers. - Higher-income borrowers, especially those employed in the MNE sector, are vulnerable to geoeconomic shocks or AI disruptions. - Non-financial corporations (NFCs): - Display robust activity and profitability; leverage has remained relatively stable. - Firms in export-oriented sectors are more exposed to adverse trade policy scenarios but usually have greater resilience. - Corporate insolvencies declined slightly in 2025 compared to a year earlier. - Household net financial wealth is increasing (chart narratives). NFC financial positions are stable (chart narratives). ### Banking sector: resilience and vulnerabilities - Profitability: - Although moderated with interest rate normalization, profitability remains above the pre-pandemic level with a stable outlook. - Government divestments: - The government sold its remaining shares in the AIB group and reached an agreement to sell its stake in PTSB. - Capital and stress-testing: - Capital positions of domestic banks strengthened further and are above regulatory requirements, benefitting from finalization of Basel III reforms. - The 2025 EBA stress test confirmed Irish banks are resilient under a severe macroeconomic scenario. - Liquidity and funding: - Liquidity positions are sound, with domestic banks relying largely on retail deposits. - International banks’ vulnerability to funding shocks and interconnectedness with NBFIs should be monitored closely. - Asset quality: - Stage 3 loans declined to 1.4 percent in 2025Q4. - Stage 2 loans declined to 7.7 percent in 2025Q4. - NPLs are on a downward trend overall, but vulnerabilities persist in leveraged finance to firms and the CRE sector. - Operational risks: - Evolving risks from digitalization and cybersecurity require ongoing efforts to strengthen operational resilience. - Regulatory developments: - The impact of the EU’s Sixth Capital Requirements Directive (CRD6) on non-EU banks and other financial institutions providing core banking services to EU clients may have implications for business models, cross-border activity, and supervisory engagement—warrants ongoing monitoring. Selected financial indicators of selected banks, 2025Q4 (Percent): - Return on assets: 1.1, 1.1, 0.7 - Return on equity: 11.3, 11.0, 10.4 - Net interest margin: 2.6, 2.3, 1.6 - Cost-to-income ratio: 52.7, 51.5, 53.3 - NPL ratio: 1.5, 1.1, 1.8 - Tier 1 capital ratio: 18.1, 19.4, 17.9 (Note: Indicators cover the three main domestic retail banks: Allied Irish Banks, Bank of Ireland, and Permanent TSB; EBA samples noted in source.) ### Macroprudential policy and supervisory stance - Countercyclical capital buffer (CCyB): - CCyB rate is maintained at 1.5 percent, assessed as consistent with cyclical risk conditions being neither elevated nor subdued. - Mortgage measures and lending practices: - Mortgage measures recalibrated in 2023; distribution of new lending adjusted with a larger share of loans originated close to the limits. - Use of allowances (lending allowed above the headline limits) remains relatively contained at about 10 percent. - A targeted amendment announced in April exempts certain principal home bridging loans from the LTI limit. - Policy guidance: - The Central Bank of Ireland (CBI) should continue to conduct stress tests and review and adjust macroprudential policy settings as warranted. - In a scenario of downside risks impairing credit provision, the use of releasable capital buffers should be considered. - Credit gap metrics (chart narratives): standard and alternative credit gaps shown for monitoring. ### Non-bank financial intermediation (NBFI): priorities and risks - Size and growth: - Irish non-bank financial sector assets exceeded €7 trillion in 2025 (over 20 times the estimated GNI*). - Supervision and regulation: - Strengthening regulation and supervision of NBFIs remains a key priority for the CBI; CBI continues to engage internationally and contribute to policy development and implementation. - The CBI has undertaken analytical work on leverage risks in funds and the use of liquidity management tools (LMTs) by Irish-domiciled funds. - Funds sector specifics: - Analysis of private credit funds suggests leverage or liquidity mismatches do not appear to pose substantial threats, though complexity and data limitations complicate analysis. - The majority of Irish property funds are on track to meet the leverage limit by November 2027. - GBP-denominated LDI funds have maintained yield buffers well above the 300 bps requirement. - Data and stress testing: - The CBI should continue monitoring implementation of measures, lead development of a macroprudential framework for non-banks, improve data availability and quality, and develop system-wide stress tests. - Ongoing close engagement with ESMA, including common supervisory actions, peer reviews, and voluntary supervisory colleges, is welcome. ### Authorities’ views on financial stability - Authorities broadly agreed with staff’s assessment and recommendations. - They noted increased financial stability risks but affirmed that households, corporates, and banks generally maintain strong balance sheets. - Authorities