THE IRISH FISCAL Advisory Council has been critical of the government’s decision to exit our bailout without a precautionary line of credit, saying that it will make it more difficult for us to access this support in the future.
In its Fiscal Assessment Report, published today, the council reiterated its previous position that a credit line should be applied for.
“Provided it had come with reasonable terms and conditions, such a facility would have provided valuable additional protection against any renewed funding pressures as Ireland exits the EU/IMF assistance programme,” it said.
The council’s chairman, Professor John McHale, said that while the option to apply is “always there”, the easiest time to get a credit line is at a time when a country is in a good position – like when it is exiting a bailout.
It would be more difficult to put one in place once the markets turn against you.
McHale said he has seen “nothing the government has said that would rule out applying for a precautionary line of credit in the future.”
He also said that it will become harder to access the the ECB’s Outright Monetary Transaction programme, under which the bank would purchase the bonds of a member state that has asked for financial assistance.
However he pointed to other potentially available credit lines from the ESM and the IMF and the council’s chief economist Diarmuid Smyth commented that the government has a “cash buffer” of €73 billion in place.
Changes to Budget 2014 adjustment
Though the council’s report points to progress being made in repairing public finances, the changes to the planned budgetary adjustments in Budget 2014 have removed the “margin of safety” we otherwise would have had.
McHale said that the probability of breaching the 3 per cent Stability and Growth Pact deficit ceiling is now an estimated one-in-two and that risks to forecasts are “tilted to the downside”.
Growth this year is being depressed by a number of factors, according to the report. These include a background of ongoing balance sheet repair, budgetary consolidation and weak demand in Ireland’s main trading partners. The pharmaceuticals “patent cliff” is also reducing the growth of net exports.
Overall, the council said the government’s planned fiscal stance is assessed to be “conductive to prudent economic and budgetary management”.
- The full report can be read here.