## IMF Survey: IMF Approves €22.5 Billion Loan For Ireland

_IMF News, December 16, 2010_

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## Bibliographic details
- Published: December 16, 2010

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### Overview
- The IMF’s Executive Board approved December 16 a three-year lending arrangement for Ireland, totaling €22.5 billion.
- The loan is part of an international rescue package totaling €85 billion that also involves the European Union, European bilateral lenders, and financing from Ireland’s own cash reserves.
- Continued liquidity support for Ireland’s banks from the European Central Bank is an essential component of the program.
- A preliminary agreement with the European Union and the IMF was announced November 28.
- The IMF loan is provided under the Extended Fund Facility (EFF).

### Program objectives and design
- Main goal: restore confidence and financial stability.
- Package components:
  - Fundamentally restructure Ireland’s banking system.
  - Safeguard public finances through a fiscal package.
  - Implement reforms to restore the long-term growth potential of Ireland’s economy.
- Quote: “The Irish authorities have designed an ambitious package to address the economic crisis facing the nation,” IMF Managing Director Dominique Strauss-Kahn said.

### Repairing the banking system
- Root causes and vulnerabilities:
  - Banks heavily exposed to the Irish property market after massive lending during the boom years.
  - Housing prices fell 36 percent since the peak in 2008.
  - At the height of the boom, the assets of domestic banks amounted to five times Ireland’s gross domestic product.
  - Real estate loans made up close to 30 percent of all loans in 2006.
- Consequences:
  - Loss of deposits and market funding.
  - Overreliance on financing from the European Central Bank.
- Restructuring and recapitalization objectives:
  - Identify viable banks and return them to health through downsizing and reorganization.
  - Recapitalize banks and encourage reliance on deposit inflows and market-based funding.
  - Strengthen bank supervision and introduce a comprehensive bank resolution framework.
- Financial backstop:
  - Joint financing will provide funds necessary for recapitalization.
  - The government will have a notional buffer of about €35 billion to support the banking system, although the actual amount needed is expected to be less.

### Restoring the health of public finances
- Fiscal consolidation context:
  - The Irish government’s National Recovery Plan aims for savings worth €15 billion―amounting to 9 percent of GDP―over the period 2011-14.
  - Savings worth €6 billion are planned for 2011 alone.
- Policy mix:
  - Two-thirds of the savings will be achieved by reducing public expenditure.
  - Measures include reducing the size of the public sector and cutting universal social welfare benefits, designed to be socially fair and to protect the most vulnerable groups.
  - Revenue measures include broadening the tax base and increasing tax rates.
  - Current tax incidence: 45 percent of Irish households have not paid income taxes until now.
  - Reforms will increase the number of taxpayers and make income tax more progressive, for instance by reducing tax relief for private pensions.
- Debt outlook:
  - Public debt will remain high for the next few years but is projected to decline thereafter.

### Raising the economy’s potential and labor market
- Growth prospects:
  - After a sharp contraction in 2008-09 amounting to 11 percent of GDP, Ireland’s economy is expected to stabilize in 2010, with moderate growth resuming in 2011.
  - Initial recovery expected to be export-driven as domestic imbalances are repaired.
- Competitiveness and investment:
  - Ireland’s business-friendly legislation and highly educated labor force have supported foreign direct investment in recent years.
  - Government plans further measures to remove restrictions on trade and competition to encourage new investment and job creation.
- Labor market and social policy:
  - Unemployment is high at more than 13 percent of the labor force.
  - The unemployment benefits system will be reformed to improve incentives to take up employment.

### Expected outcomes and timeline
- With international support, Ireland should be able to restore confidence and return to growth in 2011.
- The IMF loan under the Extended Fund Facility (EFF) is intended to provide breathing space to rebuild the economy.
- Repairing the damage from the bursting of the bubble is expected to take years.

### Key statistics and figures
- IMF loan amount: €22.5 billion
- International rescue package total: €85 billion
- Notional government banking support buffer: about €35 billion
- Housing price decline since 2008 peak: 36 percent
- Domestic banks’ assets at boom peak: five times Ireland’s gross domestic product
- Real estate loans share in 2006: close to 30 percent of all loans
- National Recovery Plan savings target: €15 billion (9 percent of GDP) over 2011-14
- Planned savings for 2011: €6 billion
- Households not paying income taxes previously: 45 percent
- Contraction in 2008-09: 11 percent of GDP
- Expected stabilization: 2010
- Expected return to growth: 2011
- Unemployment: more than 13 percent

*Source: IMF Survey: IMF Approves €22.5 Billion Loan For Ireland*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read the press release](https://www.imf.org/external/np/sec/pr/2010/pr10496.htm)
- [EU-IMF statement](https://www.imf.org/external/np/sec/pr/2010/pr10461.htm)
- [Ireland and the IMF](https://www.imf.org/external/country/irl/index.htm)
- [Europe needs reforms](https://www.imf.org/external/pubs/ft/survey/so/2010/NEW112110A.htm)
- [Outlook for Europe](https://www.imf.org/external/pubs/ft/survey/so/2010/CAR102010A.htm)
- [Extended Fund Facility](https://www.imf.org/external/np/exr/facts/eff.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar121610a_