are monitoring emerging pressures including interest rate risks, operational challenges from digitalization and third-party dependencies, while strengthening governance, credit risk management, and cyber resilience. - Progress is underway with transposition of CRD VI into national legislation and assessment of implications for Ireland’s financial sector. - Authorities remain focused on improving regulation and supervision of non-banks and developing a macroprudential framework for NBFIs, prioritizing the funds sector and structured around key priorities (implementation of internationally agreed reforms, domestic macroprudential measures, governance, system-wide stress testing, data access and sharing). ### Structural policy: reform priorities and recommendations - Overarching challenge: - Profound trade and geoeconomic shifts, energy security concerns, and rapid technological transformations (including AI) call for reforms to safeguard competitiveness and resilience. - A wide productivity gap persists between domestic firms and MNEs; AI risks further widening this divide. - Domestic firms should deepen linkages with the MNE sector (e.g., innovation cooperation) and enhance productivity. - Housing supply: - Housing shortages remain a key bottleneck to attracting talent and supporting business expansion. - New housing plan target: deliver 300,000 homes for 2025–2030. - Reforms needed: streamline planning and judicial review processes, increase urban density, enhance apprenticeship and training programs in construction, crowd in private capital via planning certainty and infrastructure. - New Rent Control Framework allows rents to reset to market levels under predefined situations; staff recommends removing rent controls to further boost rental supply while continuing to support vulnerable households. - Energy and electricity infrastructure: - Reliable and competitively priced low-carbon energy is closely linked to sustained productivity growth. - Electricity infrastructure bottlenecks impede investment and growth; government prioritizes upgrading the electricity grid. - Constraints particularly visible in data-center industry given significant footprint. - Meeting energy demand (including AI-related needs) requires additional generation, reinforced infrastructure, and carbon pricing with broader coverage. - Strengthening integration with the EU energy market and harnessing offshore renewable energy potential—alongside improved transmission and storage—are key steps. - Labor market and AI preparedness: - Ireland is relatively more exposed to AI because of concentration in ICT, financial services, and other knowledge-intensive industries. - These sectors show weaker employment growth, particularly among younger cohorts. - Realizing AI productivity gains requires continuous reskilling and upskilling as labor demand shifts towards advanced digital and analytical skills. - Ireland benefits from robust investment in tertiary education and lifelong learning; reforms to foster innovation and policies to help workers adapt (including affordable housing to enhance labor mobility) are recommended. - Deepening the EU Single Market: - A more integrated Single Market would reduce frictions for Irish firms expanding across Europe, boost financing for start-ups, and enhance resilience to supply-chain and trade-policy shocks. - Savings and Investments Union (SIU): - Many Irish households’ financial assets are low-yield deposits; SIU can redirect savings into productive investments and provide unified capital market access to help bridge productivity gaps with MNEs. - Ireland’s asset management sector is well-positioned to lead the transition; domestic reforms can enable greater retail participation in capital markets. - The 28th regime: - Fragmented national regulatory frameworks impede cross-border trade and investment; the proposed 28th corporate regime, if well designed and implemented, could simplify regulations and facilitate deeper integration and economies of scale for Irish firms. ### Housing and construction sector specifics - Housing investment has been subdued (chart narratives). - Construction sector productivity is low (chart narratives); adoption of Modern Methods of Construction (MMC) is increasing and can help address skills shortages and increase capacity. - Authorities highlighted planning reform agenda and phased commencement of the Planning and Development Act 2024 to introduce mandatory decision-making timelines and streamlined judicial review arrangements. - Housing Assistance Payment and Rental Accommodation Scheme provide targeted social housing supports for eligible households. *Source: IMF staff report text as supplied.