## IMF Survey : Ireland’s Economy Back from the Brink, But Continued Progress Needed

_IMF News, December 19, 2013_

## Source details

**Canonical URL:** [IMF Survey : Ireland’s Economy Back from the Brink, But Continued Progress Needed](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar121913a)

## Other formats

- [Markdown version](/en/news/articles/2015/09/28/04/53/socar121913a/index.md)
- [Structured JSON version](/en/news/articles/2015/09/28/04/53/socar121913a/index.json)
- [Bundle manifest](/en/news/articles/2015/09/28/04/53/socar121913a/bundle-manifest.json)

## Bibliographic details
- Published: December 19, 2013

---

### Overview and program outcome
- Publication date: December 19, 2013.
- The EU/IMF-supported program began in December 2010 and its successful completion has left Ireland "in a much stronger position" than at the start.
- Program success owed to full commitment by the Irish authorities and people, steady policy implementation, and close collaboration with EU and ECB counterparts.

### Banking sector: stabilization, remaining weaknesses
- Immediate priority was to recapitalize and stabilize the banking system, achieved early in the program and stemming deposit outflows.
- Banking system had assets of almost 500 percent of GDP when the program started.
- Progress made in reducing banking system size and recapitalizing viable banks; NAMA (asset management company) was established to deal with large problem loans, especially in the property sector.
- Remaining issues:
  - Nonperforming loans remain high and progress in resolving impaired assets has been slow.
  - Bank profitability remains weak.
  - Banks are not yet supporting the economy with adequate lending.
  - More rapid progress in dealing with mortgage arrears (residential mortgages in arrears) would have been worthwhile.

### Fiscal consolidation and public finances
- Budget consolidation started before the program.
- Over 2009–13, the structural primary deficit has been reduced by about 10 percentage points of GDP.
- Resulting trajectory:
  - Ireland should be able to achieve a primary balance in 2014.
  - Sovereign debt projected to peak at about 124 percent of GDP in 2013 and should soon be on a declining path.
- Households’ debts amount to almost 200 percent of disposable income.
- Ireland contributed €17.5 billion of the total program financing package of €85 billion.

### Economic activity and labor market
- Signs of growth emerging and unemployment has started falling after peaking (unemployment kept rising until it peaked in early 2012).
- Growth and market signals:
  - Export-driven growth was quite strong in 2011 at 2.2 percent.
  - Market-confirming events included well-subscribed bond issues in January and March (a 10-year issue at a 4.15 percent yield, trading at about 3.5 percent).
- Projections:
  - Growth projected to rise to about 1¾ percent in 2014—a little below consensus estimates.
  - Growth projected to be about 2½ percent in the medium term.
- Revival of domestic demand expected to be modest in the near term and a protracted process due to strained private balance sheets and gradual easing of fiscal consolidation.
- Improving financial-sector health expected to support recovery, though near-term contributions from renewed lending are not expected to be significant.

### Policy and institutional reforms
- Institutional reforms implemented:
  - Strengthened medium-term fiscal framework.
  - Established a credible and well-functioning fiscal council.
  - Revamped regulation and supervision of the financial sector.
- Irish authorities released a medium-term economic strategy covering 2014 to 2020.

### Euro-area context and market access
- Regaining market access began in mid-2012 with Treasury bills issuance and strengthened after policy signals such as ECB President Draghi’s Outright Monetary Transactions.
- Ireland benefited from improved euro-area conditions and its own steadfast policy implementation.
- Ireland’s prospects are closely tied to the eurozone: progress on demand and supply deficiencies in the eurozone, achieving the ECB’s inflation target, reducing fragmentation, and improving monetary union architecture are important for Ireland’s outlook.

### Social and political impacts
- The bailout had a dramatic social and political impact: the negotiating government resigned, elections were held in February 2011, and a new coalition government formed in March 2011 with a strong mandate to implement the program.
- Social fallout intertwined with the banking crisis; program prevented a sharper economic deterioration that was likely at end-2010.
- Dialogue with labor unions and organizations dealing with vulnerable groups was conducted though some counterparts felt concerns were insufficiently addressed.
- Authorities were encouraged to design fiscal consolidation measures with fairness and equity in mind.

### Five preliminary lessons for global policymakers (as stated)
1. Confront systemic banking crises quickly: identify viable vs nonviable institutions, resolve nonviable banks, and recapitalize and restructure viable ones; transparency (stress tests and asset-quality diagnostics) is critical.
2. It is unfair to place the burden of supporting banks primarily on domestic taxpayers while senior unguaranteed bond holders are paid out; imposing losses on senior unsecured creditors is increasingly accepted in later resolution principles.
3. Fiscal consolidation should be steady, gradually phased, and embedded in a well-specified medium-term plan that allows automatic stabilizers to operate; excessively rapid consolidation harms growth.
4. Feedback loops among weak balance sheets of banks, government, households, and companies can stagnate activity and increase deflationary pressures; breaking these loops may require greater union-wide solidarity in a monetary union.
5. Government design and ownership of program policies is critical for implementation and social/political cohesion; Irish-designed program components aided compliance.

### Forward-looking priorities and recommendations
- Continue private balance sheet repair and fiscal consolidation; these processes will take time.
- Strengthen efforts to resolve nonperforming loans and mortgage arrears, improve bank profitability, and restore lending to support domestic consumption and investment.
- Pursue a balanced growth strategy that combines exports with a revival of domestic demand to create jobs and reduce unemployment.
- Maintain sound policies and implement the medium-term economic strategy for 2014–2020.
- In the eurozone context, pursue actions to reduce fragmentation, achieve the ECB’s inflation objective, and enhance monetary union architecture to support Ireland’s recovery.

*IMF Survey : Ireland’s Economy Back from the Brink, But Continued Progress Needed — December 19, 2013*

---

## Content in this bundle

- [Cr13366pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2013/_cr13366pdf.pdf){rel="external" type="application/pdf"}

---

## 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](http://www.imf.org/external/np/sec/pr/2013/pr13507.htm)
- [Ireland and the IMF](http://www.imf.org/external/country/irl/index.htm)
- [Conference call with mission chief](http://www.imf.org/external/np/tr/2013/tr110813.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/socar121913a_