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Ireland Aims At 2013 Bond Market Return

by Jason Gorringe, Tax-News.com, London

17 July 2012


Ireland's successful run with the troika continues, completing its latest bailout review having achieved all the targets set under the programme. The government is now preparing for asset sales to commence in 2013.

The review, carried out by the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF), was the seventh conducted since Ireland was granted a bailout in late 2010. This review mission involved a detailed assessment of Ireland's fiscal position, macroeconomic outlook and the government's progress on financial sector restructuring and broader structural reforms.

According to Finance Minister Michael Noonan and Brendan Howlin, Minister for Public Expenditure and Reform, the "successful outcome illustrates, once more, the ability and the commitment of the Irish State to implement a challenging programme effectively". The ministers added that the latest figures show that the economy expanded by 1.4% in 2011, while 2012's tax take continues to grow.

The government is on track to meet its 2012 deficit target of 8.6%, they said. It remains committed to reaching a 3% deficit by 2015. Crucially, an indicative timetable for asset sales is in place. The government will provide progress reports in the next two quarters on the steps being taken. It is preparing for sales to commence in 2013. This aim features prominently throughout the latest review.

The troika noted progress being made in the area of financial sector reform. Reductions to Eligible Liability Guarantee (ELG) exposure was praised, and the government intends to continue its work with the banks to reduce this contingent liability. The ministers emphasized the importance of this issue for international markets investors and believe it will help Ireland back to the bond market. The bank deleveraging programme is in line with or slightly exceeding forecasts. Fire sales and excessive deleveraging of core portfolios will be avoided so as not to impair the flow of credit to the economy.

A number of new reforms will also be implemented over the coming months. The current loan to deposit ratio (LDR) will be replaced with a Net Stable Funding Requirement benchmark. This is designed to help alleviate some of the pricing pressures on the deposit market, and allow the banks to adopt a broader perspective on their funding base. The bank PTSB’s restructuring plan continues to be developed and the government believes progress will be made over the coming quarter. Finally, draft guidance for the creation and subsequent holding of liquidity buffers will be established once the Capital Requirements Directive is finalized, and specific features of the methodology for capital assessment will be agreed by the end of March, 2013.

However, challenges remain. Howlin explained: “There are three strands to our recovery: taking control of our public finances; dealing with the burden of banking related debt; and generating domestic growth and confidence." In particular, "unacceptably" high levels of unemployment continue to dog the recovery. A number of government initiatives are directed toward rectifying the situation. The intention is to increase the number of unemployed referred to training courses and employment supports in order to reduce the risk of long-term unemployment.

In addition, the government aims at improving the ratio of vacancies filled off the live register, and at ensuring engagement with employment services as a pre-condition for receipt of jobseeker payments. A report on the impact of labour market reforms to sectoral wage-setting mechanisms undertaken under the bailout programme is to be provided by the end of June 2013. The government will continue to work with the European Investment Bank to secure significant investment in "job rich" projects, Howlin stressed.

As the review and ministers' reaction made clear, the government has set its sights on making a successful return to the markets. Noonan pointed out: “The real test of the success of the programme will be our ability to emerge from the programme and return to the markets at reasonable rates. A lot of progress has been made in this regard since the last review. The [National Treasury Management Agency] NTMA has held a successful three-month T-Bill auction with strong international demand and at encouraging yields. The specific reference in the communiqué from the Heads of State and Government meeting at end June to improving the sustainability of our programme is a significant advancement."

"This advance has been reinforced by the commitment of the Eurogroup to assess measures to improve the programme’s sustainability by October. As part of these measures, my Department is undertaking technical work with the troika to build on the substantial work already undertaken. We are working intensively to ensure the best possible outcome for Ireland in line with the October timeframe,” he concluded.

TAGS: tax | investment | economics | European Commission | Ireland | fiscal policy | training | banking | gross domestic product (GDP) | International Monetary Fund (IMF) | agreements | unemployment | Europe

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