In its annual report on the Irish economy, the Washington-based institution was broadly complimentary regarding the government's record on economic management, noting that prudent fiscal policy, low taxes on businesses and labour and wage moderation have resulted in strong economic performance in recent years.

However, the IMF Directors went on to underscore the importance of building a "fiscal cushion" in good times, thus helping the government to ride out any future economic downturn.

"The tax base could be broadened by limiting property-related capital allowances, preserving the nominal ceiling on mortgage interest tax relief, and introducing a property tax," the IMF suggested. The report also recommended indexation of tax credits and bands, excise duties, and social welfare payments to inflation.

The IMF also issued a cautionary note with regard to Ireland's housing market, which, like many other developed countries, has undergone a sustained boom. Despite the fact that Irish banks are currently the most profitable in the European Union, the IMF warned that high exposure to the mortgage market leaves them somewhat vulnerable, and stressed the need for tight supervision of the banking sector to prevent excessive risk-taking by both lenders and borrowers.