* ### 32. The authorities emphasized that expanding electricity interconnection is central to ### 32. The authorities emphasized that expanding electricity interconnection is central to ### Energy policy, interconnection, and grid investment - Expanding electricity interconnection is central to achieving Ireland’s renewable energy targets and strengthening security. - Authorities are diversifying interconnection, including exploring additional links with continental Europe, while highlighting structural challenges faced by an island system. - Large-scale investment in grid infrastructure is seen as critical to unlocking renewable capacity. - Authorities point to a substantial multi-year investment program aimed at upgrading and expanding transmission and distribution networks. ### AI, digital strategy, and labor-market preparedness - Authorities recognized the transformative potential of AI and highlighted policy responses to prepare the workforce. - The new National Digital and AI Strategy (published earlier this year) sets out 90 deliverables across seven policy areas with a focus on upskilling and reskilling. - The National Skills Observatory is highlighted as a key policy tool for analyzing labor market dynamics and identifying skills gaps. - To support enterprise adoption, a targeted sectoral strategy was introduced to drive AI uptake, including in SMEs and the public sector. ### EU Single Market deepening and EU Presidency priorities - Authorities broadly welcomed staff’s assessment of the benefits for Ireland of further deepening the EU Single Market. - Ireland’s forthcoming EU Presidency priorities will be structured around three broad thematic pillars—competitiveness, values, and security—reflecting the EU’s Strategic Agenda. - Authorities underlined Ireland’s commitment to progressing the Savings and Investments Union and advancing the EU simplification agenda to mobilize investment, support innovation, and improve the operating environment for businesses. ### Macroeconomic outlook and staff appraisal — growth, inflation, and external position - The Irish economy is projected to grow at a slower but still robust pace amid higher energy prices and global uncertainty. - Modified domestic demand growth is projected to moderate from almost 5 percent in 2025 to about 2½ percent in 2026–27. - Headline inflation is projected to rise to about 3½ percent in 2026 and return to 2 percent around 2028. - The outlook is subject to elevated uncertainty, with downside risks to growth and upside risks to inflation. - Ireland’s external position is preliminarily assessed to be moderately stronger than the level implied by medium-term fundamentals and desirable policies. - Key projection figures (selected): - Real GDP growth: 12.3 percent in 2025; projected 3.7 percent in 2026; 2.9 percent in 2027; 2.4 percent in 2028; 2.3 percent in 2029–31. - Real GNI* growth: 4.8 percent in 2024; 4.0 percent in 2025; 2.0 percent in 2026; 2.7 percent in 2027. - Modified domestic demand (percentage change): 4.9 in 2025; 2.5 in 2026; 2.6 in 2027; 2.6 in 2028. - Inflation (HICP): 3.5 in 2026; 2.6 in 2027; 2.0 in 2028–31. - Current account balance: 8.2 percent of GDP in 2025; 7.8 percent in 2026; 8.0 percent in 2027; 7.6 percent in 2029; 7.1 percent in 2031. ### Fiscal policy guidance and public investment - Fiscal policy should achieve a broadly neutral stance while scaling up public investment efficiently. - Given the economy operating at full capacity and upside inflation risks, fiscal policy should avoid injecting unnecessary demand stimulus. - A broadly neutral stance would help build buffers for future shocks and spending needs from aging and the green transition. - In case of downside risks materializing, automatic stabilizers should be allowed to operate fully; discretionary fiscal support should be temporary, targeted, and preserve price signals. - Staff welcomes the authorities’ commitment to accelerating public investment; effective implementation is key. - Current expenditure needs closer management, including stronger controls to minimize overruns. - Fiscal numbers (selected): - Revenue: 22.7 percent of GDP in 2025; 23.5 in 2026; 23.4 in 2027; 23.6 in 2028. - Expenditure: 21.0 percent of GDP in 2025; 22.5 in 2026; 22.5 in 2027; 23.0 in 2028. - Overall balance: 1.8 percent of GDP in 2025; 0.9 in 2026–27; 0.6 in 2028. - General government gross debt: 32.9 percent of GDP in 2025; 32.2 in 2026; 30.0 in 2027; 28.6 in 2028. ### Revenue base, fiscal framework, and savings - Broadening the tax base and strengthening the national fiscal framework would reduce vulnerability to highly concentrated CIT. - Increasing revenues from PIT, VAT, and local property taxes would provide more sustainable revenue sources for permanent spending commitments and allow channeling more excess CIT revenues into the two savings funds. - A stronger national fiscal framework would help balance competing priorities, enhance budget credibility, and safeguard sustainability. - Given the lack of a fiscal anchor at present, the MTFSP should guide annual budgets and act as a binding mechanism on spending ceilings over the medium term. ### Financial stability and non-bank sector oversight - Systemic risks have risen, warranting ongoing vigilance to safeguard financial stability. - Vulnerabilities in segments of Ireland’s large and complex non-bank sector related to leverage and liquidity mismatches could amplify and transmit adverse shocks. - Asset quality should remain a key supervisory focus for banks. - Macroprudential settings