Ireland has made “important progress” in consolidating its finances and implementing structural reforms, a new report from the European Commission said today.

The reforms pave the way for Ireland to receive the third instalment of European funding, worth €4.2 billion, in January.

However, the comission warned that the country was facing a number of challenges, including the weakening global economic outlook, which could impact exports, a strong driver of growth in the economy.

The commission said Ireland's fiscal performance had been on target so far this year, predicting a budget deficit for 2011 that would be “well below” the 10.6 per cent of gross domestic product (GDP) required under the bailout programme.

The commission also welcomed the measures announced in Budget 2012 and the Government’s commitment to reform the budgetary process.

“Recapitalisation of the banking sector has been substantively completed at a lower than expected cost to the budget, benefiting from private investor participation and burden-sharing with the holders of subordinated bank debt,” the report said. “Deleveraging of the banking sector is progressing as planned, despite challenging market conditions.”

However, it said that further progress was needed in this area.

The report also noted the structural reforms currently being implemented to support job creation, enhance competition in certain sectors and reduce the long-term cost of public sector pensions.

Ireland would be on course to re-enter the markets in 2013 if implementation of the fiscal and financial package continued, the review said.

Earlier today, Minister for Finance Michael Noonan confirmed he was targeting a full re-entry into the bond markets in 2013.

The next review of Ireland’s bailout programme will take place in January.