## _cr07325

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### Executive Summary — Background and outlook
- Economic performance remains very strong; the growth rate of real GNP per capita is one of the highest among advanced economies and the unemployment rate one of the lowest.
- Higher value-added activities—financial services, information technology services, and other business services—are expanding; inward foreign direct investment is boosting labor productivity.
- Key policy pillars: prudent fiscal policy, low taxes on labor and business income, and labor market flexibility.
- Growth became increasingly reliant on house building; competitiveness has eroded somewhat.
- HICP inflation rose to 2¾ percent, above the euro area average, driven by rapid increases in services prices.
- Current account deficit widened to 4¼ percent of GDP.
- Estimates suggest Ireland’s real effective exchange rate is 0–10 percent above equilibrium.

### Fiscal policy — findings and recommendations
- Fiscal posture and near term:
  - General government surplus surged to almost 3 percent of GDP in 2006; net debt fell to about 12 percent of GDP.
  - 2007 budget implies substantial fiscal stimulus while the economy may be operating at or above capacity.
  - Staff project deterioration in the fiscal position in 2007 largely due to higher expenditure (social welfare, education, health).
  - Current revenue projected: 34.9 percent of GDP (2007); current expenditure projected: 29.6 percent of GDP (2007).
  - General government balance (percent of GDP): 1.4 (2004), 1.0 (2005), 2.9 (2006), 0.8 (2007), 0.4 (2008), 0.2 (2009).
- Policy guidance:
  - Allow fiscal stabilizers ample room to operate fully; avoid discretionary measures that weaken the underlying fiscal position.
  - Restrain current spending growth to nominal GDP growth.
  - Medium-term priorities: improve quality of spending and review the tax base; modernize property-related taxes.
  - Authorities to establish a Commission on Taxation to review taxation efficiency and appropriateness.
- Medium- and long-term pressures:
  - EC Aging Working Group projects a rise in age-related government spending between 2004–50 of about 8 percentage points of GDP (primarily due to increased pension spending).
  - Government is setting aside every year 1 percent of GNP in a National Pensions Reserve Fund.
  - Staff recommendations to address long-term pressures include: consider raising the state pensionable age (currently 65), consider raising the government’s annual contribution to the National Pensions Reserve Fund, and consider introducing a national defined-contribution scheme with automatic enrolment and low operating costs.
- Illustrative simulation (Global Fiscal Model):
  - Funding age-related spending by raising social security contributions could require increases up to 20 percentage points by 2055.
  - A more growth-friendly package would combine raising the retirement age, broadening the tax base, and increasing less distortionary indirect taxes.

### Financial system — soundness, exposures, and supervision
- System strengths and vulnerabilities:
  - Banking system is well-capitalized, profitable, and liquid; nonperforming loans are low.
  - Bank lending to construction and real estate firms amounts to about 47 percent of GDP.
  - Household debt about 160 percent of household disposable income; most debt at variable rates.
  - About 1/3 of mortgages taken out by first-time buyers in 2006 were at a 100 percent loan-to-value ratio.
  - Loan growth has outstripped deposit growth, increasing reliance on wholesale funding.
  - Banks hold high levels of liquid assets.
- Stress-test results (Central Bank):
  - Major lenders have adequate buffers to cover a range of shocks.
  - Even in an extreme scenario with a sharp rise in unemployment and a sharp decline in house prices, capital remains adequate at every bank.
  - Even a very substantial withdrawal of private sector deposits would not exhaust any major lender’s stock of liquid assets.
  - Stress tests incorporate only first-round effects; long period of strong performance limits ability to quantify macro–credit risk relationships.
- Key indicators (from source figures/tables):
  - Commercial property-related lending, 2006: figure-scale about 0.6 (as share of GDP in figure scale).
  - Residential mortgage lending, 2006 (excluding securitized mortgages, as share of household disposable income): figure-scale about 2.5.
  - Capital Adequacy Ratio, 2006: about 11 (figure scale).
  - Return on Equity, 2005: about 22 (figure scale).
  - Nonperforming Loans to Total Gross Loans, 2006: low (figure scale).
  - Risk-weighted capital/asset ratios of domestic banks (in percent): 10.9 (2006).
  - Non-performing loans (in percent of total loans): 0.7 (2006).
  - Total provisions for loan losses (in percent of total loans): 0.5 (2006).
  - Annual credit growth rates (to private sector, in percent): 28.8 (2006).
  - Annual mortgage credit growth rates (in percent): 24.2 (2006).
- Regulatory and supervisory developments:
  - New liquidity requirements for credit institutions using a forward-looking mismatch approach came into effect in July 2007.
  - Insurance supervision: Financial Regulator recruited experts, trained staff, reorganized with on-site inspection and reinsurance units; focusing on risk management in preparation for Solvency II.
  - Implementation of the EU Capital Requirements Directive could lead to declines in regulatory capital, initially limited by capital floors.
  - Staff supported Financial Regulator’s prudent approach on risk-weighting of lending to speculative commercial property and residential investment property.
  - Subprime mortgage loans are small (less than 2 percent of outstanding mortgage loans); staff supported proposal to make all subprime lenders subject to the consumer protection code.

### Housing market, outlook, and transmission channels
- Housing market signals:
  - Rise in euro area interest rates since late 2005 prompted a cooling of the housing market; residential investment growth declined in 2006 and house prices have fallen in recent months.
  - Share of residential investment in GDP is higher than in other countries, partly reflecting catch-up in Ireland’s housing stock.
  - Central Bank officials and staff saw house prices as somewhat overvalued given the ratio of house prices to rental income; Department of Environment officials judged prices to be in line with fundamentals.
  - Staff estimate sustainable level of house completions: about 50,000 to 70,000, well below the 88,000 dwellings finished in 2006.
  - Residential investment projected to contract substantially during 2007–10.
- Transmission channels if risks materialize:
  - Housing market: lower capital gains could reduce buy-to-let investor demand; housing developments could undermine consumer confidence; reassessment of mortgage-lending risks could tighten lending standards and affect domestic demand.
  - External developments: weakening of U.S. growth, further appreciation of the euro undermining competitiveness, or a reversal of benign global financial market conditions could deteriorate investor sentiment toward Ireland.
- Additional observations:
  - Census data show 15 percent of dwellings are unoccupied (noted as in line with the EU average).
  - Historical cross-country evidence: sharp increases in house prices are followed by sharp declines about 40 percent of the time.
  - Housing wealth effects on consumption were judged to be small.

