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Ireland Completes Latest Bailout Review

by Jason Gorringe,, London

13 February 2013

Ireland has completed its latest bailout review, with the troika concluding that the economic recovery is continuing and praising the Government for its commitment to meeting the targets set.

Staff teams from the European Commission, the European Central Bank (ECB), and International Monetary Fund (IMF) visited Dublin from January 29-February 7 for the ninth review of the Government’s economic program.

According to the troika, the strong track record of program implementation has been maintained, with substantial improvements seen in market access. Growth is expected to gain momentum, and is forecast at just over 1% in 2013 and at above 2% in 2014. The troika recognized that the Government is estimated to have comfortably met its 2012 fiscal targets, and that it remains committed to a deficit ceiling of 7.5% of GDP in 2013. Exports continue to drive the recovery, but the troika warns that this is highly dependent on the pace of recovery in trading partners. Further, continuing high levels of unemployment and weak balance sheets remain matters for concern. The three organizations said they saw reducing "stubbornly high" levels of unemployment as an urgent policy priority.

Also praised, however, was the good progress made in repairing the financial sector, but the mission teams did warn that "decisive actions remain essential to ensure banks’ capacity to lend and support the recovery." The troika wants to see the banks "make demonstrable progress in enhancing asset quality" and there needs to be improvements in the management of mortgage and small- and medium sized-enterprise loans in arrears. It is also argued that a "timely resolution" of the banks' non-performing loans will "pave the way for improving the situation in the banking sector, restoring credit supply, reducing uncertainty, and, ultimately, enabling a durable revival in domestic demand."

In spite of improving market conditions for Irish bonds, confidence remains vulnerable, and the mission teams concluded that there is a real need "for continued strong policy efforts by the Irish authorities in order to lay solid foundations for successful program exit at end 2013 and a durable return to market financing."

Commenting on the mission, Olli Rehn, Vice President of the European Commission said: "Ireland has made good progress to consolidate its public finances and recover much of the competitiveness that was lost in the boom years. After a deep recession, the Irish economy has been growing since 2011 and we expect its expansion to gradually become more robust later this year and in 2014. Significant progress has also been made in repairing the financial sector, though more needs to be done to enable banks to revive productive lending to the economy. Another key priority is to tackle unemployment, not least by strengthening employment services and accelerating the implementation of key investment projects, including those co-financed by the European Investment Bank.

"Market conditions for Irish bonds have been steadily improving and confidence growing. Ireland is on track to exit from the EU-IMF program as planned. The Commission stands by Ireland and its people and supports them in this objective. In this context, the major steps taken by the Irish authorities regarding the Promissory Notes should further boost confidence and help to facilitate a successful outcome."

Welcoming the mission's conclusion, Ireland's Finance and Public Expenditure Ministers, Michael Noonan and Brendan Howlin, said: "We are pleased to confirm that Ireland has successfully completed the 9th Review Mission and we continue to meet all of our targets. The completion of the Q4 2012 program conditions brings to over 190 the number of commitments that have been fulfilled on time and we have now drawn down some 84% of the available funding. Throughout the course of the review we have demonstrated significant progress on delivering on our commitments but we do not underestimate the significant challenges that remain. Our focus is now firmly on our exit strategy from the program, our re-entry into the financial markets and the debt sustainability of the program."

TAGS: Finance | tax | European Commission | Ireland | banking | International Monetary Fund (IMF) | ministry of finance | tax authority | unemployment | services | Europe

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