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Ireland: Staff Concluding Statement of the 2025 Article IV Mission
April 4, 2025
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Camila Perez
Phone: +1 202 623-7100Email: MEDIA@IMF.org
Dublin, Ireland: Ireland has achieved impressive results by building on its comparative advantages and enacting sound policies, but staying the course will require navigating uncertainties and addressing challenges posed by an increasingly fragmented and shock-prone world. Growth is projected to remain solid and inflation to stay close to target. The outlook, however, is subject to significant downside risks. In a highly uncertain and challenging global environment, policies should focus on: (i) achieving a broadly neutral stance in 2025 and the medium term as envisaged in the current Medium-Term Fiscal and Structural Plan; (ii) strengthening the national fiscal framework to help Ireland guard against shocks and address strategic investment needs and long-term spending pressures; (iii) maintaining close monitoring of financial stability risks and continuing to bolster the regulation, supervision, and reporting of nonbanks; and (iv) advancing structural reforms to increase economic resilience, enhance productivity, and boost housing supply, while continuing to engage in the EU to further strengthen the single market.
This concluding statement does not incorporate the impact of the U.S. trade policy announcement of April 2, which will be assessed in the Staff Report of the 2025 Article Consultation with Ireland expected to be published in June.
Outlook and risks
Entering 2025 in a strong position, the Irish economy is expected to grow at a solid pace against a global backdrop characterized by high uncertainty and structural shifts. While a challenging external environment is likely to weigh on business investment and exports, healthy household balance sheets, real wage growth, and the ECB’s monetary easing would support domestic consumption. On the basis of projections finalized before the US trade policy announcement of April 2, we project real GNI* to increase by 2.7 percent in 2025, following an estimated expansion of about 4 percent in 2024, and to gradually converge to its potential of 2¼ percent over the medium term. Both headline and core inflation are expected to stay close to 2 percent under this baseline scenario.
Risks to the growth outlook are firmly on the downside.The concentration of activity in a small number of multinational enterprises (MNEs) leaves Ireland’s economy and public finances vulnerable to external trade and tax policy changes and firm or sector specific shocks. A reversal of globalization would put at risk the Irish economic model which has been built around free trade and capital flows. Intensification of regional conflicts can cause supply disruptions, increased refugee inflows, and commodity price volatility. Domestically, capacity constraints could delay the attainment of infrastructure and housing goals, and lead to higher costs. The risk of overheating remains, especially if fiscal policy turns expansionary. Risks to inflation are broadly balanced.
Fiscal Policy
A broadly neutral fiscal stance in 2025, with higher capital expenditure, is appropriate. Given the economy is operating at full capacity and with the ECB’s monetary policy easing, fiscal policy should avoid adding to aggregate demand. Improving spending efficiency across key expenditure areas should be a priority. Enhancing budgeting and expenditure management would reduce the likelihood of spending overruns and could allow for further increases in capital expenditure. Revenue overperformance should be saved. In case of downside risks materializing, Ireland has fiscal space to provide focused counter-cyclical support to the economy.
It is important for Ireland to maintain fiscal prudence while tackling infrastructure and housing gaps.Ireland is highly exposed to external shocks and there is significant uncertainty regarding future streams of corporate income tax (CIT) revenue, which is highly concentrated. Furthermore, future spending pressures from demographic changes, security, and the green and digital transitions may exceed current projections. Maintaining prudent fiscal policy is therefore key to increasing economic resilience, through building buffers that could be used to support the economy should adverse scenarios materialize. A broadly neutral fiscal stance as in the current Medium-Term Fiscal and Structural Plan, which is consistent with further public debt reduction, is appropriate, and should be adhered to in the upcoming update of the Plan. In this context, we reiterate our call to broaden the tax base, as this will not only reduce Ireland’s revenue vulnerability, but also provide space for higher investment. We support the use of the receipts from the Court of Justice of the European Union (CJEU) ruling for increased capital investment in water, energy, housing and transport. Windfall CIT receipts should not be used to fund permanent spending.
The planned scaling up of public investment should be done within a proper overall spending envelope to ensure value for money. Supply-side constraints are becoming an impediment to Ireland’s competitiveness and substantial investment is needed to upgrade infrastructure, maintain public services, and increase housing supply. To ensure value for money, it is important that capital outlays are stepped up in a prioritized manner and within an overall spending envelope consistent with the appropriate fiscal stance. Rationalizing current expenditure and improving spending efficiency would also create space for further increases in public investment within the overall spending envelope. Efforts should continue to expedite the complex planning and judicial review process.
We recommend strengthening the national fiscal framework to help Ireland safeguard public finances against shocks and maintain sustainability while addressing strategic investment needs . The EU fiscal framework is not binding for Ireland given the use of GDP denominators, nor is it sufficient to hedge against the country’s significant tax revenue uncertainty. A credible national fiscal framework will also contribute to policy certainty and predictability, which are conducive to confidence and investment. Ireland should consider placing such a framework on a legislative basis.
· Notwithstanding Ireland’s favorable debt outlook over the medium term, consideration should be given to adopting a general government debt anchor, set at a level that ensures fiscal sustainability.