are appropriate; the CBI should continue to review and adjust them as macro-financial conditions develop. - Evolving risks from digitalization and cybersecurity require continued focus on operational resilience. - Strengthening regulation and supervision of non-banks requires continued efforts and cooperation with the international community. - The CBI should maintain leadership in developing a macroprudential framework for non-banks and monitor implementation of macroprudential measures for Irish property funds and GBP-denominated liability-driven investment funds. - CBI’s collaboration with ESMA and other regulators to improve data availability and quality, enhance risk assessment, and develop system-wide stress tests is welcome. - Banking sector indicators (selected): - NPL ratio: 1.5 percent in 2025. - CT1 ratio: 15.7 percent in 2025. - Return on equity: 11.3 percent in 2025. - Net interest margin: 2.6 percent in 2025. ### Structural reforms and policy priorities - Structural reforms should focus on addressing housing shortages, enhancing energy security, and preparing for the AI transformation. - Housing: Achieving the new housing targets will require streamlining planning and judicial review, increasing urban density, boosting construction productivity, and crowding in private capital. - Energy: Upgrading the electricity grid, strengthening integration with the EU energy market, and harnessing Ireland's potential in renewables are key to bolstering energy security and delivering a cost-effective green transition. - AI and labor market: Realizing AI-related productivity gains while ensuring inclusive growth will require policies to help workers adapt and acquire new skills, enhance labor mobility, and foster innovation to leverage Ireland’s abundant talent. - EU Single Market: The SIU can facilitate redirection of savings into productive investments; Ireland’s financial sector is positioned to lead the transition. The proposed 28th corporate regime, if well designed and implemented, would enable Irish firms to operate more efficiently in the Single Market. ### Growth composition and 2025 outturn (Annex I highlights) - Ireland achieved an impressive growth outcome in 2025, underpinned by robust MNE exports and investment recovery. - Real GDP growth in 2025 stood at 12.3 percent. - Domestic demand performed strongly, but GDP growth was driven primarily by activities in the MNE sector. - Value added in MNE-dominated sectors rose by 25 percent in 2025, compared to less than 1 percent in the domestic sectors. *Sources: CSO, DoF, Eurostat, CBI, and IMF staff estimates and projections.* ### Annex I. Figure 1. Ireland: Growth Performance and Drivers ### Annex I. Figure 1. Ireland: Growth Performance and Drivers ### Export performance and composition (2025) - Goods exports increased sharply in 2025—by 23 percent in real terms. - Services exports remained broadly flat. - Growth in customs-based goods trade was driven exclusively by the expansion of medicinal and pharmaceutical products. - Within medicinal and pharmaceutical products, polypeptide hormones accounted for over 90 percent of the growth in the category. - The share of exports to the US in Ireland’s total merchandise exports rose to 43 percent in 2025, a 10 percentage point increase relative to a year earlier. - Export dynamics were highly uneven intra-year: - Significant frontloading in Q1 followed by a slowdown and contraction in Q4. - Growth accelerated massively in early 2025, peaking at 95 percent y-o-y in March, with pharmaceutical shipments more than tripling compared to March 2024. - Stockpiling earlier in the year likely explains the fall in goods exports in 2025 Q4 and could continue to weigh on exports in the first half of 2026. - Exports to the EU and UK were more stable and broad-based relative to exports to the US. ### Role of MNEs, domestic linkages, and measurement issues - The Irish economy’s structural characteristics amplify headline volatility: - Dominant role of MNEs and concentration of external activity in a small number of sectors, firms, and products. - One-off transactions and company-level decisions can exert significant influence on macro aggregates. - Pharmaceutical industry specifics: - Sector is overwhelmingly foreign-owned. - Accounts for around half of goods exports and a substantial share of value added, while employing a relatively small proportion of the workforce. - Fitzgerald (2025) estimates the sector’s share in employment at 2.5 percent, with a similar contribution to GNI* in 2024. - Domestic income content of large gross export flows is limited; much value added accrues to parent companies abroad through profit repatriation. - Contract manufacturing (goods for processing) comprises about a quarter of Ireland’s merchandise exports and is predominantly carried out by foreign MNEs. - Exports of computer services comprise over 60 percent of total services exports and are dominated by a small number of large multinational technology firms. - Measurement and interpretation implications: - Sharp swings in exports and GDP (e.g., 2025) are not mirrored by comparable