Ireland Overcoming Fiscal Woes

by Amanda Banks, Tax-News.com, London

24 January 2012

Ireland has received positive feedback in terms of its progress towards fiscal targets from the International Monetary Fund, the European Central Bank and the European Commission as part of a review into progress made under a financial assistance package provided to the nation to aid its resurgence from the global financial and domestic banking crisis.

The bodies reported that program implementation 'remains strong': “The front-loaded fiscal consolidation [program] is on track, with the 2011 deficit significantly below the program targets. Irish authorities have continued to advance wide-ranging reforms to restore the health of the financial system so it can support Ireland's recovery. Reforms to enhance competitiveness and support growth and job creation are [also] moving forward,” the bodies reported.

In terms of progress made towards the country's fiscal agenda, the IMF reported that budgetary measures worth 3.5% of Gross Domestic Product have reduced the general government deficit to about 10%, well within the program target of 10.6%. The IMF reported that this was achieved despite weaker domestic demand due to "authorities' strong revenue administration and firm expenditure control". Budget 2012 targets a further reduction in the deficit of 2.75% to lower the deficit to 8.6% of GDP, laying 'a clear path' to reach the 3% of GDP deficit target by 2015, to bring debt financing to sustainable levels.

The IMF in particular reported that steps to support growth and job creation are being put in place to support the country's exit from the recession. Looking ahead, nonetheless, Ireland continues to face considerable challenges, the body reported. Domestic demand remains subdued, unemployment high, and trading partner growth is slowing. As a result, projected GDP growth for 2012 has been revised down to 0.5% percent, from an estimated 1% percent in 2011.

“In this more challenging environment, maintaining Ireland’s track record of strong program implementation remains key to sustaining recovery and achieving Ireland’s return to capital markets. Accordingly, the authorities priorities in first half of 2012 include publishing a fiscal responsibility bill to underpin the achievement of the budgetary consolidation. They are also working with lenders to promote efforts to address loan arrears, and they will publish a modernization of personal insolvency framework.”

Ireland received commitments for loans worth EUR67.5bn (USD87.3bn) from the IMF, and the European Union. Approval of the latest quarterly review will allow disbursement will allow for the disbursement of EUR3.2bn from the IMF and EUR6.5bn from the EU.

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