IMF Completes Fourth Review Under the Extended Arrangement with Ireland and Approves €3.9 Billion DisbursementPress Release No. 11/471
December 15, 2011
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Ireland’s performance under an economic program supported by a three-year, SDR 19.47 billion (about €23.02 billion; or US$29.91 billion) arrangement under the Extended Fund Facility (EFF), or the equivalent of about 1,548 percent of Ireland’s IMF quota. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 3.31 billion (about €3.91 billion; or US$5.08 billion), bringing total disbursements under the EFF to SDR 11.05 billion (about €13.07 billion; or US$16.98 billion).
The arrangement for Ireland, which was approved on December 16, 2010 (see Press Release No. 10/496) is a part of a financing package amounting to €85 billion (about US$110.44 billion) also supported by Ireland’s European partners through the European Financial Stabilization Mechanism and European Financial Stability Facility, and bilateral loans from the United Kingdom, Sweden and Denmark, and Ireland’s own contributions.
In the wake of credit and housing booms that were followed by the worst economic crisis in its recent history, Ireland undertook an in-depth analysis, including stringent stress tests, of its domestic banks. On this basis, the Irish authorities adopted a comprehensive financial sector reform strategy in March 2011. Implementation of the first phase of the strategy to reorganize the domestic banks, strengthen their capital base, and initiate a downsizing of their balance sheets is now complete, and further reforms are underway.
The authorities are also continuing to implement a sizeable fiscal adjustment, with the budget on track for the 2011 fiscal targets. The recently announced 2012 budget includes €3.8 billion (2.7 percent of GDP) in spending and revenue measures, to reach a deficit target of 8.6 percent of GDP, and the authorities’ Medium-Term Fiscal Framework sets out the path to bring the deficit below 3 percent of GDP in 2015. These actions are helping to restore confidence as part of the government’s strategy to put the economy on a path of sustainable growth, sound public finances, and job creation.
Led by strong export performance, Ireland’s real GDP growth turned positive in the first half of 2011, reaching an annual rate of 2¼ percent in the second quarter, with annual growth of 1.1 percent projected in 2011. Weakening activity in Ireland’s trading partners is projected slow Irish exports such that real GDP growth remains around 1 percent in 2012.
Following the Executive Board’s discussion on December 14, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“The Irish authorities have maintained strong program implementation despite the strained external environment. Growth turned positive in the first half of the year and Irish bond spreads have declined significantly since the summer, but Ireland faces risks from the turmoil in the euro area and the weakened growth prospects of trading partners.
“The authorities are keeping the budget on track for a substantial consolidation this year. Through the 2012 budget and Medium-Term Fiscal Statement they have expressed their commitment that the public debt ratio will be put on a clear downward path through a balanced mix of expenditure and revenue measures. The planned amount of fiscal adjustment should be maintained in the event of adverse developments to avoid amplifying policy procyclicality.
“After successful completion of the crucial first phase of financial sector reforms, the authorities are now deepening their efforts to build the sector’s capacity to support the recovery. Key steps underway include improving provisioning and disclosure, strengthening banks’ business models and internal controls, and enhancing financial sector supervision. The authorities are also working to restructure the credit union sector, develop relationship frameworks so that state owned banks operate on a commercial basis, and modernize the personal insolvency framework to facilitate resolution of household debt distress.
“Continued timely implementation of fiscal, financial, and structural reforms as well as European support, are essential for the success of the Irish program.”