### Growth projections, external balance, and risks
- Near-term projection:
  - Staff project that real GDP will grow by about 4¾ percent (near term).
  - Staff projection for real GNP growth (selected): GNP (annual change) 6.5 (2006).
- Demand composition and supports:
  - Growth slowdown in 2007 will be cushioned by strong private consumption and fiscal stimulus.
  - Private consumption support factors: robust employment growth, steady wage growth, increased government transfers, and maturing Special Saving Investment Accounts amounting to about 12 percent of private consumption (a small portion of which will be spent).
  - Nonresidential structures investment expected to remain strong due to medium-term growth prospects and public infrastructure needs.
- External balance:
  - Given strong domestic demand, current account deficit expected to widen further to about 4½ percent of GDP.
  - Current account (Percent of GDP): -4.4 (selected 2006 indicator).
- Medium-term:
  - Assuming completion of housing-market adjustment, GDP growth likely to run at about 4 percent, reflecting employment growth of about 2 percent and labor productivity growth of about 2 percent.
- Risks:
  - Risks to the short-term outlook are tilted to the downside: housing market could cool more sharply than expected and/or the external environment could deteriorate.
  - Staff spillover analysis: spillovers from the U.S. account for a much larger share of the variance of Ireland’s GDP than implied by the U.S. share in merchandise exports; the impact of shocks to the real effective exchange rate on Ireland’s GDP rises to about 12 percent of the variance decomposition after two years.

### Labor market, wages, and competitiveness
- Labor market strength and flexibility:
  - Wage moderation and firm-level wage flexibility are crucial to minimize the expected rise in unemployment and seize new growth opportunities.
  - Past tax and benefit reform contributed to a sharp fall in structural unemployment in the 1990s.
  - Tax wedge is now one of the lowest among industrial countries.
  - Employment Protection Legislation in Ireland is less restrictive than the OECD average but more restrictive than in the United Kingdom or the United States.
- Wage guidance and public sector pay:
  - Current wage growth about 5 percent; projected HICP inflation about 2 percent; projected labor productivity growth about 2 percent.
  - Staff suggested increases in global energy prices and mortgage costs should not be allowed to feed into wage growth.
  - Public sector pay benchmarking exercise: any wage increases should be small; exercise should be transparent, increase focus on recruitment and retention in pay determination, assess more accurately the value to employees of public sector pensions, and emphasize flexibility of work practices.

### Appendix II — Sustainability Exercise (fiscal and external)
- Public debt baseline projections (percent of GDP): 25.1 (2002), 22.7 (2003), 19.9 (2004), 15.9 (2005), 12.2 (2006), 10.3 (2007), 9.1 (2008), 8.1 (2009), 7.3 (2010), 6.6 (2011), 5.9 (2012).
- Under baseline, net debt declines from 12 percent of GDP in 2006 to 6 percent of GDP by 2012.
- Worst outcome reported: rise in the debt ratio to 16 percent in 2012 under a negative shock to real GDP growth.
- Identified debt-creating flows (percent of GDP, 2002–2012): -2.4, -1.9, -2.7, -2.6, -4.1, -1.8, -1.0, -0.7, -0.5, -0.5, -0.4.
- Primary deficit (percent of GDP, 2002–2012): -0.6, -1.1, -2.1, -1.6, -3.4, -1.3, -0.8, -0.6, -0.4, -0.3, -0.2.
- Key macro assumptions (real GDP growth, percent, 2002–2012): 6.4, 4.3, 4.3, 5.9, 5.7, 4.8, 3.5, 3.8, 3.7, 4.0, 4.0.
- External sustainability:
  - Net international investment position is in a moderate deficit amid very large FDI flows.
  - Gross external assets in 2005 amounted to about 1,000 percent of GDP.
  - Large gross positions generate significant volatility in components of the net external position (standard deviations over 1998–2005: net FDI position 26 percentage points of GDP; net portfolio investment position 22 percentage points of GDP; net other investment position 31 percentage points of GDP).
  - Composition implies a large negative net income flow in the current account, driven by large stock of inward FDI earning about 20 percent on average during 2000–05.

### IMF Board and Directors’ summary judgments
- Directors judged performance impressive and expected growth to remain robust over the medium term given strong fundamentals and policy commitment.
- Directors emphasized downside risks: inflationary pressures, declining competitiveness, widening current account deficit, deterioration in global financial market conditions and U.S. growth, and risks from housing market adjustment.
- Fiscal recommendations from Directors:
  - Caution against discretionary measures that would weaken the underlying fiscal position in 2008.
  - Restrain current expenditure growth; continue to focus on improving quality of public spending through cost-benefit analysis.
  - Support establishment of a Commission to review the tax system.
  - Prepare for projected increase in age-related spending through a combination of measures rather than raising social security contribution rates alone (options: review state pensionable age, level of contributions to the National Pensions Reserve Fund, strengthen incentives for private savings).
- Financial sector recommendations:
  - Continue supervisory vigilance; monitor bank risk management practices, including commercial property lending.
  - Support upgrading of the stress-testing framework and continued improvement in supervision.
- Labor market recommendations:
  - Preserve and enhance external competitiveness; ensure wages grow in line with productivity; avoid feeding global energy price and mortgage cost increases into wage growth.

*Source: IMF staff report — Executive Summary and chapters/excerpts from Mission: Dublin, June 19–27, 2007; Appendix II — Sustainability Exercise; and IMF Public Information Notice No.117 (September 14, 2007), as provided in the supplied content.*

### Executive Summary

### Executive Summary

### Background and outlook
- Economic performance remains very strong, supported by sound policies; the growth rate of real GNP per capita is one of the highest among advanced economies and the unemployment rate one of the lowest.
- Higher value-added activities—financial services, information technology services, and other business services—are expanding; inward foreign direct investment is boosting labor productivity.
- Key policy pillars cited: prudent fiscal policy, low taxes on labor and business income, and labor market flexibility.
- In recent years growth became increasingly reliant on house building; competitiveness has eroded somewhat.
- HICP inflation rose to 2¾ percent, above the euro area average, driven by rapid increases in services prices.
- The current account deficit widened to 4¼ percent of GDP.
- Estimates suggest Ireland’s real effective exchange rate is 0–10 percent above equilibrium.

### Fiscal policy
- Fiscal stabilizers have ample room to operate fully; discretionary measures that weaken the underlying fiscal position should be avoided.
- The authorities and staff agreed on the importance of maintaining fiscal prudence.
- Over the medium term, priorities include further improving the quality of spending and reviewing the tax base.
- Age-related spending will rise considerably in the long term; improving public understanding of fiscal pressures and a better approach to pension planning are needed.
- Box summary of Fund policy recommendations:
  - Fiscal policy: prudent, with a medium-term fiscal objective of close to balance or surplus; windfall property-related revenues were saved and the fiscal stance was not procyclical.
  - Financial stability: support for the supervisory framework and continued strengthening in line with the 2006 FSAP Update.
  - Wage policies: the social partnership agreement contained no fiscal concessions; wage increases were a little on the high side.

