THE IMF has this afternoon confirmed the green light on its latest batch of loans to the Irish government, but also warned of major challenges posing a threat to Ireland’s eventual return to the open markets.
Here, in short, are the 11 key points you should know about the latest update.
- All the targets set under the bailout programmes have been met, and the required reforms are proceeding “as envisaged”. This means the IMF now signs off on the release of another €1.4 billion-or-so in loans.
- The IMF is a little worried that the economy’s growth is still weak, while unemployment remains high - and bear in mind that this document was written before the latest Quarterly National Survey showed unemployment was actually 14.8 per cent in the first quarter, and not 14.4 per cent as previously thought.
- Having approved the Fiscal Compact, the possibility of dipping our toes in the markets later this year – with the government hoping to issue some short-term bonds, to gauge public demand – is “feasible“.
- The general tension in the eurozone now poses a major threat to Ireland’s return to markets – in particular, the IMF notes that the gap between Irish and German bonds is bigger than it was when Ireland was frozen out of the markets in the first place.
- This is particularly important because Ireland will need to borrow €13.1 billion on the markets next year. The fund reckons Ireland will have a total ‘borrowing need’ of €23.2 billion for 2013, but there’ll only €10.1 billion left in the various bilateral funds.
- The IMF suggests banks could simultaneously scale down their operations, and be freed to concentrate on lending, by transferring their ‘legacy assets’ - like tracker mortgages, which don’t make much money for banks – to IBRC, the body created by the merger of Anglo and Irish Nationwide.
- Ireland will implement its property tax - the successor to the temporary €100 household charge – next year. The documents produced by Ireland say the measure is being prepared to be included as a full part of Budget 2013, being announced in six months.
- Other matters to be introduced in the next Budget: a broadening of income tax, restructuring of motor tax, and increases in excise duty and other indirect taxes.
- The IMF hints at its preference for EU leaders to agree a growth pact, and quickly: it mentions that discussions on structural reforms must be “oriented toward enhancing growth and employment”. The best chance of getting Ireland back to the markets is through a “broader European plan to stabilise the euro area.”
- The IMF also wants a prompt deal on Ireland’s bank debts. Technical work has begun on the promissory notes and banking assets, but “addressing these issues in a timely manner is important to enhance prospects for Ireland”. This would be of overall benefit to Europe too, it says.
- Ireland’s ability to meet the Fiscal Compact’s rules about reducing its debt will probably depend on the financial health of the rest of the eurozone. Ireland’s economy will grow by 0.5 per cent this year, but any hopes of further growth will be dented by any drop in Europe, which will hurt our exports. But if growth flatlines at 0.5 per cent, Ireland’s debt will rise from 121 per cent of GDP in 2013, up to 133 per cent by 2017 – whereas the Fiscal Compact needs us to reduce it by around 3 per cent every year.