IMF representative warns against ignoring €2 billion adjustment

The IMF's departing representative in Ireland has cautioned the Government against reneging on its planned €2 billion budget adjustment because of the uncertainty surrounding economic growth.

Peter Breuer said Ireland ran a greater risk of missing its targets by focusing on getting the budget deficit below 3 per cent of gross domestic product (GDP) in 2015.

Sticking to objectives

Doing the agreed €2 billion this year, he said, would provide greater proof that Ireland was sticking to its objectives and would “build further credibility”.

“If the world turns out better, that means tax revenue is more than anticipated and you have a buffer, and that buffer is important because of the uncertainty around Irish GDP numbers.”

The advice runs counter to Minister for Finance Michael Noonan’s insistence that the important number in the consolidation process is the 3 per cent deficit target, and that this can be achieved with adjustment of less than €2 billion.

Mr Breuer made his comments during an address to the Institute of International and European Affairs in Dublin yesterday – his last formal engagement as the IMF’s man in Ireland. He gave a brief summary of how the bailout programme worked here, the challenges that remain and the lessons that might be learned.

‘Viable banks’

“With respect to the financial crisis, one important lesson [from the Irish experience] is to react quickly to recapitalise viable banks and to resolve non-viable banks,” he said. “Another lesson in Ireland is that phased consolidation can work at the same time as maintaining the confidence of the private sector and of investors.”

Mr Breuer said mortgage arrears remained one of the biggest issues facing the State, noting that 27 per cent of the loan book of Irish banks remained in the non-performing category.

Speaking earlier yesterday at the University of Limerick, Mr Noonan pledged to take "whatever means" necessary to get the budget deficit below 3 per cent next year, but said it was too early in the year to say with certainty what the level of adjustment will be. "All the signs are positive at present, but I have seen years previously when the first half is quite strong and it fell away in the second half of the year."