### Financial system
- Banks have large exposures to the property market; stress tests suggest cushions are adequate to cover a range of shocks.
- Financial regulation and supervision improved with a new liquidity management framework for banks and strengthened capacity for insurance supervision.
- Authorities and staff agreed that continued careful monitoring of banks’ risk management practices is essential.

### Labor market policies
- Wage moderation—in both the social partnership agreement and the forthcoming public sector pay benchmarking exercise—and firm-level wage flexibility are crucial.
- These measures are seen as key to minimizing the expected rise in unemployment and seizing new growth opportunities.

### Housing market and near-term outlook
- The rise in euro area interest rates since late 2005 has prompted a cooling of the housing market; residential investment growth declined in 2006 and house prices have fallen in recent months.
- The share of residential investment in GDP is higher than in other countries, partly reflecting catch-up in Ireland’s housing stock.
- Central Bank officials and staff saw house prices as somewhat overvalued given the ratio of house prices to rental income; Department of Environment officials judged prices to be in line with fundamentals.
- Staff estimate the sustainable level of house completions to be about 50,000 to 70,000, well below the 88,000 dwellings finished in 2006.
- Residential investment is projected to contract substantially during 2007–10.
- The authorities viewed a soft landing of the housing market as likely; the shared view is that any overvaluation would likely diminish gradually as rental income and other fundamentals grow more quickly than house prices.
- Housing wealth effects on consumption were judged to be small.

### Growth projections and external balance
- The growth slowdown in 2007 will be cushioned by strong private consumption and fiscal stimulus.
- Private consumption support factors: robust employment growth, steady wage growth, increased government transfers, and maturing Special Saving Investment Accounts amounting to about 12 percent of private consumption (a small portion of which will be spent).
- Nonresidential structures investment expected to remain strong due to medium-term growth prospects and public infrastructure needs.
- Staff project that real GDP will grow by about 4¾ percent (near term).
- Given strong domestic demand, the current account deficit is expected to widen further to about 4½ percent of GDP.
- Over the medium term, assuming completion of housing-market adjustment, GDP growth is likely to run at about 4 percent, reflecting employment growth of about 2 percent and labor productivity growth of about 2 percent.

### Risks and shock transmission
- Risks to the short-term outlook are tilted to the downside: the housing market could cool more sharply than expected and/or the external environment could deteriorate.
- Possible transmission channels if risks materialize:
  - Housing market: lower capital gains could reduce buy-to-let investor demand; housing developments could undermine consumer confidence; a reassessment of mortgage-lending risks could tighten lending standards and affect domestic demand.
  - External developments: a weakening of U.S. growth is an important risk; a further appreciation of the euro would further undermine competitiveness; a reversal of benign global financial market conditions could deteriorate investor sentiment toward Ireland.
- Census data show 15 percent of dwellings are unoccupied (noted as in line with the EU average).
- Cross-country historical evidence: sharp increases in house prices are followed by sharp declines about 40 percent of the time.
- Staff spillover analysis findings:
  - Spillovers from the U.S. account for a much larger share of the variance of Ireland’s GDP than implied by the U.S. share in merchandise exports, possibly reflecting services exports and the role of U.S. multinationals.
  - The impact of shocks to the real effective exchange rate on Ireland’s GDP increases over time, rising to about 12 percent of the variance decomposition after two years and higher at longer horizons.

*Source: IMF staff report — Executive Summary (Mission: Dublin, June 19–27, 2007).*

### 12.      With a rebalancing of economic activity in prospect, the discussions focused on

### _cr07325 - 12.      With a rebalancing of economic activity in prospect, the discussions focused on

### Fiscal position and near-term outlook
- General government surplus surged to almost 3 percent of GDP in 2006 and net debt fell to about 12 percent of GDP.
- The better-than-expected 2006 outturn reflected strength of property-related revenues (stamp duties and capital gains tax).
- Government expenditure as a share of GDP fell slightly as a decline in current spending more than offset a rise in investment.
- The 2007 budget implies substantial fiscal stimulus while the economy may be operating at or above capacity.
- Staff projections attribute most of the 2 percentage point of GDP deterioration in the fiscal position in 2007 to a rise in expenditure (increases in social welfare payments and higher education and health spending).
- Revenue-to-GDP ratio projected to fall due to lower corporate income tax and some weakening of stamp duties and capital gains taxes in the second half of the year.
- Risks noted:
  - Tax buoyancy could surprise on the upside, but housing market turnover could slow more sharply.
  - Given inflationary pressures, eroding competitiveness, and a widening current account deficit, the fiscal stimulus in 2007 is characterized as unfortunate.
  - A faster-than-expected cooling of the housing market could trigger a much sharper fall in the fiscal balance through lower property-related revenues, lower income tax and VAT revenues, and higher spending on unemployment benefits.
  - If external shocks coincide, deterioration could be much larger (example: almost 5 percentage points of GDP deterioration between 2000–02).

Key table figures (staff projections and actuals, in percent of GDP):
- General government balance: 1.4 (2004), 1.0 (2005), 2.9 (2006), 0.8 (2007), 0.4 (2008), 0.2 (2009)
- Current revenue: 33.2 (2004), 33.6 (2005), 35.5 (2006), 34.9 (2007), 34.3 (2008), 34.2 (2009)
- Current expenditure: 28.4 (2004), 28.8 (2005), 28.6 (2006), 29.6 (2007), 29.6 (2008), 29.6 (2009)
- Capital balance: -3.5 (2004), -3.8 (2005), -4.0 (2006), -4.5 (2007), -4.3 (2008), -4.4 (2009)
- Government balance (cyclically-adjusted): 1.5 (2004), 1.0 (2005), 2.7 (2006), 0.7 (2007), 0.6 (2008), 0.3 (2009)
- Government balance (cyclically-adjusted, excluding one-off factor): 0.6 (2004), 1.4 (2005), 2.6 (2006), 0.5 (2007), 0.6 (2008), 0.3 (2009)
- Output Gap: -0.4 (2004), -0.1 (2005), 0.4 (2006), 0.2 (2007), -0.4 (2008), -0.2 (2009)
- General government net debt (as percent of GDP): 19.9 (2004), 15.9 (2005), 12.2 (2006), 10.3 (2007), 9.1 (2008), 8.1 (2009)

Policy guidance and authorities’ stance:
- Staff cautioned against discretionary measures that would weaken the underlying fiscal position and suggested restraining current spending growth to nominal GDP growth.
- Authorities aimed to maintain a sound fiscal position by reducing current expenditure growth and targeting a balanced budget.
- Authorities noted a Commission on Taxation will be established to review taxation efficiency and appropriateness.

