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CB see uncertainty over Pact fulfilment

Tuesday, September 25 11:27:50

The ability of Ireland to comply with the Fiscal Compact Treaty's obligation to keep the budget deficit below 3pc of GDP by 2015 and 0.5pc by 2020 and ensure public debt does not exceed 60pc of GDP is examined by the Central Bank today.

The Central Bank's Letter says that Ireland is faced with huge uncertainties surrounding our ability to comply in the timeframe, not lease the macro-economic backdrop globally and within Europe.

However, the Letter concludes that Ireland will meet its obligations.

"Although the projections set out in the Letter demonstrate that fiscal targets remain on track to 2015, many uncertainties prevail. Findings confirm that uncertainty around these fiscal projections is high. Notwithstanding this, the Letter notes the government's commitment to ensure EU-IMF programme (and European Council EDP) targets to 2015 are complied with. The Letter serves to re-affirm that the future fiscal paths depend jointly on policy decisions taken to date and potential exogenous shocks to the economy," it said.

On the basis of currently specified consolidation efforts to 2015, the paper assumes a 0.5pc structural improvement per annum from 2016 onwards, in line with the existing Medium Term Objective (MTO) path set for Ireland by the European Commission under the Stability & Growth Pact. The paper does not comment on how much of this necessary correction originates from the benefits of past structural reforms undertaken, relative to how much would need to come in the form of additional consolidation efforts.

The paper finds that on this basis, a structural balance of -0.5 per cent of GDP (the Balance Budget Rule) as required under the Fiscal Compact is reached by 2020.

It also finds that compliance with the Debt Rule is achieved before its assumed entry into force in 2019.

The general government balance is projected to improve from -8.3pc of GDP in 2012, (under the EU-IMF permitted ceiling of -8.6pc of GDP) to -7.5pc GDP in 2013 and -4.9pc GDP in 2014.

The Central Bank notes that the Irish government remains committed to take all necessary measures to observe EU IMF Programme and EDP deficit ceilings.

Existing ceilings require to deficit to fall under 3pc of GDP by 2015.

The ability of Ireland to comply with the Fiscal Treaty's obligation to keep the general budget deficit below 3pc of GDP and a structural deficit of under 0.5pc is examined by the Central Bank today.

The Central Bank's Letter says that Ireland is faced with huge uncertainties surrounding our ability to comply in the timeframe, not lease the macro-economic backdrop globally and within Europe.

"Although the projections set out in the Letter demonstrate that fiscal targets remain on track to 2015, many uncertainties prevail. Findings confirm that uncertainty around these fiscal projections is high. Notwithstanding this, the Letter notes the government's commitment to ensure EU-IMF programme (and European Council EDP) targets to 2015 are complied with. The Letter serves to re-affirm that the future fiscal paths depend jointly on policy decisions taken to date and potential exogenous shocks to the economy," it said.

On the basis of currently specified consolidation efforts to 2015, the paper assumes a 0.5pc structural improvement per annum from 2016 onwards, in line with the existing Medium Term Objective (MTO) path set for Ireland by the European Commission under the Stability & Growth Pact. The paper does not comment on how much of this necessary correction originates from the benefits of past structural reforms undertaken, relative to how much would need to come in the form of additional consolidation efforts.

The paper finds that on this basis, a structural balance of -0.5 per cent of GDP (the Balance Budget Rule) as required under the Fiscal Compact is reached by 2020.

It also finds that compliance with the Debt Rule is achieved before its assumed entry into force in 2019.

The general government balance is projected to improve from -8.3pc of GDP in 2012, (under the EU-IMF permitted ceiling of -8.6pc of GDP) to -7.5pc GDP in 2013 and -4.9pc GDP in 2014.

The Central Bank notes that the Irish government remains committed to take all necessary measures to observe EU IMF Programme and EDP deficit ceilings.

Existing ceilings require to deficit to fall under 3pc of GDP by 2015.

The general government debt is projected to peak at just over 117.5pc of GDP in 2013, before gradually tapering off.