Government wants first EU-IMF payment to be made one month early

THE GOVERNMENT has asked to make a drawdown from the EU-IMF finance package one month earlier than originally scheduled.

It wants a drawdown of the EU-IMF’s loan facility to take place on May 15th rather than June 15th. However, it has also said the State needs to borrow a total of about €2.1 billion less in its second and third tappings of the available funds.

The Government has written to the European Union and the International Monetary Fund to say it requires €2.3 billion less in special drawing rights – the artificial currency used by the IMF, which translates into €2.1 billion – because of “a lower immediate balance of payments need than envisaged in the original programme”.

It adds that it wants the remaining drawdowns – or purchases – from the loan facility to “be rephased accordingly”, although the amount available under the package will remain unchanged.

The Government adds in the revised deal document that it is in the process of completing its bilateral finance arrangements with the United Kingdom, Sweden and Denmark.

The actions the Government has agreed to undertake by the end of the June have been amended since the memorandum of understanding signed by the previous administration. They now include a promise that the Government will introduce measures to offset the cost of its jobs initiative, due to be announced next week.

It commits to consulting with the European Commission, the European Central Bank and the IMF on the measures.

The financial sector recapitalisation and reforms were to have taken place by the end of June have largely been completed.

In addition, the revised deal states that liability management exercises in respect of subordinated debt holders will be carried out with a view to reducing the sums owed to these investors “by the maximum extent possible”.

It adds that the process of separating the core and non-core assets in banks that are still deemed viable will begin by the end of the second quarter.

The revised deal states that a plan “to underpin the solvency and viability” of credit unions will be prepared by May 31st. This is likely to lead to mergers of credit unions judged to be undercapitalised.

“A key element of this plan will be to obtain the necessary powers to promote a higher degree of consolidation in the sector,” the Government states. A commission will be established to oversee “the future evolution of the sector”.

The revised deal retains a condition of the original agreement relating to the raising of the State pension age. Eligibility for the State pension will be raised to 66 years in 2014, with further increases to 67 and 68 taking place in 2021 and 2028 respectively.

A fiscal advisory council will be established by the end of the second quarter.

The revised agreement acknowledges the role of the Fine Gael-Labour coalition’s comprehensive review of expenditure, which is scheduled to be completed in September. Public sector cuts identified in the review will form part of the budget process for 2012.

The previous government committed to raising €1.5 billion in tax and to spending cuts of €2.1 billion in 2012. The Government will be able to change the breakdown of these numbers in light of the spending review, but the overall effect will be fiscally neutral.