### Medium- and long-term fiscal pressures: population aging and sustainability
- Demographics:
  - Ireland’s population became slightly younger over past 50 years, but the old-age dependency ratio will start to rise quite steeply very soon.
  - EC Aging Working Group projects a rise in age-related government spending between 2004–50 of about 8 percentage points of GDP (primarily due to increased pension spending), higher than the average for other EU countries.
- Mitigating measures in place and proposed:
  - Government is setting aside every year 1 percent of GNP in a National Pensions Reserve Fund.
  - An eventual decline in government investment spending as a share of GDP toward the industrial country average is expected.
  - Staff suggested regular publication of a report on long-term fiscal sustainability; authorities noted budget documents cover these issues and a longer report is underway.
- Staff and authorities agreed a mix of measures will be needed to address long-term pressures:
  - Consider raising state pensionable age (currently 65) in line with rising life expectancy.
  - Consider raising the government’s annual contribution to the National Pensions Reserve Fund.
  - Consider introducing a national defined-contribution scheme with automatic enrolment and low operating costs (as done in some other countries).
  - These and other options to be analyzed in a forthcoming Green Paper on Pension Policy.

Illustrative scenarios and simulation results (Box 3):
- The Global Fiscal Model is used to simulate macroeconomic effects of options to restore debt sustainability.
- Funding the rise in age-related spending through a concomitant increase in social security contributions would require substantially higher contribution rates—up to 20 percentage points by 2055.
- Such a large increase in contribution rates would have negative effects on labor supply.
- A more growth-friendly package would combine raising the retirement age, broadening the tax base, and increasing less distortionary indirect taxes.

### Banking system exposures, buffers, and stress testing
- System strengths and vulnerabilities:
  - Banking system is well-capitalized, profitable, and liquid; nonperforming loans are low.
  - Bank lending to construction and real estate firms amounts to about 47 percent of GDP.
  - Household debt about 160 percent of household disposable income; most debt at variable rates.
  - About 1/3 of mortgages taken out by first-time buyers in 2006 were at a 100 percent loan-to-value ratio; average loan-to-value ratio is low compared to other countries.
  - Households’ financial assets far exceed financial liabilities.
  - Loan growth has outstripped deposit growth, increasing reliance on wholesale funding.
  - Banks hold high levels of liquid assets.
  - Slowdown in credit growth associated with cooling housing market expected to put pressure on profits.
- Stress tests (Central Bank):
  - Major lenders have adequate buffers to cover a range of shocks.
  - Even in an extreme scenario with a sharp rise in unemployment and a sharp decline in house prices, capital remains adequate at every bank.
  - Even a very substantial withdrawal of private sector deposits would not exhaust any major lender’s stock of liquid assets.
  - Stress tests incorporate only first-round effects; long period of strong performance limits ability to quantify macro–credit risk relationships.
  - Central Bank is working on extending stress tests to banks’ foreign exposures.

Key banking-system indicators (figures and comparisons preserved as presented):
- Commercial property-related lending, 2006: Ireland about 0.6 (as share of GDP in figure scale).
- Residential mortgage lending, 2006 (excluding securitized mortgages, as share of household disposable income): Ireland about 2.5 (figure scale).
- Average loan-to-value ratio, 2005: Ireland below several peers (figure scale values preserved in source).
- Share of mortgages at variable rates, 2005: Ireland high relative to many peers (figure scale).
- Deposit to Loan Ratio, 2002–2006: downward trend shown in figures.
- Households' Financial Position (assets and liabilities as percent of household disposable income) 2001–2005: assets exceed liabilities in figures.
- Capital Adequacy Ratio, 2006: Ireland around 11 (figure scale).
- Return on Equity, 2005: Ireland around 22 (figure scale).
- Liquid Assets to Total Assets, 2006: Ireland moderate in figure ranking.
- Nonperforming Loans to Total Gross Loans, 2006: Ireland low (figure scale).

Regulatory and supervisory developments:
- New liquidity requirements for credit institutions using a forward-looking mismatch approach came into effect in July 2007.
- Insurance supervision: Financial Regulator recruited experts, trained staff, reorganized with on-site inspection and reinsurance units; focusing on risk management in preparation for Solvency II.
- Implementation of the EU Capital Requirements Directive could lead to declines in regulatory capital, initially limited by capital floors.
- Staff supported Financial Regulator’s prudent approach on risk-weighting of lending to speculative commercial property and residential investment property.
- Subprime mortgage loans are small (less than 2 percent of outstanding mortgage loans); staff supported proposal to make all subprime lenders subject to the consumer protection code.

### Financial development and role in growth
- Ireland characterized by a relatively high degree of arm’s length transactions.
- Staff findings and recommendations (Box 4):
  - Increased corporate borrowing has especially favorable impact on growth of industries reliant on external finance in countries with arm’s length financial systems and greater labor market flexibility.
  - Ireland ranks well in banking sector competition, investor protection, and corporate transparency; challenge is to remain at the forefront of international best practice.
  - Consider policy action to further develop capital markets: stock market, bond market, derivatives markets.
  - Consider whether relatively high stamp duty on securities transactions may be dampening market turnover.

### Labor market flexibility and wage-setting
- Reallocation of workers from residential construction to other sectors depends on labor market flexibility.
- Past tax and benefit reform contributed to a sharp fall in structural unemployment in the 1990s.
- Tax wedge is now one of the lowest among industrial countries.
- Employment Protection Legislation in Ireland is less restrictive than the OECD average but more restrictive than in the United Kingdom or the United States.
- Wage moderation and wage flexibility under social partnership agreement are essential to limit downturn depth and avoid further loss of competitiveness.
- Current wage growth about 5 percent; projected HICP inflation about 2 percent; projected labor productivity growth about 2 percent.
  - Staff suggested increases in global energy prices and mortgage costs should not be allowed to feed into wage growth.
- Public sector pay benchmarking exercise:
  - Wage increases from the exercise could affect private sector wages; authorities and staff agreed any increases should be small.
  - Staff suggested the exercise be transparent, increase focus on recruitment and retention in pay determination, assess more accurately the value to employees of public sector pensions, and put more emphasis on flexibility of work practices.

