## IMF Concludes 2002 Article IV Consultation with Ireland

## Source details

**Canonical URL:** [IMF Concludes 2002 Article IV Consultation with Ireland](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02170.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02170.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02170.pdf.json)

---

### Background and recent developments
- Real GDP growth averaged above 7 percent in 1991–2001, driven by: robust external demand; strong labor supply growth based on a young, educated population and rising female labor force participation; membership in EU and EMU; substantial foreign direct investment attracted by a favorable business tax regime and wage moderation; and substantial fiscal consolidation.
- Unemployment fell and per-capita income rose above the EU average.
- Public debt ratio fell to 36½ percent of GDP by end-2001.
- GDP growth declined in 2001 to almost 6 percent from 11½ percent in 2000, reflecting the global slowdown, the ICT shock, and foot-and-mouth disease-related restrictions.
- Current account remained broadly stable; unemployment edged up to 4.2 percent (claimant count basis) by May 2002.
- After a sharp decline in Q3 2001, output rose again in Q4 2001; recent months showed rising manufacturing output, retail sales (excluding automobiles), and consumer and business confidence.
- Inflation fell in 2001 but spiked in early 2002 mainly due to indirect tax increases; house prices fell for five consecutive months during September-January but later rebounded.
- The general government balance in 2001 recorded a small surplus (broad structural balance), significantly weaker than budgeted. The fiscal expansion in 2001 is estimated at some 2.2 percent of GDP.
- The 2002 Stability Programme shifted the medium-term structural balance down sharply to a deficit of some 1 percent of GDP in 2003-04 from a surplus of about 4 percent of GDP in 2003 in the previous Programme.

### IMF staff outlook and projections
- GDP projected to rise by 3.2 percent in 2002, supported by steady growth in private consumption.
- Exports projected to accelerate by mid-year; recovery in private investment expected to take longer.
- Monetary conditions expected to remain easy given negative short-term real interest rates, even if the ECB tightens or the euro appreciates moderately.
- Price and wage inflation expected to ease somewhat in 2002 due to ebbing demand pressures.
- Following a rebound in late 2002 and 2003, medium-term output growth projected to trend down as labor force growth slows (demographics, low unemployment) and labor productivity declines with income convergence and normalization of foreign direct investment after the ICT bubble.

### Executive Board assessment — main concerns and recommendations
- Commended authorities for impressive economic performance, rooted in sound policies, skilled workforce, flexible labor market, and investor-friendly environment.
- Noted Ireland weathered the global slowdown relatively well due to a weak euro, supportive macroeconomic policies, and high prior resource utilization.
- Highlighted significant downside risks: a fragile global recovery, continued appreciation of the euro, relatively high inflation and labor costs that could harm competitiveness—particularly in traditional employment-intensive industries—and pose manageable risks to the financial sector.
- Concerned about sharp deterioration in the structural fiscal balance in 2001 and indicators pointing to an expansionary fiscal stance in 2002.
- Preferred a neutral fiscal stance in 2002 (unchanged structural fiscal balance) given easy monetary conditions, but agreed that unwinding stimulus immediately was inadvisable given recovery uncertainty and still-sound fiscal position.
- Stressed public expenditure, particularly wages, should be held to budgeted levels; fiscal policy should be, at minimum, neutral in 2003.
- Recommended returning general government position to structural balance over the medium-term, compared with projected deficits of about 1 percent of GDP, to sustain investor confidence and provide a margin against lower structural revenues or higher fiscal costs and to permit operation of automatic stabilizers without breaching the 3 percent deficit limit of the Stability and Growth Pact.
- Suggested a formal medium-term fiscal framework to improve policy predictability, including an overall fiscal constraint, multi-year spending limits, and safeguards to protect capital spending.
- Cautioned against rapidly increasing public spending; recommended rigorous value-for-money criteria with clearly defined, monitorable outputs for spending programs.
- Welcomed use of Public Private Partnerships and encouraged greater private sector involvement in provision of public services.
- Emphasized greater fiscal transparency and suggested a fiscal Report on Standards and Codes by the authorities.
- On revenue measures, preferred widening the tax base over increasing tax rates; saw greater scope for user fees; recommended targeted transfers to offset adverse effects on the poor.
- Cautioned against excessive increases in marginal taxes on labor due to adverse effects on labor supply and competitiveness.
- Urged cautious approach to phasing in pay increases agreed under recent benchmarking; many Directors suggested future national wage agreements be divorced from reliance on fiscal concessions.
- Noted continued dialogue among social partners can help maintain social consensus, but wages should reflect market forces, including on the downside and across skill categories.
- Emphasized strengthening competition via regulatory reform and privatization: welcomed strengthening of the Competition Authority and further liberalization, limiting vested interests, and reducing anti-competitive practices, including in professions and public services.