movements in employment or national income. - Aggregate trade, growth, and tax outcomes are exposed to firm-specific and policy-driven shocks. - There is a need for adjustments for MNE activities (production, inventory, pricing, redomiciled firms, intellectual property, aircraft leasing, investment funds, special purpose entities) when assessing Ireland’s external position. ### Observed macro patterns and short-term drivers - Significant imported component in investment in fixed capital; these items are excluded in the calculation of modified domestic investment. - Large intra-year volatility in goods exports related to product and geographical concentration and to global trade policy expectations (including potential US tariff measures). - Services exports normalization and significantly higher income outflows contributed to a halving of the CA surplus to 8.2 percent of GDP in 2025 from 16.2 percent in 2024. ### Policy implications and recommended analytic adjustments - Distinguish between headline volatility and underlying economic conditions when assessing growth and external positions. - Adjust macro and external assessments for MNE-related distortions to better reflect domestic economic footing (controlling for redomiciled firms, IP, aircraft leasing, IFSC activities, and international financial intermediation). - Monitor potential near-term drag on exports due to earlier stockpiling and global trade policy shifts; assess implications for 2026 Q1–Q2. *Source: IMF staff.* ### 10.4 percent, relative to their average levels in 2024, driven by the euro’s strength against other ### 1irlea2026001 - 10.4 percent, relative to their average levels in 2024, driven by the euro’s strength against other ### Assessment: REER and Current Account - REER developments: - "10.4 percent, relative to their average levels in 2024, driven by the euro’s strength against other currencies." - "As of February 2026, the REER was 2.3 percent above its 2025 average." - EBA-based CA gap and REER undervaluation: - EBA-based CA gap: "6.7 percent of GDP." - Staff assesses a REER undervaluation ranging from "5.7 to 9.7 percent on average during 2025, with a midpoint of 7.7 percent (using an estimated elasticity of 0.87)." - EBA REER index and level models estimates: REER gap of "2.7 and 0.4 percent, respectively," implying the REER is moderately overvalued. - Uncertainty note: - The EBA CA model "is subject to a high degree of uncertainty as it does not account for the large distortions and volatility of the MNE sector, with a substantial portion of the gaps attributed to residuals." ### Capital and Financial Accounts: Flows and Policy Measures - Background and 2025 flows: - Ireland’s capital and financial accounts are "characterized by significant volatility due to the financing operation and investment activities of MNEs." - "In 2025, net FDI outflows amounted to €34.5 billion (5.4 percent of GDP), driven by MNEs’ decisions on equity investment and reinvested earnings." - "Total net financial account outflows in 2025 stood at 8.0 percent of GDP." - Assessment: - "Inward FDI and foreign demand for Irish sovereign bonds have been supported by Ireland’s strong economic performance and investor-friendly business climate, including a favorable tax environment." ### FX Intervention and Reserves Level - Background: - "The euro has the status of a global reserve currency." - Assessment: - "Reserves held by the euro area are typically low relative to standard metrics. The currency floats freely." ### Sovereign Risk and Debt Sustainability Framework: Summary Assessment - Overall risk: - "Ireland's overall risk of sovereign stress is low, reflecting relatively low vulnerabilities of the near and medium term outlook, while long term vulnerabilities are considered to be moderate." - Near- and medium-term: - Near term: "Low" - Medium term: "Low" - Fanchart: "Moderate" - GFN: "Low" - Long term: "Moderate" - Long-term vulnerabilities and fiscal pressures: - "Risks over the long term are assessed to be moderate, reflecting upcoming unfavorable demographics trends: an old age dependency ratio expected to double in the next decades and a retirement age well-below life expectancy." - "Previous estimates by the authorities suggest that failure to increase the retirement age as planned could imply a cumulative fiscal cost of about 10 percent of 2022 GDP over the long term." - "Health and long-term care expenditures are also expected to increase significantly, which highlights the need for a cost-efficient healthcare system in line with the authorities’ healthcare reform plans." - Debt sustainability and exposures: - "Public debt has been contained through consecutive shocks, falling by more than 20 pp since the onset of the pandemic." - "Ireland's low sovereign spread and active debt management strategy have helped lengthen the maturity of the debt structure and kept debt servicing costs contained." - "Public debt is expected to remain on a firmly downward path despite the projected growth slowdown." - Caveats: "While Ireland’s public debt as a percentage of GDP is much lower than the EA average, public