Ireland’s stock of physical infrastructure – from transport and energy to housing and water – lags that of its international peers by approximately 32 per cent, a new report from the International Monetary Fund (IMF) has indicated.
The Washington-based financial institution published a research paper on Tuesday, assessing Ireland’s “public spending efficiency”, benchmarking it against comparator countries in infrastructure, health and education.
Based on its own investment and efficiency markers, the IMF estimated that Ireland faced a physical infrastructure gap of 32 per cent relative to competitor economies and a quality gap of 27 per cent.
While spending on infrastructure has picked up in recent years after a period of underspending in the wake of the financial crisis, the IMF noted that investment efficiency (how efficient a country is in converting infrastructure spending into infrastructure outcomes) was low in Ireland by international standards.
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It highlighted “several key challenges” including planning delays, low construction productivity and labour shortages in the construction sector.
On health, the study noted that expenditure here was high given the relatively young population and that expenditure overruns in health spending had been “a chronic feature in recent years”.
“While outcomes are positive and have improved over time, there are challenges with long waiting lists, high occupancy rates and staff recruitment and retention,” it said.
On education, Ireland fared better with the IMF noting the State had strong outcomes and a level of public spending efficiency that was close to the average.
A separate IMF study warned that foreign direct investment (FDI) relocations posed the biggest threat to Ireland in the current period of trade fragmentation.
It suggested that Ireland’s export-led economy could be impacted through three main channels: supply chain disruptions; trade distortions resulting from tariff increases; and FDI relocation, potentially driven by tax policy changes in the US.
While the impact of supply disruptions and higher tariffs, under certain assumptions, “appear manageable”, the potential of relocation of FDI by multinational enterprises posed a much bigger risk, it warned.
This could be associated with a “sizeable decline” in value in the multinational sector and a loss in corporate tax income “that could reverberate through the economy”.
In one scenario, it models the impact of a 50 per cent reduction in the FDI stock in the ICT services sector here, which it found would lead to a 25 per cent drop in value.
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In particular, it highlighted the potential exit of “intangible capital” held by multinationals here “as a result of corporate restructuring, for example, induced by trade or tax policies”.
The study noted that Ireland had one of the most open economies in the world with exports and imports of goods and services exceeding 250 per cent of GDP (gross domestic product) in 2024.
Services trade has undergone especially rapid growth, doubling as a share of GDP in the last two decades, it said.
“Free trade and foreign investment have transformed the economy in the last several decades and have underpinned the remarkable growth and improvement in the standard of living,” it said.
“A retreat from globalisation would, therefore, represent a serious headwind for the Irish economy,” it said.
“The high dependence on export-oriented activities, dominated by a small number of multinational enterprises (MNEs), makes the economy particularly vulnerable to trade fragmentation,” it said.