*From content unit _cr07325 - 12. (IMF staff report material provided).*

### 27.      Economic performance remains impressive, though in recent years growth

### _cr07325 - 27.      Economic performance remains impressive, though in recent years growth

### Economic performance and housing boom
- 2006: real GNP growth was the fastest in the EU15 and the unemployment rate among the lowest in advanced economies.
- Strong fundamentals cited: outward-oriented policies, prudent fiscal policy, low taxes on labor and business income, and labor market flexibility.
- Recent years: growth became increasingly reliant on house building; rapid increases in house prices and a boom in residential construction accompanied by surging credit to property-related sectors, inflationary pressures, and a deteriorating external current account balance.
- Competitiveness: “still broadly appropriate, competitiveness has eroded.” Ireland’s real effective exchange rate is “now close to, but perhaps slightly above, its equilibrium value.”
- Selected 2006 indicators (from staff tables in the source):
  - GNP (annual change): 6.5
  - Unemployment rate (in percent): 4.4
  - Current account (Percent of GDP): -4.4
  - General government balance (in percent of GDP): 0.8
  - House prices (permanent tsb index/ESRI) (end-period): 13.4
  - Annual mortgage credit growth rates (in percent): 24.2

### Outlook and risks
- Monetary context: Rising euro area interest rates have prompted a welcome cooling of the housing market, which will help to rebalance growth, though there is a risk of a sharper slowdown.
- Projection summary: As residential investment winds down and house completions return to a more sustainable level, real GNP growth is projected to slow considerably by 2008; this will dampen inflationary pressures and narrow the current account deficit.
- Downside risks: Risks to growth from the housing market and the global economy are tilted to the downside. If these risks crystallize, growth could slow more sharply, with potentially adverse effects on government revenue and the financial sector.
- Medium term: “strong fundamentals are expected to drive robust growth.”

### Fiscal policy guidance
- Recent performance: Fiscal performance in 2006 was very strong.
- Near-term concern: The fiscal stimulus in 2007 is viewed as unfortunate given inflationary pressures and the widening current account deficit.
- Policy recommendations:
  - Allow fiscal stabilizers “ample room to operate fully.”
  - Avoid discretionary measures that weaken the underlying fiscal position.
  - Preserve a strong underlying fiscal position by restraining current spending increases to nominal GDP growth and avoiding tax cuts.
  - Over the medium term, focus on improving the quality of spending and modernizing property-related taxes.
- Projection-related notes (from staff tables):
  - Current revenue (2007, percent of GDP): 34.9
  - Current expenditure (2007, percent of GDP): 29.6
  - General government balance (2007, percent of GDP): 0.8
  - Structural government balance (as a percent of potential GDP) (2007): 0.7

### Long-term demographics and pensions
- Demographic shift: Ireland’s current demographic sweet spot is already passing.
- Authorities’ actions: Coverage of long-term fiscal issues in the budget and efforts to improve public understanding are welcomed.
- Policy options to consider:
  - Review the state pensionable age in line with rising life expectancy.
  - Review contributions to the National Pensions Reserve Fund.
  - Encourage higher private saving for retirement and better long-term pension planning.

### Financial sector soundness and supervision
- Main challenge: Maintain the soundness of the financial system given large bank exposures to the property market.
- Stress tests: Stress tests suggest that cushions are adequate to cover a range of shocks.
- Regulatory approach: The Financial Regulator’s general approach—prioritizing supervisory resources across sectors based on risk profile—is appropriate.
- Recent supervisory improvements:
  - Introduction of a new liquidity management framework for banks.
  - Improvement in the capacity for insurance supervision.
  - Envisaged upgrading of the stress-testing framework and continued commitment to improve supervision.
- Ongoing needs: Continued careful monitoring of banks’ risk management practices, including commercial property lending.
- Selected financial-sector figures (from staff tables):
  - Annual credit growth rates (to private sector, in percent): 28.8 (2006)
  - Commercial property lending as a percent of total loans (excluding financial intermediation): 31.2 (most recent value shown)
  - Non-performing loans (in percent of total loans): 0.7 (2006)
  - Total provisions for loan losses (in percent of total loans): 0.5 (2006)
  - Risk-weighted capital/asset ratios of domestic banks (in percent): 10.9 (2006)

### Labor market and wages
- Policy emphasis: Wage moderation and labor market flexibility are essential to minimizing the expected rise in unemployment and seizing new growth opportunities.
- Social dialogue: Both the implementation of the current social partnership agreement and the forthcoming public sector pay benchmarking exercise should avoid adding to wage pressures.
- Selected labor-market figures (from staff tables):
  - Average wages, all economy (annual change): 4.8 (2006)
  - Employment (annual change): 4.4 (2006)
  - GNP/employment (annual change): 1.9 (2006)

*Source: IMF staff report excerpts and tables provided in the content unit.*

### Appendix II. Ireland: Sustainability Exercise

### Appendix II. Ireland: Sustainability Exercise

### Fiscal Sustainability
- General government net debt (defined as gross debt minus the assets of the National Pensions Reserve Fund and the Social Insurance Fund) is low.
- Under the baseline scenario, net debt declines from 12 percent of GDP in 2006 to 6 percent of GDP by 2012 as the primary balance is projected to remain in surplus and GDP growth is expected to exceed the average real interest rate throughout this period.
- The medium-term fiscal position is resilient to a variety of shocks; the worst outcome reported is a rise in the debt ratio to 16 percent in 2012 under a negative shock to real GDP growth.
- In the long run, projected increases in age-related spending will put pressure on public finances and substantial adjustment would be required to prevent debt from rising sharply.

### External Sustainability
- External sustainability does not appear to be an issue in Ireland.
- Net international investment position is in a moderate deficit against a backdrop of very large FDI flows over the past decade.
- Ireland’s role as an international financial center implies large gross external assets and liabilities: in 2005 gross external assets amounted to about 1,000 percent of GDP, compared to about 400 percent of GDP in the United Kingdom and 100 percent of GDP in the United States.
- Large gross positions generate significant volatility in components of the net external position. Over 1998–2005, the standard deviation of:
  - the net foreign direct investment position was 26 percentage points of GDP,
  - the net portfolio investment position was 22 percentage points of GDP,
  - the net other investment position was 31 percentage points of GDP.
- Changes in the net international investment position are dominated by factors other than the current account deficit.
- The composition of the external position implies a large negative net income flow in the current account, driven by the large stock of inward foreign direct investment, which earned a high rate of return (about 20 percent on average during 2000–05).
- The 2006 FSAP Update noted that the large gross assets and liabilities in portfolio and other investments associated with Ireland’s international financial center role do not appear to pose a systemic risk to the domestic financial system.

