Ireland’s bailout programme is on track but challenges remain for the State and steadfast policy implementation will be necessary, the European Commission, IMF and European Central Bank have said.
Commenting at the end of their 10-day mission to review progress in implementing the terms of the €85 billion deal during the first quarter of the year, the troika said Ireland was “making good progress” in overcoming the worst economic crisis in recent history.
“Programme implementation has been determined, despite the period of political change and an uncertain external environment,” Istvan Szekely, the European Commission director of economic and financial affairs said.
“The new government, through its Programme for Government and its decisive approach to banking sector reforms, has taken full ownership of the goals and key elements of the EU-IMF-supported programme.”
Mr Szekely said Ireland took a major step towards restoring its banking system to health last month when it announced significant reforms of the sector and a €24 billion recapitalisation plan.
“The credibility of the exercise has been reflected in positive market reaction, with Irish bond yields declining following the announcement,” he said.
Mr Szekely said the challenges over the next year and a half included fiscal adjustment, bank restructuring, restoring growth and reforming the labour market and other sheltered parts of the economy.
The mission said their discussions with the Government over the last 10 days focused on the priorities for implementing reforms of the banking sector, such as reorganising and deleveraging the banking system, and strengthening its capital base.
“These steps are crucial for enabling the banking system to become a driver of economic recovery,” the mission said.
The troika said the State’s fiscal targets for the periods ending in December and March were met by a comfortable margin.
It said planned Government measures such as the commencement of a job creation initiative and to carry out a spending review would help to ensure sustainability of the public finances.
The reform of sectoral wage arrangements would foster job creation, it added.
Growth in the economy would return this year but at a slower than anticipated rate, the troika said. Strong exports would spur growth with support from improved competitiveness in the economy and increased world trade.
“Continued strong programme implementation, with support from the EU and the IMF, remains key to achieving Ireland’s return to capital markets at affordable interest rates,” Mr Szekely concluded.
Asked if the troika had Ireland’s interests at the heart of their efforts, Klaus Masuh, of the European Central Bank, said all three institutions have “the common goal of ensuring Ireland returns to strong growth and job creation”.
He said there was no divide between the EU, IMF or ECB over Ireland.
Ajai Chopra, the IMF’s deputy European director, said the programme was a lifeline for Ireland.
“It represents an Irish solution to an Irish problem and it enjoys our support. In the root of the problem was a deep banking crisis and that’s where the emphasis of this programme is. The new government is making good headway on this front.”
An IMF report earlier this week reduced the forecast for Irish economic growth in 2011 from 0.9 to 0.5 per cent. Mr Chopra said this was based on disappointing returns in the final quarter of last year.
However, he said short term figures were generally volatile and that it had not adjusted its medium term forecast of 2 per cent in 2012. “The critical thing is growth in medium term. We see no need to adjust that.”
