Press Release: IMF Executive Board Approves €22.5 Billion Extended Arrangement for Ireland

IMF News, December 16, 2010

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Canonical URL: Press Release: IMF Executive Board Approves €22.5 Billion Extended Arrangement for Ireland

The Executive Board approved a three-year Extended Fund Facility (EFF) arrangement for Ireland to support the authorities’ economic adjustment and financial stabilization program.
The Fund arrangement amounts to SDR 19.5 billion (about €22.5 billion; or US$30.1 billion), or the equivalent of about 2,322 percent of Ireland’s IMF quota.
The arrangement is part of a total financing package amounting to €85 billion (about US$113 billion) from European partners and Ireland’s own contributions.
The EFF approval was granted under the Fund's exceptional access policy and fast-track Emergency Financing Mechanism procedures; SDR 5 billion (about €5.8 billion) is immediately available to Ireland from the IMF.

Total financing package: €85 billion (about US$113 billion).
European lenders (EFSM, EFSF and bilateral European lenders) will provide: €45 billion (about US$60 billion) on similar maturities as the IMF’s EFF.
Ireland’s own contribution from cash reserves and liquid assets: €17.5 billion.
IMF contribution: SDR 19.5 billion (about €22.5 billion; or US$30.1 billion), representing about 2,322 percent of quota.
Immediate IMF disbursement following Executive Board action: SDR 5 billion (about €5.8 billion).

Main objectives:
- Restore Ireland’s banking system to health.
- Put public finances on a sound footing.
- Reclaim strong, sustained growth and job creation.
Program priorities:
- Fundamental restructuring of the banking sector, entailing extensive deleveraging and reorganization and higher capital adequacy standards.
- The National Recovery Plan as the basis for the 2011 budget and fiscal consolidation through 2014.
- Address structural impediments to competitiveness and the business environment to support growth.
- Institutional reforms: a special resolution regime for banks, stronger supervision, and enhanced budgetary oversight.
- Large external financial assistance to manage transition and reestablish policy credibility.

Core challenge: a critically-weakened banking sector that has yet to be restored to health and stands at the center of a negative dynamic impeding recovery and creating fiscal challenges.
Measures already taken:
- National Asset Management Agency taking over banks’ land and property development assets.
- Substantial capital injections and sovereign guarantees to reassure creditors.
Remaining vulnerabilities:
- Market pressures on large rollover needs threatening banking system solvency and placing severe burden on sovereign finances.
- Fall in domestic consumer and international investor confidence, with adverse implications for growth and the cost of funding.
Fiscal situation:
- Public finances weighed down by a deep structural deficit, commitments to bank support, and weak growth.
- Public debt projected to end up close to 100 percent of GDP by end-2010.
- Authorities’ fiscal consolidation plan includes another €15 billion in consolidation measures over 2011–14, equivalent to 9 percent of GDP.

Banking sector strategy:
- Downsize and fundamentally restructure the banking sector to emerge smaller, more robust, and better-capitalized.
- Maintain higher capital adequacy standards to minimize market perceptions of weakness and improve access to funding.
- Special resolution scheme for deposit-taking institutions and further strengthening of supervisory system.
Fiscal and institutional strategy:
- National Recovery Plan to guide fiscal consolidation and protect social safety nets.
- Reform budget formation processes to safeguard fiscal gains.
- Institutional reform to improve shock-absorbing capacity of the economy.
Growth and structural reforms:
- Remove structural impediments to enhance competitiveness and create employment opportunities.
- Further reforms to improve the economy’s efficiency and growth potential.

Stability generated by reforms, improved competitiveness, and increased credit flows is expected to underpin a return of confidence and improved employment and growth prospects.
The EFF is designed to ensure a realistic repayment schedule consistent with the time needed for an orderly banking overhaul and broader structural reforms.

Dominique Strauss-Kahn: “The Irish authorities have designed an ambitious policy package to address the economic crisis facing the nation. It is a multi-year program targeting vulnerabilities in the banking system and aiming to restore prospects for growth—without which there can be no enduring solution to the crisis. The authorities designed a program with fairness in mind so that the burden of economic and financial adjustment is shared across all levels of society, with the most vulnerable groups the most protected.”
On the financing package and repayment: “A financing package of €85 billion (about US$113 billion) will support the comprehensive set of policies. Of this, the European Union and bilateral European lenders have pledged a total of €45 billion (about US$60 billion). The Irish authorities are to contribute €17.5 billion from the nation’s cash reserves and other liquid assets. The IMF contribution would be through a three-year SDR 19.5 billion (about €22.5 billion; or US$30.1 billion) loan, representing about 2,322 percent of quota, under the Extended Fund Facility (EFF). The EFF ensures a realistic repayment schedule, given the time needed to complete an orderly overhaul of the banking system and broader structural reforms”.