### Public Debt Sustainability: Baseline Projections and Bound Tests
- Baseline public sector debt (percent of GDP):
  - 2002: 25.1
  - 2003: 22.7
  - 2004: 19.9
  - 2005: 15.9
  - 2006: 12.2
  - 2007: 10.3
  - 2008: 9.1
  - 2009: 8.1
  - 2010: 7.3
  - 2011: 6.6
  - 2012: 5.9
- Change in public sector debt (year-on-year, percent of GDP): -2.1, -2.4, -2.8, -4.0, -3.8, -1.9, -1.2, -1.0, -0.8, -0.7, -0.7 (2002–2012).
- Identified debt-creating flows (4+7+12) (percent of GDP): -2.4, -1.9, -2.7, -2.6, -4.1, -1.8, -1.0, -0.7, -0.5, -0.5, -0.4 (2002–2012).
- Primary deficit (percent of GDP): -0.6, -1.1, -2.1, -1.6, -3.4, -1.3, -0.8, -0.6, -0.4, -0.3, -0.2 (2002–2012).
- Revenue and grants (percent of GDP): 32.4, 32.9, 34.4, 34.6, 36.4, 35.9, 35.3, 35.1, 34.9, 34.9, 34.9 (2002–2012).
- Primary (noninterest) expenditure (percent of GDP): 31.7, 31.8, 32.3, 32.9, 33.0, 34.6, 34.5, 34.5, 34.6, 34.6, 34.6 (2002–2012).
- Automatic debt dynamics contribution (percent of GDP): -1.8, -0.8, -0.7, -1.0, -0.7, -0.5, -0.2, -0.2, -0.2, -0.2, -0.1 (2002–2012).
  - Contribution from interest rate/growth differential (percent of GDP): -1.8, -0.8, -0.7, -1.0, -0.7, -0.5, -0.2, -0.2, -0.2, -0.2, -0.1 (2002–2012).
  - Of which contribution from real interest rate: -0.2, 0.2, 0.2, 0.1, 0.1, 0.1, 0.2, 0.2, 0.1, 0.1, 0.1 (2002–2012).
  - Of which contribution from real GDP growth: -1.6, -1.0, -0.9, -1.1, -0.8, -0.5, -0.3, -0.3, -0.3, -0.3, -0.2 (2002–2012).
- Residual, including asset changes (percent of GDP): 0.3, -0.5, -0.1, -1.4, 0.3, -0.1, -0.2, -0.2, -0.2, -0.3, -0.3 (2002–2012).
- Public sector debt-to-revenue ratio: 77.5, 69.1, 57.9, 46.0, 33.4, 28.6, 25.8, 23.2, 21.0, 18.9, 17.0 (2002–2012).
- Gross financing need under baseline (right scale, percent of GDP): 0.3, -0.2, -1.4, -1.0, -2.9, -0.8, -0.4, -0.2, -0.1, 0.0, 0.0 (2002–2012).
- Scenario highlights:
  - Scenario with key variables at their historical averages 7/: 7.9, 4.0, 0.2, -3.3, -6.6, -9.7 (sequence presented in source).
  - Scenario with no policy change (constant primary balance) in 2005-2010: 8.2, 4.5, 0.8, -2.8, -6.4, -10.0 (sequence presented in source).
- Bound tests and shock experiments illustrated in Figure A1 include:
  - Individual permanent one-half standard deviation shocks to growth, primary balance, and interest rate.
  - Combined shock (permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance).
  - One-time 10 percent of GDP shock to contingent liabilities.
  - Real depreciation and contingent liabilities shocks; gross financing need under baseline reported on right scale.

### Key Macroeconomic and Fiscal Assumptions Underlying Baseline
- Real GDP growth (in percent): 6.4, 4.3, 4.3, 5.9, 5.7, 4.8, 3.5, 3.8, 3.7, 4.0, 4.0 (2002–2012).
- Average nominal interest rate on public debt (in percent): 4.1, 3.7, 3.4, 3.3, 3.3, 4.0, 4.1, 4.1, 4.2, 4.2, 4.2 (2002–2012).
- Average real interest rate (nominal rate minus change in GDP deflator, in percent): -0.5, 1.1, 1.2, 0.6, 1.0, 0.7, 1.7, 2.1, 1.7, 1.8, 1.9 (2002–2012).
- Inflation rate (GDP deflator, in percent): 4.6, 2.6, 2.2, 2.7, 2.3, 3.3, 2.3, 2.1, 2.5, 2.4, 2.3 (2002–2012).
- Growth of real primary spending (deflated by GDP deflator, in percent): 7.3, 4.6, 5.9, 8.1, 6.0, 9.8, 3.1, 4.0, 3.8, 4.1, 4.1 (2002–2012).
- Primary deficit (repeated for emphasis): -0.6, -1.1, -2.1, -1.6, -3.4, -1.3, -0.8, -0.6, -0.4, -0.3, -0.2 (2002–2012).

### Analysis and Policy Implications (as presented in the source)
- Short- to medium-term fiscal outlook: resilient under a variety of shocks, supported by persistent primary surpluses and favorable interest-growth differentials in the baseline.
- Vulnerabilities:
  - Exposure to negative real GDP growth shocks can raise the debt ratio materially (example worst case: 16 percent of GDP in 2012).
  - Large gross external positions produce volatility in net positions and net income flows; heavy inward FDI generates a large negative net income flow due to high returns on foreign-owned capital.
  - Long-run fiscal pressure from projected increases in age-related spending requires substantial adjustment to prevent a sharp rise in debt.
- Suggested focus for policy (implicit in the analysis):
  - Maintain primary surpluses and prudent fiscal management to sustain low net debt levels.
  - Prepare for long-run demographic pressures through structural fiscal measures to contain age-related spending.
  - Monitor external position volatility associated with large gross external assets and liabilities, though 2006 FSAP Update found these do not appear to pose systemic risk to the domestic financial system.

*Source: Appendix II. Ireland: Sustainability Exercise (IMF staff estimates and country desk data, as presented in the source PDF).*

### 3. Nonetheless, assuming that global financial market conditions stabilize in the coming

### _cr07325 - 3. Nonetheless, assuming that global financial market conditions stabilize in the coming

### Financial market turbulence and banking-sector exposure
- "Nonetheless, assuming that global financial market conditions stabilize in the coming months, the adverse effect of the recent turbulence on Ireland’s economic prospects should be modest."
- "Irish financial institutions have zero to moderate exposure to U.S. subprime mortgages."
- "Where the exposure is moderate, it is small compared to capital or operating profit."
- "The fall in Irish banks’ stock prices and the widening of their credit spreads have been of about the same magnitudes as those of other major European banks."