debt burden is more elevated when measured against GNI*, a more appropriate measure of domestic activities (standing at 62 percent of GNI* in 2025)." - Fiscal exposure: "the dependence on volatile and uncertain CIT revenues leaves the fiscal position significantly exposed to shocks to the multinational sector." ### Debt Coverage and Disclosures - Chosen coverage: - The DSA covers "general government debt, with most debt issued by the central government." - Subsectors included in coverage (inclusion = Yes/No as listed): - Budgetary central government: "Yes" - Extra budgetary funds (EBFs): "Yes" - Social security funds (SSFs): "Yes" - State governments: "Yes" - Local governments: "Yes" - Public nonfinancial corporations: "No" - Central bank: "No" - Other public financial corporations: "No" - Commentary: - "The debt coverage remains unchanged from the last Article IV, i.e., it covers general government debt, with most debt issued by the central government." ### Public Debt Structure Indicators - Key features: - "Public debt is almost entirely in domestic currency, predominantly marketable and largely held by external creditors." - "The relatively long residual maturity of the debt portfolio (10 years), together with the large share of fixed-rate debt, provides important buffer to changes in interest rate." - Residual maturity: "10. years" ### Baseline Scenario (Annex V. Figure 4) — Selected figures (Percent of GDP unless indicated otherwise) - Public debt levels: - Actual 2025: "32.9" - 2026: "32.2" - 2027: "30.0" - 2028: "28.6" - 2029: "27.6" - 2030: "26.6" - 2031: "25.9" - 2032: "26.8" - 2033: "27.9" - 2034: "29.5" - 2035: "31.6" - Change in public debt: - 2025: "-5.4" - 2026: "-0.7" - 2027: "-2.2" - 2028: "-1.4" - 2029: "-1.0" - 2030: "-1.0" - 2031: "-0.6" - 2032: "0.8" - 2033: "1.1" - 2034: "1.6" - 2035: "2.1" - Primary deficit: - 2025: "-2.0" - 2026: "-1.2" - 2027: "-1.2" - 2028: "-1.0" - 2029: "-0.9" - 2030: "-1.2" - 2031: "-1.1" - 2032: "-0.8" - 2033: "-0.5" - 2034: "-0.2" - 2035: "0.1" - Noninterest revenues: - 2025: "22.5" - 2026: "23.2" - 2027: "23.1" - 2028: "23.4" - 2029: "23.4" - 2030: "23.7" - 2031: "24.0" - 2032: "24.6" - 2033: "25.4" - 2034: "26.0" - 2035: "26.6" - Noninterest expenditures: - 2025: "20.5" - 2026: "22.0" - 2027: "21.9" - 2028: "22.4" - 2029: "22.5" - 2030: "22.6" - 2031: "23.0" - 2032: "23.9" - 2033: "24.8" - 2034: "25.7" - 2035: "26.7" - Automatic debt dynamics and components: - Automatic debt dynamics 2025: "-4.1" - Real interest rate and relative inflation 2025: "0.1" - Real growth rate 2025: "-4.2" - Other identified flows 2025: "1.5" - Contingent liabilities: "0.0" across reported years - Gross financing needs (GFN): - 2025: "1.0" - 2026: "2.0" - 2027: "1.1" - 2028: "1.5" - 2029: "1.8" - 2030: "2.2" - 2031: "2.3" - 2032: "1.3" - 2033: "1.6" - 2034: "2.0" - 2035: "2.2" - Debt service (of which local currency): - 2025: "3.3" - 2026: "3.5" - 2027: "2.5" - 2028: "2.8" - 2029: "2.9" - 2030: "3.6" - 2031: "3.6" - 2032: "2.3" - 2033: "2.4" - 2034: "2.5" - 2035: "2.3" - Memo indicators: - Real GDP growth (percent): 2025: "12.3"; 2026: "-0.8"; 2027: "3.7"; 2028: "2.9"; 2029: "2.4"; 2030: "2.3"; 2031: "2.3"; 2032: "-1.6"; 2033: "-1.6"; 2034: "-1.6"; 2035: "-1.7" - Inflation (GDP deflator; percent): 2025: "1.0"; 2026: "1.9"; 2027: "2.4"; 2028: "1.5"; 2029: "1.7"; 2030: "1.7"; 2031: "1.8"; 2032: "1.8"; 2033: "1.8"; 2034: "1.9"; 2035: "1.8" - Nominal GDP growth (percent): 2025: "13.5"; 2026: "1.0"; 2027: "6.2"; 2028: "4.5"; 2029: "4.1"; 2030: "4.1"; 2031: "4.2"; 2032: "0.2"; 2033: "0.2"; 2034: "0.2"; 2035: "0.1" - Effective interest rate (percent): 2025: "1.4"; 2026: "1.8"; 2027: "2.1"; 2028: "2.3"; 2029: "2.5"; 2030: "2.9"; 2031: "3.3"; 2032: "3.7"; 2033: "3.9"; 2034: "4.2"; 2035: "4.4" - Staff commentary on baseline: - "Despite the projected growth slowdown and a less supportive interest rate environment, public debt is expected to continue on a downwards path over the medium term on the back of a strong fiscal position and still robust growth." - "Over the longer term, staff assumes that excess CIT revenue gradually unwinds over 2032-2041, implying negative real GDP growth and a rising public debt-to-GDP ratio over the period." ### Medium-Term Risk Assessment (Annex V. Figure 5) - Debt fanchart and indices: - Debt fanchart width: "82.8" - Contribution: "1.2" - Probability of debt non-stabilization (percent): "21.8" - Terminal debt-to-GDP x: "4.0" - Debt fanchart index (DFI): "1.5" - Risk signal: "Moderate" - Gross Financing Needs module: - Average baseline GFN (percent of GDP): "1.8" - Initial Banks' claims on the general government (pct bank assets): "0.6" - Change in banks' claims in stress (pct banks' assets): "0.2" - GFN financeability index (GFI): "0.9" - Risk signal: "Low" - Medium-term index: - Debt fanchart index: "1.5" - GFN financeability index: "0.9" - Medium-term index and final assessment: Risk signal "5/" and Final assessment: "Prob. of missed crisis, 2026-2031, if stress not predicted: 9.1 pct." - "Prob. of false alarms, 2026-2031, if stress predicted: 60.2 pct." - Commentary: - "The debt fanchart shows a