IMF Completes Tenth Review Under the Extended Fund Facility Arrangement for Ireland and Approves €0.95 Billion DisbursementPress Release No. 13/218
June 17, 2013
The Executive Board of the International Monetary Fund (IMF) today completed the tenth review of Ireland’s performance under an economic program supported by a three-year, arrangement under the Extended Fund Facility (EFF), for the equivalent of SDR 19.4658 billion (about €22.28 billion or about US$29.71 billion) or the equivalent of 1,548 percent of Ireland’s IMF quota. The completion of the review enables the disbursement of an amount equivalent to SDR 0.831 billion (about €0.95 billion or about US$1.27 billion), bringing total disbursements under the EFF to the equivalent of SDR 18.21 billion (about €20.83 billion or about US$27.79 billion).
The arrangement for Ireland, approved on December 16, 2010 (see Press Release No. 10/496), is part of a financing package amounting to €85 billion (about US$113 billion), also supported by the European Financial Stabilization Mechanism and European Financial Stability Facility, bilateral loans from Denmark, Sweden, and the United Kingdom, and Ireland’s own contributions.
The Irish economy grew modestly for a second year in 2012 and positive signs are emerging with employment rising just over 1 percent year-on-year in the first quarter of 2013, though the rate of unemployment remains high at 13.7 percent. Fiscal outturns in the first five months are in line with Budget 2013. Ireland targets a general government deficit of less than 3 percent of GDP by 2015 and with growth projected to accelerate from 2014, public debt is expected to peak at around 123 percent of GDP this year. In the banking sector, just over 25 percent of loans are nonperforming and losses persist, hindering new lending. Addressing these issues is the focus of the authorities’ preparations for entry into European banking union ahead of the European stress test exercise next year.
Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:
“Two and a half years into their program, the Irish authorities maintain steadfast policy implementation. Improved market sentiment and the recently approved extension of EFSF/EFSM loan maturities have been reflected in a decline of bond yields. Yet economic recovery is not well established and risks to debt sustainability remain. Strong policy implementation and timely delivery on European pledges to enhance program sustainability remain key.
“With the launch of the Single Supervisory Mechanism next year, Ireland’s banking sector stress test will be aligned with the broader European exercise, ensuring a single test against common and stringent standards. In the interim, the authorities will undertake all the necessary preparations, including a comprehensive asset quality review and an operating profit analysis, and banks will take appropriate remedial actions if needed. Monitoring banks’ performance against the targets for resolving mortgages in arrears, while ensuring the durability of these loan resolutions, is particularly important, and work outs of small and medium enterprise loans in arrears are needed to help support growth and jobs.
“Fiscal policy remains on track to achieve the 2013 targets and the authorities’ commitment to achieving targeted pay and pension savings is welcome. Any reassessment of the fiscal consolidation path should await Budget 2014 and focus on safely reaching medium-term targets in a growth-friendly manner, where savings from the promissory note transaction provide an opportunity to help build buffers against shocks. Structural reforms in key spending areas are needed to deliver future savings while protecting core public services and the vulnerable. Effective implementation of reforms to strengthen employment services is important to address long-term unemployment.”