### National accounts and growth indicators (selected series as reported)
- "GNP4.02.95.73.74.96.54.22.7"
- "GDP5.96.44.34.35.95.74.73.0"
- "Domestic demand4.14.53.93.88.05.74.61.4"
- "Private consumption5.44.23.04.17.35.76.93.5"
- "Public consumption9.97.01.21.54.05.35.53.5"
- "Gross fixed investment0.43.35.56.911.83.10.9-3.3"
- "Net exports (contribution to GDP growth)2.02.41.60.3-1.00.60.81.7"
- "Exports of goods and services7.14.40.55.94.33.64.53.6"
- "Imports of goods and services5.11.9-1.15.65.33.03.71.8"
- "Gross national saving (in percent of GDP)22.521.323.623.422.723.621.921.1"
- "Private16.217.520.618.918.916.619.019.5"
- "Public6.23.83.04.53.87.02.91.6"

### Prices, wages, employment, and credit (selected)
- "Harmonized Index of Consumer Prices (annual average)4.04.74.02.32.22.72.72.1"
- "Average wages, all economy8.95.95.05.95.04.73.93.1"
- "Unemployment rate (in percent)3.94.44.64.44.44.44.75.5"
- "M3  2/17.29.3-21.422.519.830.840.2..."
- "Private sector credit 2/ 3/15.115.017.926.628.825.920.9..."
- "Three-month treasury bill 2/3.32.92.12.22.53.74.1..."
- "10-year government bond 4/5.14.34.63.73.34.04.6..."
- "ISEQ index 4/-5.7-18.812.226.816.827.823.8..."
- "House prices (permanent tsb index/ESRI) 2/14.06.114.311.57.213.42.6..."
- "General government balance0.8-0.30.21.41.02.90.80.2"
- "General government debt  35.432.131.029.427.325.023.723.6"

### External sector and balance of payments (selected figures and projections)
- "Current account balance-0.9-5.7-7.3-8.3-6.6-6.4-5.9-5.8-6.1"
- "Balance of goods and services21.218.918.020.424.326.428.530.332.0"
- "Trade balance31.428.225.427.730.732.033.134.034.9"
- "Exports of goods80.582.783.490.496.098.9102.1105.7109.6"
- "Imports of goods-49.1-54.5-58.0-62.7-65.3-66.9-69.0-71.7-74.7"
- "Income balance-22.5-24.9-24.8-27.6-29.5-31.2-32.7-34.3-36.2"
- "Current account balance-0.6-3.5-4.2-4.4-3.3-3.0-2.6-2.4-2.4"
- "Gross External Debt520.2648.9696.0.................."
- "Net international investment position-19.4-27.5....................."

### Contributions to GDP growth and projections (selected)
- "Domestic demand3.26.95.04.11.32.62.83.23.2"
- "Private consumption1.93.42.73.31.71.81.92.02.0"
- "Fixed investment1.72.90.80.2-0.80.30.50.80.8"
- "GDP (annual percent change)4.35.95.74.73.03.83.74.04.0"
- "GNP (annual percent change)3.74.96.54.22.73.94.04.24.2"

### General government finances (selected fiscal indicators and staff projections)
- "Current balance4.84.86.95.34.64.5"
- "Current revenue, of which:33.233.635.535.034.234.2"
- "Tax revenue (including taxes on capital)25.425.927.527.026.326.3"
- "Current expenditure, of which:28.428.828.629.629.729.7"
- "General government balance1.41.02.90.80.20.1"
- "Primary balance2.42.03.91.81.21.1"
- "Structural (as a percent of potential GDP) Government balance (including one-off factors)1.51.02.70.70.50.2"
- "General government gross debt (as percent of GDP)29.427.325.023.723.623.4"
- "General government net debt (as percent of GDP) 2/19.915.912.210.39.48.5"
- "Growth in nominal GDP 6.58.88.28.25.35.9"

### Indicators of external and financial vulnerability (selected)
- "Exports (annual percent change, value in Euros) 10.79.910.814.217.16.76.6"
- "Imports  (annual percent change, value in Euros) 13.27.67.013.119.110.38.4"
- "Current account balance (in percent of GDP)-0.4-0.6-1.00.0-0.6-3.5-4.2"
- "Inward portfolio investment80.284.957.775.1100.6107.4114.2"
- "Inward foreign direct investment26.79.223.914.5-5.8-15.8-0.4"
- "U.S. dollar per euro (period average)0.920.900.941.131.241.251.26"
- "Variable mortgage interest rate (in percent)6.04.64.23.53.53.64.8"
- "Annual credit growth rates (to private sector, in percent)21.315.115.017.926.628.825.9"
- "Annual mortgage credit growth rates (in percent)24.317.823.125.526.527.124.2"
- "Commercial property lending as a percent of total loans (excluding financial intermediation) 2/ 15.016.417.019.721.225.331.2"
- "Non-performing loans (in percent of  total loans) 4/1.031.030.970.930.820.680.71"
- "Total provisions for loan losses (in percent of total loans)1.11.11.10.90.70.50.4"
- "Risk-weighted capital/asset ratios of domestic banks (in percent)10.710.612.313.912.612.010.9"

### IMF Public Information Notice (PIN) summary highlights — Article IV consultation (September 14, 2007; PIN No.117, September 24, 2007)
- "Economic performance remains very strong, supported by sound policies."
- "The growth rate of real GNP per capita continues to be one of the highest among advanced economies and the unemployment rate one of the lowest."
- "In recent years, economic growth became more reliant on house building and competitiveness eroded."
- "Rapidly rising house prices were accompanied by surging bank credit to property-related sectors, strong wage growth and inflation measured by the Harmonized Index of Consumer Prices (HICP) above the euro area average, and a deterioration in the current account balance."
- "The rise in euro area interest rates since late 2005 has prompted a significant fall in the growth of residential investment and declines in house prices in recent months."
- "Following a decade of close-to-balance-or-surplus fiscal positions, the general government surplus rose to almost 3 percent of GDP in 2006 and net debt fell to 12 percent of GDP."
- "To prepare for the projected rise in age-related spending over the long term, the government is setting aside every year 1 percent of GNP in a National Pensions Reserve Fund."

*Source: IMF staff report excerpts and Public Information Notice (PIN) No.117 as provided in the supplied content.*

### conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of

### conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of

### Macroeconomic performance and risks
- Ireland exhibits "continued impressive economic performance," including "one of the highest growth rates of GNP per capita among advanced countries" and "one of the lowest unemployment rates."
- Performance underpinned by "outward-oriented policies, prudent fiscal policy, low taxes, and labor market flexibility."
- Directors expected economic growth to "remain robust over the medium term" given strong fundamentals and policy commitment.
- Downside risks highlighted:
  - "Inflationary pressures in the context of an economy that is operating at or above full capacity."
  - "Declining competitiveness and a widening current account deficit."
  - "A deterioration in global financial market conditions and the growth outlook of the United States."
  - "The adjustment to a cooling of the housing market" and the potential for a "sharper correction in house prices" that "could significantly slow economic growth."
- Housing sector and credit dynamics:
  - "Rapid house price increases and a boom in residential construction have been an important driver of growth and bank lending."
  - "The slowdown of the housing sector has been gradual so far, and will help to rebalance growth and contain inflationary pressures."

