The IMF has completed its first post-programme review of Ireland’s bailout
The International Monetary Fund says the Government should stick to its planned Budget adjustment of €2 billion, to safeguard “hard won credibility”.
It says finishing the job of putting the Budget on a sound footing will help protect Ireland’s recovery.
In its first post-programme review of Ireland’s bailout, the IMF says it is vital for the Government to stick to spending limits set out for each department.
While overall spending is on track, persistent overspends in the Department of Health point to a need for further structural reform in the health sector.
It says the Government’s stability programme will lead to a balanced budget by 2018, through a combination of holding spending flat in Euro terms, and letting tax revenues rise in line with economic growth.
It says that “durable spending and revenue measures and reforms will need to be identified to achieve this goal in a growth friendly way, whilst protecting the most vulnerable”.
On the state of the economy, the report says strong job creation and a range of other indicators suggest the economic recovery in Ireland is broadening.
With almost all sectors creating jobs, it says employment growth reached 3.3% year-on-year by the end of December.
It says the trend of employment growth is confirmed by first quarter tax revenues.
IMF mission chief Craig Beaumont said the Fund expects the Irish economy to grow by 1.7% of GDP this year, and by 2.5% of GDP next year.
It says overcoming the damage from the financial crisis will require strong and lasting jobs growth.
Although employment has risen by 85,000 since the worst point of the crisis, there are still 260,000 fewer people in work than at the peak of employment in 2007.
It says the Government needs to do more to support the return of the long-term unemployed to work. It says that while the Pathways to Work programme is moving in the right direction “the intensity in engagement with the long-term unemployed remains low by international standards”.
It also warns the government that the newly-created Ireland Strategic Investment Fund – the €6bn agency to invest the remains of the Pension Reserve Fund into the Irish economy – needs to be carefully managed.
“Ensuring commerciality through prudent scrutiny of project returns and substantial private sector co-funding is critical. The ISIF should not crowd out private financing or displace private projects”, it says.
It urges the banks to get on with resolving impaired Commercial property loans, saying “a significant portion of the banks’ Non-Performing Loans are Commercial Real Estate loans that are not connected with other businesses, facilitating their resolution”.
It says the Central Bank should press the banks to restructure or sell on these loans, as market conditions have significantly improved.
It described the recent successful disposal of IBRC loans by the liquidators of the former Anglo Irish Bank as “a step-change in the environment for financial sector restructuring”.
It also gave the thumbs up to NAMA to consider selling off its loan portfolios at a much faster rate, as demand for Irish property exposure increases among investors.
It said the IBRC sales and a faster pay down of NAMA debt would reduce the State’s contingent liabilities.