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IMF approves €1.4bn loan – but has doubts about Ireland’s return to markets

The latest quarterly review of Ireland’s bailout paints a mixed picture…

The IMF's Ajai Chopra visits Dublin as part of the Troika's latest review in April. The IMF has approved the latest batch of bailout loans.
The IMF's Ajai Chopra visits Dublin as part of the Troika's latest review in April. The IMF has approved the latest batch of bailout loans.
Image: Sasko Lazarov/Photocall Ireland

THE INTERNATIONAL Monetary Fund has approved the release of the latest €1.4 billion in bailout funds to Ireland – but raised fears that the ongoing turmoil in the eurozone could stop Ireland from returning to the bond markets next year.

The Fund’s latest quarterly review of Ireland’s progress, published this afternoon, praises Ireland for continuing to meet all the targets laid down for it, despite considerable challenges – but warns that Ireland will need a prompt response from European leaders to ward off the current fears about the future of the currency, if it is to emerge from the bailout.

Though the IMF says the Yes vote in last month’s Fiscal Compact referendum means it is “feasible” to sell some short-term bills in an experimental auction later this year, any chances of selling longer-term bonds remain questionable.

In particular, it notes that the recent tensions in the eurozone have sent the yield on existing bonds back up – meaning the ‘spread’, the difference between the costs of borrowing for Ireland and Germany, is higher now than it was when Ireland first applied for bailout support.

This is a particular concern because of how much the IMF believes Ireland will need to borrow next year: the combination of government deficits and other bonds falling due will mean Ireland has a total borrowing need of €23.2 billion.

But by this time, only €10.1 billion will be left in the EU, IMF and bilateral components of the bailout – meaning Ireland needs to get to the markets to find this amount, or else face going to the ESM for a second bailout.

In order to curb this gap the IMF calls for a “broader plan to stabilise the euro area”, advocating for an EU growth pact as well as a European agreement on how Ireland can address the burden of its promissory notes, which in time would also have benefits for the EU as a whole.

An EU-wide recovery is needed, meanwhile, in order to ensure that Ireland’s economy growths by enough to meet the debt reduction targets set down by the Fiscal Compact.

The IMF’s country director for Ireland, Craig Beaumont – who three months ago had openly called for a deal on restructuring the promissory notes – this afternoon told reporters there had been no material change in the level of support for a restructuring since then.

The IMF expects growth of 0.5 per cent this year, with the decline in the eurozone meaning exports can’t grow by much more than that – but if growth stays at 0.5 per cent for the next few years, Ireland’s government debt will rise from 121 per cent of GDP next year, to 133 per cent by 2017.

This is in stark contrast to the rules laid down by the Fiscal Compact, which requires countries to knock around 3 per cent off this figure every year until the ratio is below 60 per cent.

Tracker mortgage spin-off

Elsewhere, the IMF suggests spinning off what it calls “legacy assets” in the banks – including tracker mortgages, which were popular during the boom but which do not offer much profit to banks – and transferring them to another vehicle, most probably IBRC (the former Anglo Irish Bank).

This would allow the banks concerned to worry less about scaling down the size of their operations, and to place greater focus on encouraging lending to consumers and businesses.

The report also notes the increase in unemployment since the fourth quarter of 2012 – something which Beaumont said demonstrated the need to “reinforce the importance of strong efforts” to encourage economic growth and job creation.

“The Irish authorities have demonstrated their ownership of the program by maintaining steadfast policy implementation in the face of considerable challenges,” the report summarised.

“But these positive trends have recently been overcome by the renewal of financial tensions in the euro area that are widening spreads in the region.”

The report was written last month and compiled following April’s Troika visit to inspect Ireland’s progress.

In short: 11 things to know about the IMF’s latest bailout review

Explainer: How do Irish bailout documents keep ending up in Germany?

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