moderately low probability that Ireland's public debt will not stabilize over the medium term. All other medium-term tools point to low level of risks." ### Realism of Baseline Assumptions (Annex V. Figure 6) - Commentary: - "Debt reduction has been faster than expected due to strong growth and low interest rates in recent years. The projected fiscal adjustment is within norms." - "While debt reduction projections are slightly above norms, they are significantly below Ireland's maximum historical 3-year debt reduction." ### Demographics: Pensions (Annex V. Figure 7) - Key projections and impacts: - Pension financing needs and time horizons: - "30 years 50 years Until 2100 (pp of GDP per year) 0.5% 1.3% 2.1%" - Current and projected pension expenditure: - "Total pension expenditure is projected to increase from 3.8 percent of GDP in 2022 to 6.6 percent in 2070." - Demographic drivers: - "The share of the old-age population is set to steadily rise, almost doubling from 15 percent in 2022 to 29 percent in 2070." - Mitigating role of migration: - "Net migration higher by a third would reduce pension spending by 0.2 percentage points of GDP relative to the baseline." - Policy implication: - "Permanent adjustment needed in the pension system to keep pension assets positive for:" (chart displayed in source). ### Demographics: Health (Annex V. Figure 8) - Key projections and impacts: - Current and projected healthcare expenditure: - "Total public expenditure on healthcare is expected to rise from 4.1 percent of GDP in 2022 to 5.6 percent of GDP in 2070." - Demographic drivers: - "The share of the old-age population is set to steadily rise, almost doubling from 15 percent in 2022 to 29 percent in 2070." - Commentary: - "While public expenditures on healthcare as a percent of GDP in Ireland are significantly below the EU averages, healthcare expenditure on a per capita basis is high despite Ireland’s relatively favorable age structure." *Source: IMF staff (content as provided in the supplied PDF excerpt).* ### Annex VI. Data Issues ### Annex VI. Data Issues ### Data Adequacy Assessment Rating — Summary Findings - Overall data adequacy assessment: A (The data provided to the Fund are adequate for surveillance). - Median ratings by sector: - National Accounts: A - Prices: A - Government Finance Statistics: A - External Sector Statistics: A - Monetary and Financial Statistics: B - Intersectoral Consistency: A - Detailed questionnaire results (selected data quality characteristics and sectoral ratings): - Coverage: National Accounts A; Prices A; Government Finance Statistics A; External Sector Statistics A; Monetary and Financial Statistics B - Granularity: National Accounts A; Prices (blank); Government Finance Statistics (top cell A for government operations; bottom cell B for public debt statistics); External Sector Statistics A; Monetary and Financial Statistics (top cell A for Monetary and Financial Statistics; bottom cell A for Financial Soundness indicators) - Consistency: National Accounts A; Prices A; Government Finance Statistics A; External Sector Statistics A - Frequency and Timeliness: National Accounts A; Prices A; Government Finance Statistics B; External Sector Statistics A; Monetary and Financial Statistics A ### Rationale, Changes, and Data Gaps - Rationale for staff assessment: - Ireland publishes timely economic statistics and posts most data and underlying documentation on the internet. - Remaining data gaps mostly pertain to the "OFI residual" segment of the financial sector. - Authorities are making progress in addressing the gaps. - Changes since the last Article IV consultation: - There have been no significant changes. - Use of data by staff: - Staff do not use data and/or estimates different from official statistics. - Other data gaps: - None ### Corrective Actions and Capacity Development Priorities (Policy Recommendations) - Recommendation for the Central Bank of Ireland (CBI): - The CBI should continue to work together with the Central Statistics Office (CSO) and other regulators to reduce data gaps for non-bank entities and their cross-border activities. - Improve identification of both foreign and domestic linkages for non-bank entities. ### Data Standards and Dissemination - Ireland subscribes to the Special Data Dissemination Standard (SDDS) since July 1996 and publishes data on its National Summary Data Page. - The latest SDDS Annual Observance Report is available on the Dissemination Standards Bulletin Board. ### Table of Common Indicators for Surveillance — Selected Items (As of June 4, 2026) - Exchange Rates - Date of Latest Observation: 2026-06-04 - Date Received: 2026-06-04 - Frequency of Data: D - Frequency of Reporting: D - Frequency Expected: D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities - Date of Latest Observation: 2026-04 - Date Received: 2026-05 - Frequency of Data: M - Frequency of Reporting: M - Frequency Expected: M - Announced Timeliness: NLT 1M - Expected Timeliness: 1W - Reserve/Base Money - Date of Latest Observation: 2026-04 - Date Received: 2026-06 - Frequency of Data: M - Frequency of Reporting: M - Frequency Expected: M - Expected Timeliness: 2W - Announced Timeliness: 2W - Broad Money - Date of Latest Observation: 2026-04 - Date Received: 2026-06 - Frequency of Data: M - Frequency of Reporting: M - Frequency Expected: M - Expected Timeliness: 1M - Announced Timeliness: 1M - Central Bank Balance Sheet - Date of Latest Observation: 2026-04 - Date Received: 2026-06 - Frequency of Data: M - Frequency of Reporting: M - Frequency Expected: M - Expected Timeliness: 2W - Announced Timeliness: 2W - Consolidated Balance Sheet of the Banking System - Date of Latest Observation: 2026-04 - Date Received: 2026-06 - Frequency of Data: M - Frequency of Reporting: M - Frequency Expected: M - Expected Timeliness: 1M - Announced Timeliness: 1M - Total assets of other depository corporations - Date of Latest Observation: 2026-04 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: M - Expected Timeliness: 1M - Announced Timeliness: 1M - Total credit from other depository corporations - Date of Latest Observation: 2026-04 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: M - Expected Timeliness: 1M - Announced Timeliness: 1M - Interest Rates - Date of Latest Observation: 2026-06-04 - Date Received: 2026-06-04 - Frequency of Data: D - Frequency of Reporting: D - Frequency Expected: D - Consumer Price Index - Date of Latest Observation: 2026-05 - Date Received: 2026-05 - Frequency of Data: M - Frequency of Reporting: M - Frequency Expected: M - Expected Timeliness: 1M - Announced Timeliness: NLT 1M - Revenue, Expenditure, Balance and Composition of Financing — General Government - Date of Latest Observation: 2025-12 - Date Received: 2026-04 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: A - Announced Frequency: A - Expected Timeliness: 2Q - Announced Timeliness: 3M - Revenue, Expenditure, Balance and Composition of Financing — Central Government - Date of Latest Observation: 2026-05 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: M - Announced Frequency: M - Expected Timeliness: 1M - Announced Timeliness: 2D - Stocks of Central Government and Central Government-Guaranteed Debt - Date of Latest Observation: 2025-12 - Date Received: 2026-04 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: Q - Announced Frequency: Q - Expected Timeliness: 1Q - Announced Timeliness: NLT 16W - Total stock of General Government Debt - Date of Latest Observation: 2025-12 - Date Received: 2026-04 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: Q - Expected Timeliness: 4M - External Current Account Balance - Date of Latest Observation: 2026-03 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: Q - Announced Frequency: Q - Expected Timeliness: 1Q - Announced Timeliness: 3M - Exports and Imports of Goods and Services - Date of Latest Observation: 2026-03 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: M - Announced Frequency: M - Expected Timeliness: 8W - Announced Timeliness: 8W - GDP/GNP - Date of Latest Observation: 2026-03 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: Q - Announced Frequency: Q - Expected Timeliness: 1Q - Announced Timeliness: NLT 3M - Gross External Debt - Date of Latest Observation: 2026-03 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: Q - Announced Frequency: Q - Expected Timeliness: 1Q - Announced Timeliness: 1Q - International Investment Position - Date of Latest Observation: 2026-03 - Date Received: 2026-06 - Frequency of Data: Q - Frequency of Reporting: Q - Frequency Expected: Q - Announced Frequency: Q - Expected Timeliness: 1Q - Announced Timeliness: 3M ### Fund Relations — Key Financial and Institutional Data (As of May 31, 2026) - Membership Status: Joined August 8, 1957; Article VIII - General Resources Account: - Quota: 3,449.90 SDR Million; 100.00 Percent of Quota - Fund holdings of currency: 2,555.11 SDR Million; 74.06 Percent of Quota - Reserve position in Fund: 894.82 SDR Million; 25.94 Percent of Quota - SDR Department: - Net cumulative allocation: 4,082.00 SDR Million; 100.00 Percent of Allocation - Holdings: 4,331.07 SDR Million; 106.10 Percent of Allocation - Outstanding Purchases and Loans: None - Financial Arrangements: - EFF: Approval Date 12/16/10; Expiration Date 12/15/13; Amount Approved 19,465.80 SDR million; Amount Drawn 19,465.80 SDR million - Overdue Obligations and Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs): - Charges/Interest: 2026 0.02; 2027 0.02; 2028 0.02; 2029 0.02; 2030 0.02 - Total: 2026 0.02; 2027 0.02; 2028 0.02; 2029 0.02; 2030 0.02 - Exchange Rate Arrangements: - Ireland’s currency is the euro, which floats freely and independently. - Ireland has accepted the obligations under Article VIII, Sections 2, 3, and 4 of the IMF’s Articles of Agreement and maintains an exchange system free of multiple currency practices and restrictions on payments and transfers for current international transactions, other than restrictions maintained solely for security reasons (notified pursuant to Decision No. 144 (52/51)). *Source: Annex VI. Data Issues (Ireland), as provided in the IMF staff report materials.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1irlea2026001.pdf_