IMF says resolution of mortgage debt crisis key to recovery

Ireland must accelerate resolution of its mortgage debt problem and deliver on the commitments in Budget 2013, most particularly on health spending and the introduction of the property tax, if it is to secure economic recovery, the IMF said last night.

The comments came as the fund approved the disbursement of €970 million in the latest tranche of financial support on the successful conclusion of its ninth review of the Government’s performance in delivering on its commitments under the bailout programme.

David Lipton, first deputy managing director of the IMF, said: "The Irish authorities have pursued steadfast policy implementation for more than two years and positive results are emerging. Recent economic indicators suggest a nascent revival of domestic demand."

He noted that Irish bond yields have fallen to pre-programme levels, and the the Government had demonstrated its improved access to the market, most notably with the recent issue of 10-year bonds for the first time since the crisis broke.

But, despite reforms, the IMF expressed concern that banks “remain weighed down by nonperforming loans”, at about 25 per cent of total loans. “Accelerating their resolution is a key to economic recovery,” Mr Lipton said.

He welcomed the recent introduction of mortgage reduction targets for the banks alongside plans to “facilitate constructive engagement” between banks and borrowers, and “promote the efficiency of repossession procedures as a last resort”.

Dealing with problems on lending in the SME sector was also a priority, Mr Lipton said.

“Building on the strong budget out-turn for 2012, sound budget execution remains critical in 2013, including continued vigilance on health spending and a successful introduction of the property tax.”

The IMF said that Ireland’s progress towards fiscal consolidation should be reviewed in the Budget 2014 process “to ensure that medium-term consolidation targets are achieved in a growth-friendly manner”.

He also called for "timely and forceful" delivery by Europe on pledges to improve the sustainability of Ireland's bailout programme, "especially by breaking the vicious circle between the banks and the Irish sovereign".

This, Mr Lipton said, would go a long way toward Ireland’s “durable exit from drawing on official support”.

The IMF observed that, despite 0.9 per cent GDP growth last year, and a slight growth in employment, unemployment remains high at 14.2 per cent.

"Prospects for Ireland's exit from official support have improved, yet continued strong policy implementation remains paramount given risks to medium-term growth and debt sustainability.”

Ireland has now received €20.18 billion in assistance out of €22.61 provided for in the three-year programme.