## IMF Executive Board Concludes Sixth Post-Program Monitoring Discussion with Ireland _IMF News, February 3, 2017_ ## Source details **Canonical URL:** [IMF Executive Board Concludes Sixth Post-Program Monitoring Discussion with Ireland](https://www.imf.org/en/news/articles/2017/02/03/pr1735-imf-executive-board-concludes-sixth-post-program-monitoring-discussion-with-ireland) ## Other formats - [Markdown version](/en/news/articles/2017/02/03/pr1735-imf-executive-board-concludes-sixth-post-program-monitoring-discussion-with-ireland/index.md) - [Structured JSON version](/en/news/articles/2017/02/03/pr1735-imf-executive-board-concludes-sixth-post-program-monitoring-discussion-with-ireland/index.json) - [Bundle manifest](/en/news/articles/2017/02/03/pr1735-imf-executive-board-concludes-sixth-post-program-monitoring-discussion-with-ireland/bundle-manifest.json) ## Bibliographic details - Published: February 3, 2017 --- ### Executive Board assessment and conclusion - On February 2, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Post-Program Monitoring Discussion with Ireland and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis. - Despite risks to the outlook, Ireland’s capacity to repay the Fund is strong, given: - robust economic and fiscal performance, - large cash buffers, - manageable financing needs, and - favorable market financing conditions. - Key risks noted: - Brexit-related risks, - a sustained low growth-low inflation environment in Europe, - external political uncertainties and rising anti-globalization sentiment, - ongoing developments in corporate tax treatment at the international level, - challenging political context for the new minority government. ### Recent economic performance and outlook - 2016 performance: - Output expanded by 4.8 percent y/y in the first three quarters of 2016, mainly driven by domestic demand. - Broad-based employment gains lowered the unemployment rate to 7.2 percent in December. - Headline inflation hovered in negative territory during most of the year, reflecting declining energy prices. - The current account surplus widened somewhat in the first three quarters of 2016. - Outlook: - Robust domestic demand is projected to drive continued healthy growth and support further moderation in unemployment. - Inflation, which turned slightly negative in 2016, is expected to edge up gradually. - The impact of multinational operations on headline GDP complicates assessment of domestic activity; staff welcomes work on alternative measures for domestic activity. ### Fiscal policy findings and recommendations - Fiscal targets and stance: - The government’s fiscal targets are broadly appropriate. - The moderate adjustment planned in 2017 strikes a balance between deficit reduction and addressing public expectations for a growth dividend. - Fiscal prudence recommended: - Expenditure increases beyond those already programmed would need to be offset by tax increases or cuts in other spending to meet the deficit target. - Maintain moderate growth in expenditures, save any revenue windfalls, and ensure potentially temporary revenue gains are not used to fund permanent expenditure increases. - Authorities’ commitments welcomed: - Reach medium-term deficit target of 0.5 percent of GDP by 2018. - Establish a “rainy-day” fund beginning in 2019. - Reduce debt-to-GDP to 45 percent within a decade. - Targeted support for growth: - Within a tight envelope, fiscal policy could be more supportive of growth through well-targeted increases in capital expenditure. - Capital expenditure is noted as already well below peers; well-targeted increases are needed to buttress competitiveness and support welfare (economic and social infrastructure). - Housing and tax guidance: - Housing Action Plan and related efforts to address housing shortages, high rents, and homelessness are welcome. - Fiscal incentives related to housing should be limited and closely monitored to avoid fueling demand and price pressures. - Plans for a phased elimination of the Universal Social Charge should not come at the expense of the breadth and stability of the tax base. ### Banking sector, nonperforming loans, and financial stability - Banking sector conditions: - Credit to the private sector has continued to fall but at a declining rate. - Balance sheet repair