Statement by the EC, ECB, and IMF on the Review Mission to IrelandPress Release No. 12/151
April 26, 2012
Staff teams from the European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) visited Dublin during April 17-26 for the regular quarterly review of the government’s economic program. Ireland’s policy implementation remains on track, nonetheless considerable challenges remain. Ensuring recovery in Ireland’s highly open economy will require that these policy efforts continue, and that the external environment improves. The EC and IMF missions will seek approval for the completion of this review from the relevant EU bodies and the IMF Executive Board respectively.
Ireland’s program implementation continues to be strong. Fiscal targets for 2011 were met with a healthy margin and the consolidation remained on track in the first quarter of 2012. The authorities have also pressed ahead with comprehensive reforms to restore the health of the Irish financial sector. Market confidence in Ireland’s policies has improved, contributing to some stabilization in Irish bond spreads, although they remain elevated.
The government is advancing its jobs and growth agenda. Recognizing the more challenging external environment, the authorities are establishing a working group to review and adapt their strategy for growth and job creation, by further enhancing the economy’s competitiveness and flexibility while safeguarding social cohesion. The authorities’ approach to labor activation is outlined in the recently published “Pathways to Work” strategy, while the Action Plan for Jobs sets out measures to facilitate job creation. Progress in this area is essential to bring down the high level of unemployment.
Fiscal consolidation efforts remain on track in 2012. The 2011 general government deficit (excluding bank support costs) is now estimated at 9.4 percent of GDP, well within the programme ceiling of 10.6 percent. The targets for end March 2012 on the Exchequer primary balance and net debt were also met, reflecting the authorities’ prudent budget design and implementation. The budget is on track for achieving the 2012 deficit ceiling of 8.6 percent of GDP.
Ongoing work to restore the health of the Irish financial system is critical to enabling a recovery in domestic demand. Efforts to strengthen the quality of bank assets are intensifying through strategies for dealing with mortgage and SME loan arrears. The personal insolvency reform will further facilitate the resolution of unsustainable debts, where the authorities are taking care to balance the rights of debtors and creditors and uphold Ireland’s tradition of debt servicing discipline. Finally, Permanent TSB is moving ahead with completing its restructuring plan.
Nonetheless, considerable challenges remain. Economic growth is expected to remain modest in 2012, at around ½ percent. The benefits of continued competitiveness gains are limited by relatively low trading partner growth, while domestic demand continues to decline and the banking sector faces difficult market funding conditions. Technical work on further financial sector reforms to support prospects for recovery in domestic demand and Ireland regaining market access continues. Overall, strong policy efforts by the Irish authorities, together with the support of Ireland’s partners, will be needed to achieve the goals of the program in these challenging circumstances.
The objectives of Ireland’s EU-IMF supported program are to address financial sector weaknesses and to put Ireland’s economy on the path of sustainable growth, sound public finances, and job creation, while protecting the poor and most vulnerable. The program includes loans from the European Union and EU member states amounting to €45.0 billion and a €22.5 billion Extended Fund Facility with the IMF. Ireland’s contribution is €17.5 billion. Approval of the conclusion of this review is scheduled to make available a disbursement of €1.4 billion by the IMF € 2.3 billion by the EU. The mission for the next program review is scheduled for July 2012.