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IMF wants deeper cuts from Ireland

Monday, September 10 16:34:15

Ireland will find its deficit targets harder to meet and must look at deeper cuts in government spending, including cuts to Social Welfare, according to the IMF today.

The partner to Ireland's bailout Troika, which also includes the EU and ECB, encouraged the Government to focus upcoming fiscal adjustments on how social supports are targeted, reform of the health and education sectors and broadening the tax base rather than increasing rates.

It said that the success of Ireland's international bailout hinges on it getting more European support and there being economic recovery externally, as it cut its growth forecast for Ireland for next year.

Euro zone leaders agreed at their summit in June to look at improving Ireland's bank rescue, a commitment that has pushed Irish bond yields down sharply and allowed Dublin to raise long-term debt for the first time since it secured the EU/IMF bailout almost two years ago.

The Government wants the terms tied to E31 billion of IOUs pumped into two failed banks eased and Europe's rescue funds to take over its stakes in other lenders, something the IMF said was needed to put the rescue programme "on a clear path to successful completion".

"When implemented, recent European commitments could decisively improve program prospects... Success hinges on external economic recovery and more European support," the IMF said in its latest report on Ireland's bailout progress.

"Timely commitment to such a strengthening of European support, especially ESM investments in the equity of Irish banks, therefore offers real prospects for Ireland to exit its reliance on official financing, which would be a positive breakthrough in the euro area crisis."

While again praising the Government for the "vigorous" policy implementation that has made it the toast of Europe's bailed out countries, the IMF noted that a deterioration in economic conditions outside of the country would hamper its growth prospects for this year and next.

It said it expected gross domestic product (GDP) to grow by 1.4 percent in 2013 and not the 1.9 percent predicted in June, while it also lowered its forecast for this year slightly, to 0.4 percent from 0.5 percent.

The updated figures were in line with downward revisions made recently by the European Commission, another of Dublin's "troika" of lenders, and published in a draft document seen by Reuters.

The IMF said the markdown would make the deficit targets harder to attain and that its medium-term growth scenario projecting an average growth of 2.75 percent from 2014-2017 also assumes a resolution of the euro area crisis over the next year.