Press Release: Statement by the EC, ECB, and IMF on the Review Mission to Ireland

IMF News, October 20, 2011

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Published: October 20, 2011

Mission summary and next steps

Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Dublin during October 11–20 for the regular quarterly review of the government’s economic programme.
Policy discussions have been concluded with the exception of the specific fiscal measures to be included in Budget 2012, which are being determined by the Government and will be assessed by the three institutions in the coming weeks.
Following these decisions, the EC and IMF missions will seek approval for the completion of this review from the European Council and the IMF Executive Board respectively.
The mission for the next program review is scheduled for January 2012.

Programme implementation and fiscal policy

Programme implementation continues to be strong.
The fiscal deficit limit of 10.6 percent of GDP in 2011 is expected to be met.
The authorities are firmly committed to fiscal consolidation to put the country’s debt on a downward path, by bringing the general government deficit to below 3 percent of GDP by 2015.
The forthcoming 2012 Budget will implement sufficient consolidation to safely limit next year’s deficit to no more than 8.6 percent of GDP, striking a balance between debt reduction imperatives and limiting the drag on growth and job creation.
The authorities intend to update the medium-term fiscal consolidation plan in the coming weeks, with the supporting measures to be provided with the 2012 Budget.
These measures will be guided by the authorities’ Comprehensive Review of Expenditure, enabling savings to be made in a targeted manner rather than through across-the-board cuts.
The establishment of the Irish Fiscal Advisory Council and the release of its first fiscal assessment report are welcomed.

Growth outlook and risks

Economic growth in the first half of 2011 was higher than expected, indicating a welcome sign of Ireland’s strengthened competitiveness.
However, the slowdown in key trading partners is likely to cool Ireland’s export growth.
Domestic demand is expected to contract slightly faster than was projected at the time of the previous review.
Together, these factors will dampen the economic recovery with real GDP growth expected to be about 1 percent in both 2011 and 2012.

Financial sector reforms and banking sector status

The key initial phase of the comprehensive financial sector reforms launched in March has been implemented.
Recapitalization of the banking sector has been completed at a lower than expected cost to the budget, benefiting from private investor participation and burden-sharing with the holders of subordinated bank debt.
Deleveraging of the banking sector is progressing as planned, despite challenging conditions.
Banks have secured term funding reflecting improved confidence.
Further progress in these areas is needed to allow banks to fulfill their essential role in the economy.

Structural reforms and labor market policies

Authorities are implementing structural reforms to support job creation and growth.
To help reduce unemployment:
- Sectoral wage agreements are being prepared.
- Activation and training policies are being strengthened.
Legislative changes are being introduced to enhance competition in the medical, legal and pharmacy sectors with the view to lowering costs.

Programme financing, disbursements, and objectives

The objectives of Ireland’s EU-IMF supported programme are:
- to address financial sector weaknesses,
- to put Ireland’s economy on the path of sustainable growth, sound public finances, and job creation,
- while protecting the poor and most vulnerable.
The programme includes:
- loans from the European Union and EU member states amounting to €45.0 billion,
- a €22.5 billion Extended Fund Facility with the IMF,
- Ireland’s contribution of €17.5 billion.
Approval of the conclusion of this review will allow the disbursement of €3.8 billion by the IMF and €4.2 billion by the EU.

Press Release No. 11/374, October 20, 2011 — Statement by the European Commission, European Central Bank, and International Monetary Fund on the Review Mission to Ireland