· The debt anchor should be complemented by an operational rule based on multi-year net expenditure ceilings, calibrated to keep general government debt close to the anchor, while taking into account prevailing economic conditions. Expenditure ceilings should ideally cover all institutions under the general government classification and should be simple to implement and communicate.
· Additional provisions would be necessary to ensure the credibility, flexibility, and adaptability of the fiscal rules. These provisions should include an escape clause and triggering conditions, a correction mechanism specifying remedial actions for noncompliance, and periodic reviews to ensure that the rules are well calibrated to macro-fiscal conditions.
· The two savings funds—Future Ireland Fund and Infrastructure, Climate and Nature Fund—should be integrated into the enhanced fiscal framework.
· The Irish Fiscal Advisory Council should play a critical role in monitoring compliance with fiscal rules and enhancing the credibility of fiscal policy.
Financial sector policy
Continued close monitoring of financial stability risks is warranted. Financial stability risks from the housing market remain limited. Healthy balance sheets and favorable economic conditions have supported the resilience of Irish households and non-financial corporations. But geoeconomic shifts may adversely affect MNEs’ activities in Ireland with knock-on effects on the domestic economy and public finances.
· Banks are well-capitalized and liquid, with good profitability and asset quality.Nevertheless, bank profitability will moderate as policy rates have fallen. Additionally, pockets of vulnerability warrant close monitoring of credit risks. While there are signs of moderation of the commercial real estate (CRE) downturn and the banking system has capacity to absorb rather than amplify this downturn, significant uncertainty remains and the sector may continue to face headwinds. Efforts to improve the operational resilience of domestic banks and divest government stakes should continue. Meanwhile, international banks’ vulnerability to funding stress and shocks from nonbanks should be closely watched.
· Ireland has a large, complex market-based finance sector with growing linkages to the domestic economy. An environment of high global uncertainty interacting with financial vulnerabilities, notably liquidity mismatches and the leverage of investment funds, could amplify adverse shocks and transmit them through interconnectedness to other parts of the financial system and the real economy.
It is important to monitor macro-financial conditions to assess the need for future adjustment of macroprudential policy settings. The Central Bank of Ireland (CBI) has maintained the countercyclical capital buffer rate at the neutral level of 1.5 percent which appears appropriate in the current macro-financial environment. The recalibrated mortgage measures seem to have yielded the intended outcomes. As conditions evolve, the CBI should continue to assess the macroprudential stance and stand ready to adjust it if warranted. Ongoing stress-testing exercises using adverse macroeconomic and financial shock assumptions, including disruptive geopolitical events and further CRE price declines, can help inform capital adequacy assessments.
Efforts should continue to strengthen the regulation and supervision of nonbanks, and address data gaps in collaboration with other jurisdictions. Regulation and supervision need to keep pace with the evolving financial system and innovations. It is therefore important to strengthen reporting requirements for nonbanks and conduct more granular risk analysis. The CBI should continue to closely monitor the implementation of macroprudential measures for the Irish property funds, and to advance the development of a macroprudential framework for investment funds in collaboration with international regulators and other jurisdictions. Work should also continue to reduce data gaps and identify foreign and domestic linkages, including of the “other financial institutions residual (OFI residual)” entities.
Structural policy
Deepening geoeconomic fragmentation will require mitigating policies. Ireland is vulnerable to trade and investment shocks, and under certain adverse scenarios, output losses can be substantial, including from reduced access to critical inputs, tariffs and subsidies introduced by large economies, and a slowdown or reversal of FDI.While international cooperation remains the first-best solution, mitigation strategies consistent with international and European rules could be beneficial. Promoting linkages between dynamic MNEs and the domestic economy, including through innovation cooperation, and improving infrastructure could increase competitiveness and resilience. Maintaining fiscal prudence is important to allow the provision of targeted support to facilitate resource reallocations from affected sectors, including for example through training and reskilling. Ireland should also continue to engage strongly in the EU to further strengthen the single market, including through advancing the savings and investment union, and champion a multilateral, rule-based system for trade and investment.
Digitalization and AI can be harnessed to increase productivity and wellbeing, but there are risks that need to be managed. Ireland’s focus on STEM education and strong collaboration between academia and business, including the presence of innovative large MNEs, has contributed to accumulating significant expertise in AI-related fields. While technological advancements can enhance growth, some jobs could be negatively affected. This calls for policies that ensure an equitable adoption of AI, including adjustments to the tax and welfare system as needed, along with targeted education and training.
Addressing infrastructure needs, easing housing regulatory constraints, and increasing productivity in the construction sector remain important to boost housing supply and support sustainable growth . Affordability remains a challenge and housing supply needs to be expanded to bridge the gap with growing demand. Increasing urban density and construction sector productivity, improving the use of land, ensuring greater policy certainty, and expediting the planning process are key to reducing shortages and improving access to housing. Employing policy levers (such as planning certainty and infrastructure investment) to leverage private capital, and converting vacant offices into residential space where feasible, could also help boost housing supply. Rental supply could be increased by reducing the complexity and restrictiveness of rent legislations, notably replacing rent caps with more targeted housing support for vulnerable households.
The team would like to thank the Irish authorities and other stakeholders for their kind hospitality, and candid and productive discussions.
