Ireland: Ex Post Evaluation of Exceptional Access Under the 2010 Extended Arrangement
IMF Staff Country Reports, January 29, 2015
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Bibliographic details
- Published: January 29, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781498359733.002
Program overview and objectives
- The Fund approved in December 2010 an exceptional access EFF arrangement for SDR 19.466 billion (2,321.8 percent of quota).
- Arrangement supported Ireland’s home-grown program and formed part of a broader financing package with Ireland’s European partners.
- Program focused on addressing the Irish banking crisis to break the adverse feedback loop between banks, the sovereign, and the real sector.
- Key aims:
- Restore the banking system to health, including by establishing a smaller banking sector with high capital buffers and more stable funding sources.
- Secure fiscal sustainability while limiting the near-term demand drag from fiscal consolidation.
- Large external financing was a key element of the crisis response.
Implementation and outcomes
- Program implementation was very strong.
- Outcomes achieved:
- Stabilized the banking sector and reduced its size.
- Fiscal developments were broadly as anticipated.
- Regained market access at low interest rates, with program success also benefiting from actions at the wider euro area level.
- Areas where outcomes diverged from program projections:
- Domestic demand was weaker than programmed.
- Unemployment remained high amid a very challenging external environment.
Lessons — what worked well
- Strong country ownership was critical.
- Setting (and meeting) realistic and tailored targets mattered for success.
- Effective communication and pro-active engagement supported program implementation.
- Addressing a banking crisis requires strong and credible actions upfront.
Lessons for future program design
- While the main pillars of the financial sector program were sound, the evaluation highlights several areas for stronger design and implementation:
- More proactive and stronger supervisory interventions and other supportive steps could have strengthened banks’ balance sheets and bank profitability and helped resolve problem loans.
- Bank recapitalization should be limited to those with viable medium-term business strategies.
- Unsecured and non-guaranteed creditors of failed banks should be bailed in, provided a strategy to ring fence potential systemic risks can be put in place.
- Macro-financial linkages require careful attention and timely steps to limit sovereign–banking sector feedback loops.
- Fiscal policy must be mindful of debt sustainability but also of domestic demand conditions, and it needs a clear anchor.
Lessons related to Fund policies
- Ireland’s EFF underscores the importance of addressing shortcomings of the systemic exemption clause in Criterion 2 of the exceptional access criteria.
- The case suggests the need to explore ways to secure stronger upfront commitments from monetary union authorities when those commitments are critical for program success.
International Monetary Fund. "Ireland: Ex Post Evaluation of Exceptional Access Under the 2010 Extended Arrangement", IMF Staff Country Reports 2015, 020 (2015).