### Fiscal policy assessment and recommendations
- Directors "commended Ireland’s sustained strong fiscal performance, and the authorities’ firm commitment to fiscal discipline over the medium term."
- Concerns:
  - "Many Directors... saw the planned reduction in the fiscal surplus in 2007 as an undesirable pro-cyclical fiscal stimulus," while recognizing needs for increased infrastructure and social spending.
- Recommendations:
  - "Cautioned against discretionary measures that would weaken the underlying fiscal position" for 2008.
  - "Encouraged the authorities to restrain current expenditure growth."
  - "Continue to focus on improving the quality of public spending through cost-benefit analysis."
  - Welcomed "the decision to establish a Commission to review the tax system."
- Long-term fiscal challenge:
  - "Projected increase in age-related spending" identified as "the most important fiscal challenge."
  - Directors noted Ireland "is well-placed to meet this challenge" and welcomed "the forthcoming Green Paper on Pension Policy."
  - Preferred policy mix: "a combination of measures" rather than "increasing social security contribution rates" alone.
  - Specific options with merit: "reviewing the state pensionable age and the level of contributions to the National Pensions Reserve Fund, and strengthening incentives for private savings."
  - Supported "the authorities’ commitment to improve public understanding of fiscal challenges."

### Financial sector and banking system
- Overall assessment: "The banking system continues to perform well" — "well-capitalized, profitable, and liquid, and nonperforming loans are low."
- Vulnerabilities and exposures:
  - "Rapid credit growth has led to vulnerabilities."
  - "Bank lending to construction and real estate firms amounts to 47 percent of GDP."
  - "Most lending to households is at variable rates and household debt amounts to 160 percent of household disposable income."
  - "Loan growth has outstripped deposit growth, so banks have become more reliant on wholesale funding."
- Directors' view and recommendations:
  - Welcomed stress-test results showing "cushions are adequate to cover a range of shocks even in the face of large exposures to the property market."
  - Emphasized that "financial sector vulnerabilities, including those arising from high household indebtedness and rising interest rates, require continued supervisory vigilance."
  - Commended progress on "implementing the recommendations of the 2006 Financial Sector Assessment Program update."
  - Called for "continued careful monitoring of banks’ risk management practices, including those pertaining to commercial property lending."
  - Supported "the envisaged upgrading of the stress-testing framework and the commitment to continue to improve supervision."

### External competitiveness and labor market
- Priority: "Preserving and enhancing Ireland’s external competitiveness will be key to underpinning future growth prospects."
- Wage guidance:
  - "Wages should continue to grow in line with productivity."
  - "Increases in global energy prices and mortgage costs should not be allowed to feed into wage growth."
- Policy suggestions:
  - Recommended that the "implementation of the current social partnership agreement and the forthcoming public sector pay benchmarking exercise avoid adding to wage pressures."
  - Underlined "the importance of labor market flexibility in facilitating adjustment to the cooling housing market."

### Selected economic indicators (as reported)
- Real Economy (change in percent):
  - Real GDP: 2002: 6.4; 2003: 4.3; 2004: 4.3; 2005: 5.9; 2006: 5.7; 2007 1/: 4.7
  - Real GNP: 2002: 2.9; 2003: 5.7; 2004: 3.7; 2005: 4.9; 2006: 6.5; 2007 1/: 4.2
  - Domestic demand: 2002: 4.5; 2003: 3.9; 2004: 3.8; 2005: 8.0; 2006: 5.7; 2007 1/: 4.6
  - Exports of goods and services: 2002: 5.2; 2003: 0.6; 2004: 7.3; 2005: 5.2; 2006: 4.4; 2007 1/: 5.6
  - Imports of goods and services: 2002: 2.6; 2003: -1.6; 2004: 8.5; 2005: 7.7; 2006: 4.4; 2007 1/: 5.4
  - HICP: 2002: 4.7; 2003: 4.0; 2004: 2.3; 2005: 2.2; 2006: 2.7; 2007 1/: 2.7
  - Unemployment rate (in percent): 2002: 4.4; 2003: 4.6; 2004: 4.4; 2005: 4.4; 2006: 4.4; 2007 1/: 4.7
- Public Finances (percent of GDP):
  - General government balance: 2002: -0.3; 2003: 0.2; 2004: 1.4; 2005: 1.0; 2006: 2.9; 2007 1/: 0.8
  - Structural balance 2/: 2002: -0.6; 2003: 0.2; 2004: 1.5; 2005: 1.0; 2006: 2.7; 2007 1/: 0.7
  - General government debt: 2002: 32.1; 2003: 31.0; 2004: 29.4; 2005: 27.3; 2006: 25.0; 2007 1/: 23.7
- Money and Credit (end-period, percent change):
  - M3 3/: 2004: 9.3; 2005: -21.4; 2006: 22.5; 2007 5/: 19.8; 2007 5/: 30.8; 2007 5/: 40.2
  - Private sector credit 4/: 2002: 15.0; 2003: 17.9; 2004: 26.6; 2005: 28.8; 2006: 25.9; 2007 5/: 20.9
- Interest rates (end-period):
  - Three-month: 2002: 2.9; 2003: 2.1; 2004: 2.2; 2005: 2.5; 2006: 3.7; 2007 5/: 4.1
  - 10-year government bond yield 6/: 2002: 4.3; 2003: 4.6; 2004: 3.7; 2005: 3.3; 2006: 4.0; 2007 6/: 4.6
- Balance of Payments (percent of GDP):
  - Trade balance (goods and services): 2004: 16.6; 2005: 15.4; 2006: 14.3; 2005: 11.7; 2006: 10.3; 2007 1/: 10.8
  - Current account: 2002: -1.0; 2003: 0.0; 2004: -0.6; 2005: -3.5; 2006: -4.2; 2007 1/: -4.4
  - Reserves (in billions of Euros): 2002: 5.2; 2003: 3.3; 2004: 2.1; 2005: 0.7; 2006: 0.7; 2007 1/: ...
- Exchange rate:
  - Exchange rate regime: "Member of euro area"
  - Euros per US dollar: 2002: 1.1; 2003: 0.9; 2004: 0.8; 2005: 0.8; 2006: 0.8; 2007 1/: ...
  - Nominal effective rate (1999Q1=100): 2002: 93.6; 2003: 101.9; 2004: 104.5; 2005: 104.1; 2006: 104.4; 2007 1/: ...
  - Real effective rate (1999Q1=100, CPI based): 2002: 101.3; 2003: 112.6; 2004: 115.8; 2005: 115.4; 2006: 116.0; 2007 1/: ...
- Notes from table:
  - "Sources: Central Statistics Office; Department of Finance, Datastream and IMF International Financial Statistics."
  - "1/ Staff projections, except where noted."
  - "2/ In percent of potential GDP."
  - "3/ The methodology used to compile M3 has been amended in line with Eurosystem requirements. Therefore, there is a break in the series."
  - "4/ Adjusted change, which includes the effects of transactions between credit institutions and non-bank international financial companies and valuation effects arising from exchange rate movements."
  - "5/ As of May 2007."
  - "6/ As of June 2007."

*International Monetary Fund, Executive Board summary as transmitted to the country's authorities.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07325.pdf_