of domestic banks has continued but profitability remains weak. - Capital and liquidity positions of domestic banks have improved but, with low underlying profitability, banks remain vulnerable to shocks. - The UK’s decision to leave the EU could put further pressure on domestic banks’ profitability. - Bank restructuring and government stakes: - Disposal of the government’s stakes in Irish banks, which would support public debt reduction, should continue once market conditions are supportive. - Nonperforming loans (NPLs) and mortgage arrears: - NPLs are declining overall, but resolution of deep mortgage arrears should be accelerated. - Intensified supervisory oversight of banks’ internal management of NPL resolution should continue. - The “advice and arrears” scheme recently introduced by the government shows promise in improving borrower-creditor engagement. - Further steps to make legal proceedings more efficient are critical to accelerate resolution. ### Macroprudential policy and housing market risks - Continued vigilance recommended to safeguard macro-financial stability, especially regarding the property market. - Macroprudential measures and recalibration: - The macroprudential measures introduced in 2015 strengthen resilience of banks and households to adverse shocks. - The recalibration of the macroprudential framework is reasonable given early experience and current housing market dynamics. - Progress toward full implementation of the CCR and replacing the LTI limit with a DTI limit remains key to ensure prudent lending (DTI better captures borrowers’ repayment capacity). ### Ireland: Selected Economic Indicators, 2014–18 (Est. / Projections) - Output/Demand (Annual percentage change, constant prices, unless noted otherwise) - Real GDP: 2014: 8.4; 2015: 26.3; 2016: 4.6; 2017: 3.2; 2018: (blank) - Domestic demand: 2014: 7.7; 2015: 9.9; 2016: 6.8; 2017: 3.4; 2018: (blank) - Public consumption: 2014: 5.4; 2015: 1.1; 2016: 5.8; 2017: 2.5; 2018: 2.0 - Private consumption: 2014: 1.7; 2015: 4.5; 2016: 3.1; 2017: 2.9; 2018: (blank) - Gross fixed capital formation: 2014: 18.1; 2015: 32.5; 2016: 11.7; 2017: 6.2; 2018: 5.0 - Exports of goods and services: 2014: 14.4; 2015: 34.5; 2016: 2.1; 2017: 4.1; 2018: (blank) - Imports of goods and services: 2014: 15.3; 2015: 21.7; 2016: 5.1; 2017: (blank); 2018: (blank) - Potential Growth: 2014: 3.7; 2015: 24.6; 2016: 3.5; 2017: 3.3 - Output Gap: 2014: -1.7; 2015: -0.4; 2016: 0.6; 2017: 0.5; 2018: 0.4 - Prices - Inflation (HICP): 2014: 0.3; 2015: 0.0; 2016: -0.2; 2017: 0.8; 2018: 1.4 - GDP deflator: 2014: -1.2; 2015: 4.9; 2016: -0.9 - Employment and wages - Employment (ILO definition): 2014: 2.6; 2015: 1.5; 2016: (blank) - Unemployment rate (percent): 2014: 11.3; 2015: 9.5; 2016: 7.9; 2017: 7.1; 2018: 6.9 - Nominal wages: 2014: 0.1; 2015: 0.9; 2016: 2.3 - Public Finance, General Government (In percent of GDP) - Revenue: 2014: 34.1; 2015: 27.6; 2016: 27.2; 2017: 27.4; 2018: 26.9 - Expenditure: 2014: 37.8; 2015: 29.5; 2016: 28.2; 2017: 27.9 - Overall balance: 2014: -3.7; 2015: -1.9; 2016: -0.5; 2017: -0.3 - Primary balance: 2014: 0.7; 2015: 1.8 - Structural balance (percent of potential GDP): 2014: -3.2; 2015: -1.1; 2016: -0.7 - General government gross debt: 2014: 105.4; 2015: 78.7; 2016: 76.4; 2017: 75.0; 2018: 73.6 - Monetary and financial indicators (In percent) - Bank credit to private sector (growth rate): 2014: -16.8; 2015: -13.2; 2016: … - Deposit rates: 2014: 1.9; 2015: 1.3 - Government 10-year bond yield: (blank) - Balance of payments - Trade balance (goods): 2014: 21.1; 2015: 43.2; 2016: 41.6; 2017: 42.2; 2018: 42.0 - Current account balance: 2014: 10.2; 2015: 7.8; 2016: 6.0; 2017: 5.7 - Gross external debt: 2014: 926.4; 2015: 870.8; 2016: 830.5; 2017: 788.6; 2018: 744.1 - Sources for the table: Central Statistics Office; Department of Finance; Eurostat; and IMF staff. *IMF Executive Board concludes sixth Post-Program Monitoring discussion with Ireland (Press Release No. 17/35, February 3, 2017).* --- ## References - [The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx) - [Ireland and the IMF](http://www.imf.org/external/country/IRL/index.htm) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2017/02/03/pr1735-imf-executive-board-concludes-sixth-post-program-monitoring-discussion-with-ireland_