### Financial sector and supervision
- Noted bank capitalization appears to provide an adequate cushion against possible asset-quality risks.
- Urged supervisory authorities to ensure capital and provisions remain adequate if unemployment, company finances, or property prices deteriorate.
- Recommended close monitoring of systemic risks and speedy unification of financial sector regulation.
- Encouraged the new single regulatory authority—when established—to prioritize strengthening insurance supervision.

### Data, anti-money laundering, and aid
- Commended progress in provision of statistics; recommended improving timeliness and coverage, particularly on earnings, national accounts, and sectoral balance sheets.
- Welcomed steps to curb money laundering and combat financing of terrorism.
- Welcomed increase in allocation for official development assistance and authorities’ commitment to achieve the U.N. target of 0.7 percent of GNP by 2007.

### Selected economic indicators (as reported)
- Real GDP: 1998 8.6; 1999 10.9; 2000 11.5; 2001 5.9; 2002 3.2
- Real GNP: 1998 7.9; 1999 8.2; 2000 10.4; 2001 5.0; 2002 3.0
- Domestic demand: 1998 9.4; 1999 7.0; 2000 9.2; 2001 3.9; 2002 2.8
- Exports of goods and services: 1998 21.4; 1999 15.7; 2000 17.8; 2001 8.4; 2002 4.5
- Imports of goods and services: 1998 25.8; 1999 11.9; 2000 16.6; 2001 7.7; 2002 4.0
- HICP: 1998 2.2; 1999 2.5; 2000 5.3; 2001 4.0; 2002 4.4
- Unemployment rate (in percent): 1998 7.4; 1999 5.6; 2000 4.3; 2001 3.9; 2002 4.5
- General government balance (percent of GDP): 1998 2.3; 1999 4.1; 2000 4.5; 2001 1.7; 2002 0.0
- Structural balance (percent of GDP): 1998 1.8; 1999 2.8; 2000 2.1; 2001 -0.1; 2002 -1.0
- General government debt (percent of GDP): 1998 55.1; 1999 49.6; 2000 39.0; 2001 36.5; 2002 34.9
- M3E (end-year, percent change): 1998 18.1; 1999 ...; 2000 14.7; 2001 17.2; 2002 12.6
- Private sector credit (end-year, percent change): 1998 22.6; 1999 33.5; 2000 20.6; 2001 16.5; 2002 12.2
- Three-month interest rate (year average): 1998 5.4; 1999 2.9; 2000 4.4; 2001 4.2; 2002 3.4
- 10-year government bond yield (year average): 1998 4.7; 1999 4.8; 2000 5.4; 2001 4.9; 2002 5.2
- Trade balance (goods and services, percent of GDP): 1998 11.4; 1999 13.9; 2000 14.1; 2001 14.9; 2002 14.9
- Current account (percent of GDP): 1998 0.9; 1999 0.4; 2000 -0.6; 2001 -1.0; 2002 -0.8
- Reserves (gold valued at SDR 35 per ounce, end of period, in billions of SDRs): 6.7; 3.9; 4.1; 4.2; ...
- Exchange rate regime: Member of euro area
- Present rate (June 27, 2002) US$ per euro: 0.9873
- Nominal effective rate (1995=100, end-March 2002): 97.3; 94.0; 88.3; 89.2; 88.9
- Real effective rate (1996=100, CPI based, end-March 2002): 96.8; 93.9; 90.9; 94.3; 96.0

*Public Information Notice (PIN) No. 02/83 — August 7, 2002.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2002/_cr02170.pdf_